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University of Sunderland BA (Honours) Business Management

HRM325 Strategic Management of Human Resources


Version 3.0

Published by The University of Sunderland The publisher endeavours to ensure that all its materials are free from bias or discrimination on grounds of religious or political belief, gender, race or physical ability. These course materials are produced from paper derived from sustainable forests where the replacement rate exceeds consumption. The copying, storage in any retrieval system, transmission, reproduction in any form or resale of the course materials or any part thereof without the prior written permission of the University of Sunderland is an infringement of copyright and will result in legal proceedings. University of Sunderland 2007 Every effort has been made to trace all copyright owners of material used in this module but if any have been inadvertently overlooked, the University of Sunderland will be please to make the necessary arrangement at the first opportunity. These materials have been produced by the University of Sunderland Business School in conjunction with Resource Development International.

Strategic Management of Human Resources

Contents
How to use this workbook Introduction Unit 1 Definition and Purpose of Strategic Human Resource Management (SHRM)
Introduction The Changing Business Environmen Linking people management and strategic management The potential benefits of a strategic approach Approaches to the strategic management of people Evaluating the approaches Summary References 1 2 6 10 12 25 34 37

Unit 2 Strategic HR Departments


Introduction HR departments and change The challenges facing HR specialists Trends in the management of HR functions HR service centres: technology and the new division of work So what is the future role for HR? Evaluation of the HR Function Summary References 39 40 45 55 68 71 83 91 94

Unit 3 Employee Resourcing Strategies: Planning and Competence Assessment


Introduction The contribution of human resource planning Models of Human Resource Planning Categorising HR Capability: Competence Models 95 96 99 108

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The strategic options in recruitment and selection Designing, applying and evaluating human resource strategies Summary References

121 136 164 168

Unit 4 Performance Management


Introduction The Ideas and Assumptions of PMS PMS systems in different organisations Setting and Measuring Objectives within PMS Employee appraisal schemes Summary References 171 172 177 191 202 224 228

Unit 5 Reward Management


Introduction The Role of Reward systems: An Analytical Framework Base of Rewards Performance and Incentivisation Scope for Progression Market Position Internal versus External Comparison Centralised versus Decentralised Reward Degree of Pay Hierarchy Reward Mix Process Issues Reward Systems: Consequences Integration Reward Strategy in Practice Conclusions Summary References 231 232 233 236 247 247 258 259 263 267 269 269 279 285 287

Unit 6 Human Resource Development Strategies


Introduction Defining the Purpose of Learning and Development HRD in the context of Organisational Development A Problematic View of Strategic HRD The Role of Learning, Strategic HRD and the Learning Organisation Concept Developing Effective Learning Processes in Organisations Developing Strategic HRD Policy Trends in Organisational Development & Learning: e-learning Summary References 289 291 305 307 311 319 332 337 343 348
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Unit 7 Managing Employee Relations: A Strategic Approach


Introduction Terminology in Employee Relations Trends in Employee Relations Managing ER Strategic Variables Partnership agreements Summary References 351 352 353 364 381 406 425 428

Unit 8 Managing Change: Culture and Performance


Introduction Role of HR in Organisational Development Culture Change Management Summary References 431 436 442 459 502 518

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How to use this workbook


This workbook has been designed to provide you with the course material necessary to complete Strategic Management of Human Resources by distance learning. At various stages throughout the module you will encounter icons as outlined below which indicate what you are required to do to help you learn. This Activity icon refers to an activity where you are required to undertake a specific task. These could include reading, questioning, writing, research, analysing, evaluating, etc.

This Activity Feedback icon is used to provide you with the information required to confirm and reinforce the learning outcomes of the activity.

This icon shows where the Virtual Campus could be useful as a medium for discussion on the relevant topic.

It is important that you utilise these icons as together they will provide you with the underpinning knowledge required to understand concepts and theories and apply them to the business and management environment. Try to use your own background knowledge when completing the activities and draw the best ideas and solutions you can from your work experience. If possible, discuss your ideas with other students or your colleagues; this will make learning much more stimulating. Remember, if in doubt, or you need answers to any questions about this workbook or how to study, ask your tutor.

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Introduction
Knowledge and understanding
1) 2) 3) 4) 5) Understanding of the origins and models of human resource management. Understand the relationship between business strategy and the core human competencies required of organizations. Critically evaluate the various models of HRM and the related stakeholder interests. To understand and be able to evaluate a range of HRM policies that constitute a strategy in a context. Understand and explain the HR variables that can support organisational change.

Skills
6) 7) 8) 9) Demonstrate the cognitive skills of critical thinking and analysis. Be able to conduct effective independent organizational and information sources research. Be able to conduct organizational reporting and diagnostic skills. Be able to formulate written HR policy and strategy interventions consistent with organisational goals.

Content synopsis
The module begins with a review of the nature of strategy in HRM and evaluates the various models in achieving strategic interventions in a range of business contexts derived from strategic management. The module reviews the relationship of Personnel departments with respect to designing and delivering HRM interventions, the current and historical barriers to Personnel leading on HR and change management. A range of contemporary ideas on redesigning the role of Personnel are reviewed before the module evaluates the range of HR policies that make up a strategy; recruitment and retention, performance management, human resource development, employee relations,
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Strategic Management of Human Resources Introduction

Strategic Management of Human Resources

reward. The module concludes by examining HRM interventions in the light of the organisational development literature and practice. The basis of employee attitudes, commitment and cultural change are examined in terms of employee competence development through HRM.

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Unit 1

Definition and Purpose of Strategic Human Resource Management (SHRM)


LEARNING OUTCOMES
Following the completion of this unit you should be able to:

Explain the factors in the business environment that lead to greater


emphasis on people management.

Evaluate the potential benefits of a strategic approach. Evaluate three approaches to the strategic management of people.

Introduction
This module considers the management of people. In the past, organisations have tended to view people in three different ways: as a cost, as a resource and as an asset. What many organisations are now realising is that their employees are central to the successful performance of the organisation and therefore an integrated and coherent approach to managing people is needed. This unit will consider why people management has become more critical for organisations and will look at the formulation of strategies for dealing with that requirement.

READING ACTIVITY
Please read Chapter 1 of your key text, The Strategic Managing of Human Resources, Edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, which covers some of the subjects of this unit.

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The Changing Business Environment


Historically, the position of Human Resources (HR) in organisations was not strategic; indeed, some still do not view HR in this way. During the last 15-20 years, however, an increasing number of organisations have stated that people are their most important asset and the strategic management of people has gained equal standing in the organisations resource profile alongside finance and capital resources. The cost of employment in western economies is high; in many sectors it is the major cost. Cost is not, however, the only reason why the profile of strategic human resource management (SHRM) has increased. The sourcing, deployment and development of people is increasingly believed to be the difference between the success and failure of the organisation. Why should this be so? Globally, organisations are finding that the traditional sources of competitive advantage, for example access to natural resources, new technologies, dominance through economies of scale or control over the supply chain, are now more easily imitated. So where can competitive advantage be sought? Emerging debate centres upon the so-called intellectual assets, the knowledge that can be mobilised for the benefit of the organisation. However, gaining access to, or control or ownership of this knowledge and experience is problematic:

Work is becoming more insecure and flexible. The notion of organisational boundaries is sometimes less
clear.

Employees long-term relationships with organisations,


the normal route to developing and securing access to expertise, can no longer be taken for granted. As a result, the management of labour markets, contracts and careers becomes more complex and critical. The first activity helps you to explore some of these issues and the implications for Human Resource Management (HRM).

ACTIVITY
In the left-hand column of the table we have listed some examples of changes, first in the wider environment of business, then in the strategies of organisations. From your existing background knowledge of HRM, note down in the second column what the HR implications of those changes might be. We have given you an example under each heading to start you off.

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Environmental changes Introduction of new technology

HR Implications changes in skills demanded redundancy of some employees training needs

New employment legislation

Different attitudes in society

Economic recession

Strategic Changes Greater customer focus

HR Implications adoption of service level agreements employee attitude and skills development

Reduced levels of management and bureaucracy

Adoption of Total Quality Management (TQM) practices

Teamworking

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ACTIVITY FEEDBACK
We thought the implications might include:

Environmental changes Introduction of new technology

HR Implications changes in skills demanded redundancy of some employees training needs

New employment legislation

changes in the balance of employer/employee rights and obligations different expectations of work focus on performance to increase production HR Implications adoption of service level agreements employee attitude and skills development training needs

Different attitudes in society Economic recession Strategic Changes Greater customer focus

Reduced levels of management and bureaucracy

reduction of rules and procedures, more empowerment and accountability terms and conditions of employment, change in security and intensity of work

Adoption of Total Quality Management (TQM) practices

employee relationships and inter-personal skills, attitudes, commitment, to work to achieve co-operation and collaborative behaviour focus on efficiency and performance increased training needs

Teamworking

changed patterns of employee behaviour, involvement, participation of staff employee autonomy, decision-making and knowledge training needs value alignment

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Unit 1 Definition and Purpose of SHRM

The last activity has highlighted the key underlying principle that although change may come from a strategic response to the business environment or may be related to the goals of the organisation, people as well as systems and processes, are important. SHRM implies more than simply recruiting, rewarding and training staff. Traditionally, personnel management took an operational, system-based approach to managing people, for example, in recruitment and performance systems. Although there is a need for personnel systems, a strategic approach asks different questions and requires different levels in the diagnosis of requirements, for example, in culture and behaviour. It looks not just at the content of HR policies but also at the process by which people are managed, at how to create the right climate or culture through the leadership style and at the way the organisation influences how employees interact. It can be argued that there are three challenges facing organisations that must be met if they are to gain the competitive advantage we referred to earlier (Mabey and Lawton, 1998):

The challenge of managing intangible assets.

This means the ability to access scarce skills and to cope with the implications of new forms of organisations. These changes create major challenges for working attitudes and relationships and require a sustained and holistic approach to people management. Development, innovation and creativity become core intangible assets, a focus for managing people strategically. In other words, bringing the design tasks of innovation together with a focus on innovatory behaviour.

The challenge of managing strategic change, including trends towards flexibility in organisations and in job design, the break up of bureaucracies and of traditional structures of employment. The challenge of innovation in terms of what organisations produce by way of goods and services, and the way they approach the task.

A strategic approach to HRM involves new ways of operating in organisations and demands new skills. These include the need to understand tacit knowledge, recognise core competencies and attend to stakeholder views, to ensure that all aspects of the organisational resources are engaged. Tacit knowledge might include repertoires and knowing what routines to perform. Routinisation of behaviour and operational knowledge become unique and difficult to imitate. The process of establishing blueprints or scripts promotes a greater understanding of competitive advantage and the business of building resource mobility barriers (RMBs) to avoid imitation and dilution of complex skill formation. Tacit knowledge derives from:

Action-centred skills artforms. Learning from errors reactions of people, anticipation.

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Learning from interaction with others customer needs


and expectations, contextualisation, sensing expectations.

Learning from work routines quickest pathways,


sensing success. Core competencies are those that are likely to be as important tomorrow as it is today, unlike emerging or transitional competence. Examples of lasting competencies are reasoning, analytical skill and problem-solving. Before we move on to evaluate the benefits of a strategic approach to people management, we need to develop a more coherent classification that distinguishes people management and strategic management and explores the link between them.

Linking people management and strategic management


An organisations response to external challenge can come from a cascade of environmental triggers. For example, responding to changing requirements in the marketplace will necessitate an evaluation of labour market supply and skills availability. The response can also arise from two other areas:

Keeping pace with successful methodologies tried out in


other locations; for example, the trend towards Japanese management or practices such as Just-in-time (JIT), Business Excellence, and Total Quality Management (TQM)

An assessment of the strengths and capabilities of the


organisation; that is, a bottom-up view of strategy formulation. This draws out some important points. For example, we can question the transferability and fit of certain HR practices in different business contexts. Secondly, responses may conflict with other goals, such as the development of empowered staff with the rigid application of performance or quality measures. It will help us, therefore, to try to classify strategy in order to gain an overview of the potential links between active business strategy and SHRM response and provide the first steps in defining the scope and nature of SHRM. We can classify strategy in several ways:

Using the life cycle model of the product or service


(Kochan and Barochi, 1985).

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In terms of single, diversified or multiple products or


services (Fombrun et al, 1984).

The life cycle model


You should recall from your Marketing studies the concept of the life cycle of a product or service as being one of introduction, growth, maturity and decline. If we take the example of one HR function, recruitment and selection, we can model this as follows:

Introduction
This is the stage where the product enters the market. The recruitment and selection function would, in this stage, aim to attract the best technical and professional expertise to the organisation.

Growth
In the growth stage the sales of a product increase rapidly. The recruitment, selection and retention function would, in this stage, recruit the right number and mix of qualified workers; plan its succession management; and manage rapid internal labour market movements.

Maturity
The product is at the peak of its sales. The aims of the recruitment, selection and retention function are to minimise layoffs by providing new opportunities and encourage mobility as company reorganisations shift jobs around, that is, the challenge becomes one of internal assessment and deployment rather than external recruitment.

Decline
Sales of and profits from the product fall. The recruitment and selection function will plan and implement workforce reductions and reallocation.

ACTIVITY
Apply the model to another HR function, that of employee learning and development. What would be the aims of the function at each of these stages?

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ACTIVITY FEEDBACK
A table illustrating the Kochan and Barocci (1985) model is shown next. It displays the lifecycle model breakdown for the main HR functions, including employee learning and development.

Critical human resource activities at different organizational or business unit stages

Life cycle stages Human resource functions Recruitment, selection and staffing

Introduction Attract best technical/ professional talent

Growth Recruit adequate numbers and mix of qualified workers. Management succession planning. Manage rapid internal labour market movements

Maturity Encourage sufficient turnover to minimize lay-offs and provide new openings. Encourage mobility as reorganizations shift jobs around

Decline Plan and implement workforce reductions and reallocation

Compensation and benefits

Meet or exceed labour market rates to attract needed talent

Meet external market but consider internal equity effects. Establish formal compensation structures.

Control compensation

Tighter cost control

Employee training and development

Define future skill requirements and begin establishing career ladders

Mould effective management team through management development and organizational development Maintain labour peace and employee motivation and morale.

Maintain flexibility and skills of an ageing workforce

Implement retraining and career consulting services

Labour/employee relations

Set basic employee relations philosophy and organization

Control labour costs and maintain labour peace. Improve productivity

Improve productivity and achieve flexibility in work rules. Negotiate job security and employment adjustment policies

This model is one attempt to establish the concept of the strategic response and strategic fit of SHRM.

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Single, diversified or multiple products model


This looks more closely at different product or service profiles and the relationship with SHRM policy areas. We can compare the implications of different product strategies and the implication for the principal HR policy levers of selection appraisal, rewards and development. For example, we could compare the two extremes of a single product company with multiple products in many countries as follows:

HR strategy Selection

Single product in one company Functional orientation using specialist job criteria Subjective and measured by personal contact Unsystematic, allocated perhaps paternalistically Largely through job experience. Usually a single function focus

Multiple products globally Functional and generalist orientation using systematic and objective criteria Objective, based on multiple organisational goals Based on multiple, planned goals. Some top management discretion Formal and systematic, across divisions and subsidiaries

Appraisal

Rewards

Development

ACTIVITY
Apply the above model to a company that is self-contained but has a strategy of growth by the acquisition of unrelated businesses. Briefly describe the HR functions in this type of organisation.

ACTIVITY FEEDBACK
In a company that is self-contained but has a strategy of growth by the acquisition of unrelated businesses, we would suggest the following:

Selection
This would be functionally oriented; but would vary from business to

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business in terms of how systematic it might be.

Appraisal
This would be impersonal and based on return on investment and profitability.

Rewards
Rewards would be formula-based, perhaps return on investment and profitability.

Development
This would be cross-functional but not cross-business.

The above models provide some indication of how a strategic approach to the management of people can help to:

Establish the links between SHRM and corporate strategy. Indicate the SHRM levers that can bring about effective
and appropriate employee behaviour.

Develop the role of SHRM in underpinning change


depending on circumstances. We can now move on to a review of the benefits of SHRM and evaluate some of the more contentious features.

The potential benefits of a strategic approach


Clearly, helping an organisation to secure its strategic objectives is valuable in itself, but we need to look at the outcomes proposed by adopting this approach. Guests (1992) model of HRM is based around four goals of:

Strategic integration with planning to ensure coherent


HRM policies.

Commitment of the employees to the organisation and to


high performance.

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Flexibility of both organisational structure and functions,


based on a multi-skilled workforce.

High quality of goods and services.


This model is based on three dimensions commitment, flexibility and quality to ensure beneficial outcomes such as high job performance, coping with change, cost effectiveness and low levels of absence and low staff turnover.

ACTIVITY
In the spaces below note down what you think an employee and an organisation might expect from or understand by the terms commitment, flexibility and quality. We have done the first one for you as a guide.

Employee expectations Commitment reward based upon contribution development opportunities job security and scope for career enhancement recognition of effort and achievement fairness of workload and treatment Flexibility

Organisational expectations establish trust beyond commitment accountability performance improvement shared organisational views.

Quality enhancement

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ACTIVITY FEEDBACK
You may have come up with some of the following:

Employee expectations Commitment reward based upon contribution development opportunities job security and scope for career enhancement recognition of effort and achievement fairness of workload and treatment Flexibility autonomy over their job scope for decision making variation in work control over location and time of work skills development

Organisational expectations establish trust beyond commitment accountability performance improvement shared organisational views.

contracting choices deciding where the organisations boundaries are, what should the size/scope of organisation be, i.e. how many levels of management, where and how control/co-ordination of work process should be skills offered

Quality enhancement

participation/equality job security recognition skills/information scope to use knowledge

efficiency/economies continuous quality no restrictions best use of resources involvement measurement of success improved products and expertise

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Approaches to the strategic management of people


There are a number of models of SHRM and in this unit we will look at three:

The best practice view. The best fit view. The resource-based approach.

The best practice view


This view starts from the premise that a single set or bundle of HR policies and practices will lead to better organisational performance, sustained over a lengthy period, whatever the prevailing business circumstances. What are these so-called best practices? Various bundles have been suggested in research studies (Huselid, 1995; Becker & Gerhart, 1996), and we would like you to consider one example, the list of eighteen key practices referred to in the next activity.

CASE STUDY
Read the following article which represents a contemporary view of the best practice model. Piece by Piece by David Guest and Angela Baron, (People Management 20 July 2000) Evidence showing that it pays to pursue progressive people management practices continues to mount. After US research findings to this effect came convincing UK evidence of the link, provided by a University of Sheffield study of manufacturing companies. Now, management perceptions of this link are being confirmed by initial evidence emerging from the first phase of research being carried out for the CIPD at Birkbeck College, London. The programme is exploring HR management, workplace reorganisation and performance as part of the ESRCs Future of Work programme. It has the advantages of being based on a large cross-section of companies of varying sizes in the UK, and of presenting the views of both the chief executives and those responsible for HR. The Birkbeck research comprises three phases. The first, a survey of 462 chief executives and 610 managers responsible for HR in private-sector
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organisations, aimed to obtain information about HR practices and business strategy. This part of the research, which has been completed and is described in this feature, obtained matched information from both the chief executive and the manager responsible for HR in 237 organisations. The second phase will link this information to the financial performance of the firms. Its results are expected at this years CIPD national conference. The third phase will consist of case studies looking at the jobs of the future and exploring how people management practices influence performance in the financial and pharmaceuticals sectors. In the initial survey of HR managers, we identified 18 key practices that were similar to those described by US academic Jeffrey Pfeffer and often associated with high-performance or high-commitment HRM (see below). The 18 Key practices Realistic job previews; Use of psychometric tests for selection; Well-developed induction training; Provision of extensive training for experienced employees; Regular appraisals; Regular feedback on performance from many sources; Individual performance-related pay; Profit-related bonuses; Flexible job descriptions; Multi-skilling; Presence of work-improvement teams; Presence of problem solving groups; Information provided on firms business plan; Information provided on the firms performance targets; No compulsory redundancies; Avoidance of voluntary redundancies; Commitment to single status; Harmonised holiday entitlement. The main findings Chief executives are waking up to the importance of good people management. Most chief executives acknowledge that there is a link between HR practices and business performance. But, despite asserting that people are their greatest asset, most businesses still fail to prioritise employee issues. Only 10 per cent of chief executives agree that people are top priority ahead of finance or marketing.

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Most businesses fail to make full use of modern HR practices. From a list of 18 key HR practices, only 1 per cent of firms use more than three-quarters, 25 per cent use more than half and 20 per cent use fewer than a quarter. Chief executives and personnel managers both give a low rating to the performance of the HR department and effectiveness of HR practices in their company. The areas whose performance is most highly rated are practices relating to the labour market and employment security, with job design and financial flexibility seen as only slightly effective. HR managers in firms using the most key HR practices have the most positive perceptions of employee attitudes and behaviour, which are linked to higher productivity and improved financial results. There is little agreement between chief executives and HR managers on a number of issues. These include the existence of an HR strategy. The researchers conclude that those who embrace HRM with enthusiasm can gain a competitive advantage. The researchers surveyed more than 1,000 chief executives and HR directors, with matched pairs of responses in 237 companies. The first key finding is that the take-up of these practices is very low. Only 1 per cent of respondents have more than three-quarters of the practices in place and are applying them to most employees. At the other extreme, 25 per cent of firms have fewer than a quarter of the practices in place. This matters, because most existing research indicates that the key to success is implementing a range of practices, rather than doing well in only one or two. The results confirm that managers believe there is a link between their use of HR practices and how the business performs. Importantly, most also agree that this link depends on the quality and commitment of the workers. In other words, the link is not straightforward. The results suggest that HR practices affect employee quality, commitment and flexibility characteristics that in turn are associated with higher productivity and improved products and services, which feed through to financial results. HR managers and chief executives do agree that investing in people to ensure their quality and commitment leads to better results. A feature of the Birkbeck study, sometimes neglected in other research, is the importance attached to the effectiveness of HR practices. Both chief executives and managers responsible for HR emphasise the importance both of having the right HR practices, and of applying them effectively. Two dimensions of effectiveness emerge from the Birkbeck study. The first is the effectiveness of practices in the core areas of personnel work, such as recruitment, training and job design.

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The second is the effectiveness of personnel processes and people, reflected in the ability to explain policies and practices, to respond to requests and to lead HR initiatives. While the effective implementation of these practices depends on both HR and non-HR managers, the effectiveness of processes depends far more on the HR department and personnel specialists. Worryingly, in both areas practices and processes are rated slightly or quite" effective by many respondents. The areas rated least effective are in taking HR initiatives forward and in managing financial flexibility. In contrast, areas rated most effective are practices associated with employee security and the labour market, and with maintaining up-to-date HR information. Those responsible for HR are at least as critical as their chief executives of their departments work in these areas. Yet they agree that the effectiveness of HR practices affects employee quality and commitment and, through this, performance. One of the main challenges in the research was the sometimes modest level of agreement between chief executives and HR managers about what practices were in place, and their effectiveness. In the matched sample, for instance, 63 per cent of chief executives, but only 41 per cent of HR managers, said that their organisation bench-marked financial performance, while 44 per cent and 35 per cent respectively said that they bench-marked labour productivity. These differences indicate either different definitions of benchmarking or a lack of internal communication. Also, chief executives and HR managers in the same companies sometimes give differing opinions on effectiveness. An HR manager might describe low numbers of HR practices and poor employee commitment, while the chief executive reports higher levels of employee commitment leading to better results. This suggests a lack of consensus among senior managers. Even so, chief executives, like HR managers, agree there is a link between effective HR practices and business performance. They also acknowledge that this link depends on the quality and commitment of the workforce, even though most firms lag behind in the adoption of relevant HR practices. The most intriguing question that arises from this first phase of the Birkbeck study is: if they believe this, why do top managers make few efforts to adopt more progressive HR practices? Why is there a gap between rhetoric and practice? One theory is that such practices do not fit in with the business strategy. But our research suggests that business strategy has little influence on HR practices, although it does affect aspects of performance. More specifically, a strategy that emphasises cost-cutting and efficiency is associated with poorer goods and services. Conversely, the results show that a quality-based strategy is associated with performance of a higher quality. This calls into question the amount of strategic choice that firms have, and the length of time for which a cost-based strategy can succeed. In assessing
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strategic priorities, most chief executives emphasise responsiveness to customers (rated crucial by 74 per cent) and quality of service (rated crucial by 59 per cent), rather than offering cheaper products and services (rated crucial by 10 per cent). Two possible explanations for the gap between rhetoric and practice can be found in the survey. One we have already noted: HR departments are not always seen as effective in leading HR projects and initiatives. It is one thing to know what should be done, but quite another to achieve it. The second is that, in practice, many chief executives pay mere lip service to the idea that people are their organisations most important assets. Only 10 per cent strongly agree that people issues are a top priority, ahead of financial or marketing matters. Despite their apparently positive beliefs, when push comes to shove, other issues still take priority. We need to learn more about what will persuade managers to change their behaviour. This report is based on managers accounts of employee attitudes and organisational performance. They are endorsed by the findings of the recent Workplace Employee Relations Survey, in which employees provided independent accounts of their attitudes and experiences. The analysis of performance that forms the second phase of our analysis will shed further light on the link between HR and financial performance. Encouragingly, the Birkbeck survey suggests that chief executives are increasingly acknowledging the importance of effective people management to business performance. But senior managers have much to learn about the importance of implementing a full range of HR practices. They should be helped in this respect by careful communication of the growing body of research, especially when it is convincingly tied to financial performance. Meanwhile, the generally low uptake of HR practices gives alert organisations an opportunity to steal a march on the competition and apply a comprehensive set of HR practices before everyone jumps on the bandwagon.

QUESTION:
From the article identify three positive and three problematic aspects of this view of HR practice.

CASE STUDY FEEDBACK


You might have come up with the following positive aspects from the chart of the main findings:
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Links to business performance are recognised. Common agreement on many issues by the Chief Executive
and HR Manager.

Breadth and size of new HR practices in line with SHRM see


18 key practices. Some problematic aspects of this view are as follows:

Perception of the effectiveness of those practices which


emphasise skills of implementation.

A suggestion that best practices do not fit business strategy,


which is worrying when linked to the relevance of people management at the top of the organisation.

A problem of real strategic choices HR is driven by outside


factors which point us toward the next model of SHRM, the best fit view.

Generally, criticisms of the best practice view as a way of managing people have been constructed on the grounds of:

Cost of implementation. Tensions between the need for production and cost
minimisation on the one hand, and issues of flexibility, creativity and skills enhancement on the other.

The restricted applicability of the model mainly to the


western private sector, where there is wider scope for managerial choice legally and economically.

The doubtful ability to assess the impact of HR interests


using financial measures.

The belief that it is easier to establish and sustain the


model on greenfield sites. It should be said that best practice models do represent an attempt to improve HR/personnel practice in organisations and can be related to professional standards of employment introduced in the UK during the 1990s by the UK Chartered Institute of Personnel & Development (CIPD).

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In the feedback to the last activity, we mentioned that HR is driven by external factors. This points us toward the next model of SHRM, the best fit view.

The best fit view


Whereas the previous model links a bundle of practices to the achievement of better organisational performance, whatever the prevailing business circumstances, the best fit model is based on the idea that HR strategies flow from business strategy. Thus these strategies could be adapted to fit a wide range of business contexts. Much of what was outlined earlier in this unit can be related to the best fit model. The success of a best fit model depends on its ability to:

Integrate into the strategic plans of the organisation. Provide horizontal or vertical integration of the key
policy areas. How far organisational objectives will be met is dependent on:

The level of fit between the business strategy and the


environment at one level.

The HR strategy and business strategy at a second level. The internal coherence of the policy.
For example, success may depend upon individual performance measures and appraisal not being undermined by team-based structures and collective reward structures, whereas best practice determines a set of policies such as high investment, development and communications strategies. Best fit allows organisations to determine whether a hard or a soft approach needs to be taken given the prevailing circumstances. A hard view might include outsourcing, enhanced productivity, and emphasis on tighter contracting. A soft view relies on involvement, partnership and communication and sharing.

Best fit integration


Best fit integration is an open template to interpret the environment in which business operates and to evaluate the integrated reaction or responses that are necessary. Best practice differs in that the outcomes are not prescribed. Best practice does not emphasise fit or matching but is solution oriented.
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Environmental triggers

Strategic objectives

Human resource strategy

Structural change

Cultural change

Job profiling

Individual behaviour

Competence: core, emerging

HR policy response: recruitment and selection, assessment and appraisal, performance management, training and development. Internal integration: employment relations, health and safety, etc.

Figure 1.1: Strategic integration followed by internal integration

It can be illustrated as shown in Figure 1.1, with the first three rows indicating strategic integration, the rest internal integration: These reciprocal planning and process issues can be illustrated in the following model adapted from Buller (1988). At one level of fit the business strategy of the organisation can inform HR strategy. This is a one-way flow, from a mainly operational model.

informs

Business strategy
Figure 1.2: Business strategy informs HR strategy

HR strategy

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Business strategy

HR strategy

Figure 1.3: Two-way flow between Business strategy and HR strategy

A two-way flow means that there is dialogue between business and HR strategy, but not necessarily an inter-dependent relationship. A fully integrated model can be represented like this:

Business strategy

HR strategy

Figure 1.4: Integration between Business strategy and HR strategy

Here there is a top-down/bottom-up strategy formulation. HR is a full partner in the planning process. The presence of linked planning and policy formulation provides an opportunity for HR departments to operate at the strategic level and address the criticisms of their lack of strategic and business focus. We will return to this point later in the unit.

Resource-based approach
Our third model of SHRM is a bottom-up view. There are significant problems with the principles of the two previous models:

They represent rational and linear approaches to strategy. The emphasis on the fit of strategy, structure and HR
policies does not focus on the distinctive resource capabilities of individuals within the organisation.

The lack of evidence indicating that explicit HR strategies


have an impact on organisational performance. A resource-based model has a different perspective from other approaches. Whilst conventional HR approaches start with external factors such as threats and opportunities, the resource-based view looks
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first at the organisation and its potential, and develops ways to exploit or enhance the available resources. In a resource-based model, the SHRM role becomes one of creating systems and procedures that focus not on external relationships but on how staff and their abilities are used. The organisation is seen as a bundle of tangible and intangible resources based around the knowledge of products, services offered and the way that they are organised. This has been called the ...collective learning in the organisation...the core competencies... (Prahalad and Hammond 1990, p.82), the co-ordination of activities and integration of various skills, technologies and business processes to provide competitive advantage. Core competencies can include many things:

Aspects of change management. Capability of staff. Strategic development capability. Speed of response, and so on.
The resource-based model recognises that many aspects of capability can be formally defined in skill terms and developed accordingly. However, the truly distinctive aspects are often hard to define and are formed through informal processes of learning in the workplace. The challenge for SHRM is to find ways to support the process of learning, knowledge and skill development alongside more formal practices which do not confine or destroy bottom up learning. If these processes of learning and development of capabilities and experience are less visible, it can be argued that they are difficult to imitate by competitors and, therefore, constitute a resource mobility barrier (RMB). The resource-based approach allows the integration of the intangible aspects of work alongside other more visible areas such as patents, trademarks and other intellectual property. The value of the firm is not the traditional accountancy view of assets but includes some assessment of the competence value and potential in the medium and longer term. Storey (1995, p.4-5) suggest that sustained competitive advantage derives from internal resources, which must:

Add value. Be unique or rare. Be difficult to imitate. Be non-substitutable, for example, by technology.
Mueller (1998) develops the resource-based view and offers what he calls an evolutionary view founded on a number of key propositions about the creation of strategic assets or capabilities:
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Proposition 1:
Assets may only be developed in slow, incremental and uncertain ways, not in any linear or planned way. They often grow from the social structure of the organisation, in patterns of communication, learning, information exchange and so on.

Proposition 2:
Assets require broad-based commitment over a lengthy period, not a single initiative. At the heart of this is continuous improvement, and this is more about process than strategic policy intentions.

Proposition 3:
This stresses the importance of routinising skill formation activities. Formal and informal learning activities must be effectively captured by the organisation. There is a need to activate knowledge and develop skill through specific important activities, explicitly linked to work, the intention to learn and a culture of learning and knowledge acquisition and dissemination.

Proposition 4:
This concerns the development of cultures that will allow potential to be used and developed. Challenge rather than conformity, is encouraged as a strategic end, while balancing the need to store organisational value.

Proposition 5:
Organisations need to build barriers to imitation and loss of their resources, both in patents, copyright and so on, and their people resources. They will do so only by considering resources not in isolation but as integrated assets that sustain each other. An example is the pharmaceutical company that can develop the interdependency of several strategic assets:

The value of patents. Research and development capabilities. Reputation. Employee skill and commitment. Attractiveness of the organisation for employee retention
and for future employees.

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Advanced HR policies such as career development and


planning.

ACTIVITY
With the above propositions in mind, list at least two examples of strategic assets of the following organisations: 1. 2. 3. An airline A computer company A carrier company

ACTIVITY FEEDBACK
You may have thought of some of the following: 1. An airline

- landing slots - strategic alliances - ticketing flexibility - service standards


2. A computer company

- inventive capability - product bundles - speed of design to production - customer systems evaluation
3. A carrier company

- distributive network alliances

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- contracting skills - required knowledge - service range and flexibility - responsiveness

This view demonstrates the interaction and interdependence of human and other institutional assets. We can also add to any of these types of company generic aspects: development, change, learning, adaptability and so on.

Evaluating the approaches


While reading about the three models of SHRM, you may have noticed some similarities and differences. In the next activity, we would like you to summarise these.

ACTIVITY
In the table below, note down your answers to the questions in the first column, as applied to the three approaches.

Best practice Does the model emphasise performance? Does the model emphasise work organisation? Does the model analyse skills and behaviour? What is the models starting point or trigger? Is the models response policy intervention or facilitation of activities? Yes

Best fit Yes

Resource-based Yes

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ACTIVITY FEEDBACK

Best practice Does the model emphasise performance? Does the model emphasise work organisation? Does the model analyse skills and behaviour? What is the models starting point or trigger? Is the models response policy intervention or facilitation of activities? Yes Yes Yes The business environment Policy intervention

Best fit Yes Yes Yes The business environment Policy intervention

Resource-based Yes Yes Yes Available resources Facilitation of activities

CASE STUDY
Read the following article which describes a traditional managerial approach to HRM in a stable or mature product market undergoing change. Press for Success by Steve Crabb and Rebecca Johnson, (People Management, November 2000 pp. 29-36). Pindar Set, a small, family-owned Yorkshire business, has been typesetting the Yellow Pages directories for 18 years. Until May 1995, the firm was a one-customer, one-site business, enjoying a highly profitable 10-year contract to design and set advertisements for Yellow Pages customers. The arrangement was very stable, the process and the relationship with Yellow Pages had not changed significantly for many years, and the structure and management of the business was, as the company itself admits, decidedly traditional. All that was turned upside down when Yellow Pages indicated that it wanted to move to a shorter-term contract with tighter margins and greater responsiveness to customer demand. And when your sole contractor decides it is time to change the business, the choice is to respond or die. Pindar Set chose to respond in style. It was asked for new turnaround times, a new emphasis on quality and customer service, and was offered three of Yellow Pages own design studios in Birmingham, Bristol and Manchester to incorporate into its business. It was impossible to achieve the targets and integrate the new studios without a
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radical revision of operations. The way it has set about this transformation has earned it this years CIPD People Management Award. Pindar Set beat off strong competition for the award because of the way it put people management at the heart of its strategy for turning around the business. In doing this, it has not only succeeded in meeting targets agreed with Yellow Pages, but has grown the business from 99 employees in 1994-95 to 235 today, and from a turnover of just below 9 million in 1994-95 to more than 12 million in 1999. The production cost per advert has also dropped by almost half. According to chief executive Richard Lumby, Pindar Set was delighted with the challenge set by Yellow Pages because it necessitated an injection of creativity into the business and led to a more innovative and flexible relationship with its customer. Since 1995 we have been evolving a different relationship and a new wide-ranging involvement with their business, Lumby says. This, he explains, has enabled the exchange to become a two-way process, with Pindar Set more closely involved with Yellow Pages own customers and able to contribute ideas to the process as never before. Lumby even proposed moving to annual, rolling contracts, which was agreed. Targets, results and directions are now discussed between the two companies on a yearly basis. The firm has also broadened the range of services offered to BT, and Yellow Pages' new web-design business in Bristol, Pindar Net developed from scratch four years ago to enable it to respond better to advertisers needs. The new contract transferred 80 staff and three artwork origination studios in Birmingham, Manchester and Bristol from Yellow Pages to Pindar Set, nearly doubling the size of the workforce at the time. The move made sense, as their design skills fitted well with Pindar Sets production role and enabled the whole advertisement creation process to come together in one company. Lumby, together with HR director Bernadette Doyle and Gary Weston, operations director at the time, put together the necessary change programme to manage the three new sites and address the sharply reduced margins they now had to work to. As a result of the transfer, Pindar Set had a mixture of working arrangements with some staff working in large departments those based in the original plant in Scarborough where each person handled only a part of the production process, while others from the new studios worked in smaller teams with a broader range of skills. The management team had to deal with the insecurities of the new workforce as well as trying to establish mutual best practices and merge the two cultures. The company entered into a period of self-examination, assessing what it was doing and how, and what needed to change. One of the new requirements was that it turn around new advertisement production in a space of five days down from an average of 25 days previously.

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We asked: Are we organised the best way? Are people skilled and deployed in the right way and is it right that one person does only one part of a task? What will deliver our service goals?; Doyle says. The result was that, from 1997, the company set about training all its unskilled staff to do skilled jobs, phasing out unskilled text-inputting jobs completely. All the unskilled workers upgraded as planned, despite some initial wariness of the new accreditation process that was established to ensure consistent standards across the business. Remedial training was provided where necessary. Employees were also trained to follow a job through from start to finish, reducing the internal pipeline from 80 processes to one. And team-working was introduced in Scarborough to bring it in line with the other three sites. This meant creating new team-leader roles. Previously senior operators had supervised work, but had still retained hands-on tasks. The company also recognised it needed a pool of new team leaders to respond to future growth. Team leaders were given more responsibility for financial, operations and people management than before. They now run their sites as semi-autonomous businesses, with their own profit and loss accounts. This also required training and a team-leader programme was introduced (see Investing for Success below). In the first wave of training, which began in 1998, eight existing team leaders and five newly appointed people undertook 30 days training over 18 months, at a cost of around 3,000 a head. Since then, three-quarters of the people who have been through the programme have been appointed team leaders, and Pindar Sets 21 team leaders are now regarded as the firms key employees. As a result, productivity, quality, process flow, flexibility and job satisfaction have all improved markedly. The second group of initiatives related to twilight working. All four sites had been operating institutionalised overtime for a number of years, which couldnt continue. In 1997 Pindar Set experimented with a new shift working arrangement between 4.30pm and 1.00am. To start with, 18 new recruits were hired on a temporary basis at two sites, but the firm now has six twilight shifts across all four sites, with 60 people working on permanent contracts. These shifts extended the production window from eight hours to 16, made better use of premises and equipment and helped to bring fresh blood into the company the twilight workers became the firms most productive teams. According to Doyle, this is because there are fewer interruptions in the evenings. The change has also cut overtime costs by two-thirds and increased Pindar Sets availability to customers Finally, the company introduced a flexible working scheme to help cope with the uneven flow of work from customers. We get peaks and troughs, says Manchester operations manager Andy Height. From 2000 ads one week to only 600 the next. With one weeks notice (and often much less than that, according to Lumby), employees agree the hours to be worked in the following week, with built-in safeguards so that they can balance their work and home lives.
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With flexible working we can take advantage of a pool of workers. With traditional overtime we couldnt manage peoples response as we can now, Height says. The flexible work scheme is based on a form of annualised hours, with employees expected to work 1,680 hours a year and both daylight and twilight shifts annualised, but the scheme doesnt run to a standard format. Ive never seen anything like our approach to annualised hours, Doyle claims. Other firms that use it can predict shifts well in advance. We needed a concept that would work on a much more flexible basis. So the flexibility is week on week, and that makes it unique. It also works well with our five-day turnaround. The company also agreed with its staff that they would never be asked to work more than 45 hours or less than 25 hours a week, or more than five days or less than four days, unless they wanted to do otherwise. Whats more, staff who finish their annual hours can choose to take the rest of the year as holiday, or can volunteer to do additional hours paid at time and a half, if the need is there. On the other hand, if they are asked to work fewer than the set hours in a year, the company still pays the full rate. Its a win-win situation, Height says. Before introducing the scheme, the company consulted its employees directly, as well as through staff and union representatives. To begin with, annualised hours were applied as a 12-month trial, for volunteers only. Once the trial had been successfully completed in October 1998, the company extended it on a rolling 12-month timetable still on a purely voluntary basis, although 85 per cent of the workforce in Manchester, Birmingham and Bristol opted to take part. Only four people decided not to continue working flexibly after participating in the trial. Additionally, as a thank-you gesture, Pindar Set agreed to award a flexibility bonus of a minimum of 500 to all staff who volunteer for or have been recruited on to flexible contracts. Employees can also work towards an attendance bonus that pays staff a maximum of 150 not to be off sick a scheme that people say they appreciate, particularly as they can often arrange their hours around any short-term problems to increase their chances of getting the additional payment. The scheme has, on the whole, been a great success with staff. Most recognised the common sense behind the need to change and to improve productivity and quality. They had worked for the company for many years and cared about the direction the business was going in. In addition, most welcomed the opportunity for greater flexibility. They could see there were significant benefits from a company and a personal perspective, Height says. Staff who have families find it a great benefit. And those on twilight shifts are often attracted to the job because they study, or play golf, or have some other activity they prefer to do in the day.

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Ian Maclachlan, an artist and trainee team leader, agrees: People are happier with the work they are doing and they have more control over their jobs, he says. There was a dead mans shoes syndrome before, but now the company is growing you can get on the ladder to become a manager a lot earlier if you want to. One part of the change programme, however, encountered a significant obstacle: the company was not able to implement flexible working at its original base in Scarborough. Unlike the studios transferred from Yellow Pages, where the staff see themselves as primarily working in graphic design, the Scarborough workforce has a traditional printing industry culture with a strong union presence. The employees there, who were used to shift and overtime working, couldnt see how they could benefit from flexible working, and were uncomfortable with the idea of individuals volunteering to join the scheme, rather than terms and conditions being arranged collectively. Furthermore, the main print union is generally opposed to annualised-hours schemes, and there was a risk of an industrial relations problem if the scheme had been pursued. Faced with these objections, the company decided to omit its existing employees at Scarborough from the scheme. We came to the conclusion that our persuasion wasnt helping, Doyle says. It was upsetting them and wasnt worth pursuing. We stressed that no one would be penalised for failing to volunteer. In fact, it is useful to have some people working core hours, so we could work around it and, provided we didnt force people into it they seemed content. In all other respects, though, the employees at Scarborough have embraced the change programme, including teamworking, multi-skilling and the team-leader initiative, and four new teams have since joined at the site, all working flexibly. The change programme has delivered real business benefits for Pindar Set. Profit before tax plummeted from 3.6 million in 1994-95, the last year of the old Yellow Pages contract, to 1.4 million the following year and 300,000 the year after that. Last year, it had climbed back to more than 2 million. The company has been able to develop new services such as web design work, improved service levels and higher productivity the number of advertisements produced per hour has increased from 1.2 to 1.9. Customer complaints have fallen from a high of 123 a month in 1996 to a current average of 10, labour costs have been controlled and absence rates are low (averaging 2 per cent). No one thing would have worked on its own, Height says. It was everything coming together at the same time. Its created a real buzz.

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As chief executive Lumby puts it: Weve now got motivated staff who are hungry for development and bursting with bright ideas. Investing in success Pindar Set was clear that it wanted real development for its team leaders to take on key roles in the business. Rather than one-off management courses, HR director Bernadette Doyle, operations director Gary Weston and chief executive Richard Lumby devised a development programme that would take place over a period of about 18 months, involving 30 days training for each team leader at a cost of 3,000 per person. This enabled people to put learning into practice and to have responsibilities handed over gradually, acting as deputies to existing supervisors while taking part in the training. It was a big investment for a small company, but it has paid off, they believe, in the results they have achieved. The course is run as a series of modules and incorporates a wide variety of skills, including personal stress management and dealing with stress in the organisation, motivation, team-building, communication, negotiation, assertiveness, presentation skills, customer care, production and financial planning, staff appraisals, discipline and people management skills, recruitment, health and safety responsibilities, problem-solving and managing change. The programme uses Coveys Seven habits of highly effective people for personal development, as well as covering all the legal and procedural aspects of company business. Now I know that staff and team leaders dont need constant supervision, says Manchester operations manager Andy Height. I sometimes think I could disappear for a year and still find it running smoothly. The team leaders are very able people who can deal with all the day-to-day business of the company. Business background History: Established in 1980. HQ based in Scarborough with divisions in Bristol, Manchester and Birmingham. Employees: 99 in 1994-95, 235 today

1994-95 Turnover: Profit (before tax): Overtime costs: 8,858,010 3,669,467 460,882

1998-99 12,252,210 2,079,381 125,361

Judging Panels Comments The judges said that this was an excellent example of a smaller scale company thinking constructively in a tough industry where it can be hard to implement change.

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It was a model of introducing flexibility in a realistic way in a difficult environment to create work, wealth and opportunity. Pindar Set was extremely honest about the obstacles it faced. It had avoided the imposition of change from above and worked with the grain in terms of trade union relations and employees concerns. Operating successfully in a highly competitive industry with strong traditions of a rigidly demarcated workforce, it had reduced the number of processes from 80 to one by introducing multi-tasking. One judge described it as an SME with a sensible HR strategy succeeding in a traditional industry that is coming to terms with global transformation in the sector. The company was also commended for having an unusually high proportion of young people in the workforce in an industry with an ageing workforce. Comments compiled by Carol Glover

QUESTION:
Summarise the extent to which this organisation has aimed for SHRM orientation using the following headings.

Beliefs and assumptions. Strategic aspects. Line management. Key levers.

CASE STUDY FEEDBACK


You might have noted the following: Beliefs and assumptions

- business-driven production - what will deliver our service goals as a key driver - wider job responsibilities require attitude change
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- developing clear employee view of organisational goals - secure culture - faster response to market - developing staff, new ideas, training.
Strategic aspects

- integrated change: training, organisational structures and


performance evaluation

- faster response.
Line management

- new team leaders with wider responsibilities see training


programme

- wider people management responsibility and business responsibility.


Key levers

- new basis of staff selection - pay structures - flexible job content and organisational structures - flexible attitudes and culture - fundamental role of learning and development - wider ranging HR changes to support business objectives - increased flow of information about jobs, targets and organisational
goals.

The key points here are that:

There is a clear alignment of employee values with those


of the organisation.

There is a clearly articulated HR strategy owned by


managers as distinct personnel staff.

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HR policies (key levers) are a means to an end rather than


an end in themselves. This strongly managerial conception of people management is often cited as moving people management from an employee-centred mediation approach to a management-orientated approach. Use the next activity to express your views on this point.

ACTIVITY
Write down whether you think that this managerial conception of SHRM can embrace any or all of the following factors:

Trade union or employee interests and voices. Employees as business stakeholders. Diversity and conflict. Creative tension and challenge to establish ways of operating. Ethics and social responsibility.

Summary
This unit has proposed a number of reasons why organisations need to concentrate more on achieving effectiveness in the management of their employees. It has considered a variety of responses. Some of these can be described as strategic responses (integrated), others appear more isolated and tactical. We have spent some time looking at different interpretations of what SHRM is and attempted to evaluate the strengths of the models of best practice, best fit and the resource-based approach. The latter is an emerging trend, with a focus on assets and capabilities. This delves deep into what creates competitive advantage, and it is not rational planning, professional HR policies alone or a focus on satisfying employee needs. Rather it is to form interdependent organisational assets: knowledge, learning, capability, experience, and skill continuity.

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REVIEW ACTIVITY
Question 1 What are the core challenges facing HR specialists in developing an HR strategy? Question 2 Give three examples of how different business strategies might affect human resource policies. Question 3 What are the suggested benefits of adopting a SHRM approach under the best practice model? Question 4 Define the different levels of integration required to meet the best fit model of SHRM. Question 5 What aspects of a companys assets underpin the resource-based approach according to Storey (1995) and Mueller (1998)?

REVIEW ACTIVITY FEEDBACK


Answer 1 According to Mabey & Lawton (1998) three core challenges face HR specialists in developing a HR strategy. They are the management of intangible assets, for example, the ability to access scarce skills; managing strategic change as bureaucracies break up and the trend to flexible organisations and job design create challenges; and developing innovation capability for competitive advantage. Answer 2 The implications from the life cycle model of growth, maturity and decline might be the key HR policy levers. At a more detailed level, single or multi-product strategies lay greater emphasis on different policy areas. The important point to consider is the concept of creating a matched response to changing business strategy. Answer 3
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The best practice model offers the following advantages:

Focus on staff as resources with the associated investment in


high performance strategies: development, reward and recruitment practices.

Emphasis on the professionalism of personnel practice. Involvement and empowerment of staff. Advanced management skills. Ethical HR practice. Emphasis on organisational flexibility, quality and integration of
activities. Answer 4 The levels of integration required to meet the best fit model of SHRM, according to Buller (1988) are:

A one-way response level where business strategy informs HR


strategy.

A two-way response level where the relationship between the


two is interdependent but not fully integrated.

A fully integrated, reciprocal level with top-down, bottom-up


strategy formulation. Answer 5 Storeys (1995, p.4-5) view is that sustained competitive advantage derives from assets that add value, are unique or rare, are difficult to imitate and cannot be substituted. Mueller (1998) develops the resource-based view with five propositions concerning the organisations assets. Proposition 1 is that they must be developed in slow, incremental and uncertain ways, not in any linear or planned way. Proposition 2 is that they require broad-based commitment over a lengthy period, not a single initiative. Proposition 3 stresses the importance of routinising skill formation activities. Formal and informal learning activities must be effectively captured by the organisation. Proposition 4 concerns the development of cultures that will allow potential to be used and developed. Challenge rather than conformity, is encouraged as a strategic end, while balancing the need to store organisational value.
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Proposition 5 is that organisations need to build barriers to imitation and loss of their resources, both in patents, copyright, and so on, and their people resources.

References
The Strategic Managing of Human Resources, edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, 2004 (Key text for this module) Becker and Gerhart (1996) The Impact of Human Resource Management on Organisational Performance: perspectives, progress and prospects, Academy of Management Journal 39(4) pp.779-801. Buller P. (1988) Successful partnerships: HR and strategic planning at eight top firms Organisational Dynamics, Austen pp. 27-93. Fombrun C., Tichy, N.M. and Devanna, M.A. (1984) Strategic Human Resource Management, New York. John Wiley & Sons. Guest D. (1992) Employee Commitment and Control in Hartley J. & Stephenson G. (eds) Employment Relations, Oxford, Blackwell pp.111-135. Huselid M. (1995) The impact of human resource management and practices on turnover, productivity and corporate financial performance, Academy of Management Journal 38(3) pp. 635-72. Kochan and Barocci (1985.) Human Resource Management and Industrial Relations, Boston MA, Little Brown. Mabey C. and Lawton L. (1998) Managing Human Resources Unit 1: Setting the Agenda, Open University Business School. Mueller F. (1998) Human resources as strategic assets: an evolutionary based theory in Mabey C., Salaman G. and Storey J. (eds) Strategic Human Resource Management, Sage/OU. Prahalad C.V. and Hammond G. (1990) The core competences of the corporation, Harvard Business Review, May/June pp. 79-91 Storey J. (1992). Developments in the Management of Human Resources, Oxford, Blackwell. Storey J. (1995) (ed) Human Resource Management: a critical text, London Routledge.

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Further reading
Beardwell I. and Holden L. (1997) Human Resource Management-a contemporary perspective, 2nd ed., London. Pitman. Bratton J. and Gold J. (1999) Human Resource Management Theory and Practice, 2nd ed. Basingstoke. Macmillan Business.

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Unit 2

Strategic HR Departments
LEARNING OUTCOMES
Following the completion of this unit you should be able to:

Explain the impact of change on the HR department function. Critically evaluate the challenges faced by HR specialists. Critically evaluate emerging trends in HR work. Assess the role of service centre organisation for HR functions.

Introduction
In Unit 1 we considered the concept of strategy in the management of human resources. We now look at the role of the HR department in supporting a strategic approach. We have referred to the historical debate surrounding the development of the Personnel/HR function and how the concept of HRM may provide a new emphasis to the functional activity. In this unit we review the current options and the thinking about what the HR function should do and how it should operate.

READING ACTIVITY
Please read Chapter 1 of your key text, The Strategic Managing of Human Resources, Edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, which covers some of the subjects of this unit.

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HR departments and change


Personnel departments, as they were originally known, were first initiated to fulfil a welfare function. Personnel emerged from the desire of enlightened employers to either improve working conditions or, in some cases, avoid the onset of trade union representation of worker interests. Generally, the tradition of welfare values was aimed at improving the conditions of employees. The welfare tradition was sustained, largely as an intermediary between employer and employee. As trade unions developed full representational and negotiating functions for employees, personnel adopted the representative role for management, thus continuing the mediation role but now indirectly via unions. Later roles for HR personnel included:

The development of expertise in scientific organisation of


jobs.

Recruitment and training activities. The development of legal expertise in various


employment areas, especially after the extensive employment legislation in the UK from the 1960s onwards. However, despite the acquisition of new roles, the growing professionalism of the function and the emergence of a core discipline of education and training, HR practitioners have never quite felt at ease with their contribution to the organisation.

ACTIVITY
Use your background knowledge of HRM to identify some of the reasons for uncertainty faced by HR personnel. Try to note down at least three reasons

ACTIVITY FEEDBACK
You might have noted some of the following:

The uncertain power and influence of personnel departments.

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The uncertainty of the core area of expertise, for example, the


ability to influence and control employee behaviour.

The difficulty of assessing or measuring the value of personnel


activities.

The lack of business awareness on the part of personnel specialists. The skills of people entering the profession. The welfare tradition questions managerial credentials it is
employee-centred. HR issues always seem to be of second and third order importance. Its soft functions are seen as less important than the hard function of finance, operations, research, commerce and so on. Everybody can claim to be a personnel manager if they have expertise in managing people.

So the question has always been what does or what should a HR department do? This question has been debated exhaustively. In the 1980s the notion of HRM, Human Resource Management, became prominent. Originally an American idea, it was based around some guiding principles from best practice models:

Changing beliefs and assumptions, so that organisational


culture is the key.

Emphasis on strategy. Clear lines of management. Integration of key policies.


Storey (1995) suggest that the HRM approach can be assessed in terms of:

Tasks, where the key is best practice. Take-up of integrated HR practices (the ability to manage
beliefs and assumptions, the strategic importance attached to HR, line manager involvement).

Value, where we need to ask whose interests HRM


serves, whether there are management with a focus on business outcomes, or employee with a focus on developing potential and knowledge.

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The Chartered Institute for Personnel and Development would suggest that sophisticated practice will improve the working environment and at the same time provide prospects for improved business performance. Others fear that the emphasis on management will work against the need to identify and develop commitment and potential, or may even represent a betrayal of employees (Hart, 1993). The UK Trade Union Council (TUC) mounted a significant challenge to the concept of HRM in 1999, entitled Human resource management: a trade union response. The TUC were particularly critical of the following aspects of HRM:

The diversion of communication away from unions


toward individual employees.

Work organisation based upon teams. Quality circles that excluded trade union control. The movement of pay systems away from collective
bargaining to individual (exploitative) performance related pay systems. The Union movement still maintains the need for independent representation to balance power in the contractual relationship between employees and the organisation. Meanwhile, HR specialists have struggled with the following dilemmas inherent in the HRM approach:

To be more influential they need to be more strategic and


business-led.

To do so puts at risk the relationship with employees. To do so also risks ceding control back to line managers
and thus diluting effective professional, co-ordinated and integrated policy making. These then are the dilemmas that we address in looking at the emerging role for HR departments in the twenty first century. It seems clear that we need to revisit the role of HR personnel on revised terms if HRM is not an adequate model. Some key issues that need to be reconciled are the need:

To incorporate professional HR/personnel practice. To allow for diversity of approach, balancing stakeholder
needs.

For acceptance of stakeholder interest by management. To facilitate employee commitment and knowledge
employees need to develop their potential and commitment.

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To address issues of employee flexibility and innovation. To raise the profile of HR management. To upgrade the skill of HR managers. To market HR functions within organisations.
HR personnel face a mixture of organisational challenges, and challenges to their own function in itself. Whilst HR needs to raise its profile, facilitating change in the organisation, it must retain its specialist skills and be viewed as clearly adding value to the organisation. From the organisational perspective, HR policy must address organisational needs but at the same time attempt to integrate employee and other stakeholder interests. These various pulls may be in conflict with each other.

ACTIVITY
What activities might you undertake in order to market the HRM function within your organisation? Think of the needs that we have just described and try to note down at least two things that you could do.

ACTIVITY FEEDBACK
Foot & Hook (1996) suggest the following activities: 1. Conduct a customer survey to assess customer (both internal and external) requirements and evaluate the impact of HR policies. This becomes the basis of creating business-led service level agreements. Be proactive in putting forward formal solutions to business problems. Emphasise the benefits of HR and create a basis for measuring and evaluating the outcome by making HR issues central to the agenda at Board level. Use briefings, communications, learning and development activities and so on. Study the level of diagnostic activities performed by HR on skills, attitudes and behaviours, and form a HR consultancy perspective; be an internal change agent and an external investigator of appropriate services.

2. 3.

4.

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HRM in crisis?
This was the title given by Sparrow & Marchington (1998) in their foreword to a series of papers in 1996. They suggested that HR professionals needed increased understanding of three concepts if their contribution to organisational change was to be of lasting significance in the face of pressures to become more business-orientated and strategic:

New organisational forms and psychological contracts. The need for partnership in the employment
relationships.

Pressure for flexibility at all levels of the organisation.


This gives rise to three questions:

How do we build or rebuild trust and commitment


between the employees and the organisation?

Given the power shift from employees to employers, how


could the creative value of staff be retained through active involvement and participation at work to provide higher level performance? How could the employee voice be maintained?

What is the nature of work, of the organisation and


work-life balance? The push for productivity on the one hand, and the increasing emphasis on the value of personal contribution on the other, often places major contradictions in trying to control work outcomes and costs while mobilising employee commitment. Organisations and employees face disillusionment. Some examples are as follows:

The transfer of social costs from state/organisation to the


individual, for example, the costs of development and career orientation.

The deregulation of national government policies on


employment and the social cost of reducing organisational options for training and employment.

Economic determination threatening the optimistic view


of HRM management that is based in investment and mutuality in the employment relationships.

The obsolescence of management work in information


societies and the impact on careers.

Flexibility that impacts on culture, behaviour patterns


and personal orientation to organisational goals that may cut across employment and organisational boundaries.
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Downsizing and fragmentation of employment to


achieve productivity targets.

Shift from job-based employment to person-based


systems and the impact on HR policies.

The role of information and the structure of jobs and the


decision-making processes.

The challenges facing HR specialists


How should HR specialists now operate to meet these dilemmas? Many procedures seem redundant and bureaucratic; few can be offered the security of long term jobs, regular pay increases and career growth, yet there is increasing emphasis on the need to understand and exploit human capability within organisations. Importance is now attached to identifying competence as a source of competitive advantage. Torrington (1996) suggests that three challenges for personnel specialists arise from their confidence, identity and direction.

Confidence
Lack of confidence may stem from a series of criticisms of HR staff for being:

Reactive rather than proactive. Not strategic. Not business focused. Too employee focused, working with unions.

Identity
For many, the HRM identity of personnel is simply a name change, and the substance of personnel activities has not changed.

Direction
This is significant. The degree of HR involvement in strategic policy making as opposed to implementation is problematic. Some argue that an organisations HR capability is too important to be left to HR specialists, suggesting that all managers must be involved. In this

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situation, personnel acts as a technical and independent advisor to policy-making. Torrington (1998) concludes that the prospects for the strategic development of HR functions are threefold:

HR is legitimately reactive and must create different


solutions to the HR implications of change.

Management should not devolve entire responsibility for


HR policy to line managers. This dilutes effective people management across the organisation.

HR personnel must focus on the process of how people


are employed, deployed, empowered and motivated, because preoccupation with organisational employment systems focus exclusively on performance. In some ways this reinforces the importance of the role of HR specialists as internal consultants. It also reinforces a move away from formal processes that the resource-based view of HR advocates. Guest (1998) advocates personnel orientation towards what he calls a new orthodoxy based around:

Community and partnership. Commitment and contracts.


Guest stresses the need to create HR policies that:

Reflect new divisions of labour; that is, choice of where


and how to work with organisations.

Balance employee commitment to work, non-work


activities and perhaps multiple organisations.

Offer differing levels of commitment and flexible policies


to fit these differing employee expectations.

Offer contractual flexibility.

CASE STUDY
Read the rather long but useful article that follows. But before you start reading, scan the case study questions (that appear after the article) and think about the questions as you read the article. Yes, Personnel does make a Difference by David Guest and Kim Hoque, (People Management, November 1999)

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Big hat, no cattle was never a very apt description of personnel managers. Most are too modest to wear big hats, and they tend not to be flamboyant. The personnel management profession has sometimes displayed an alarming lack of collective self-confidence. When David Metcalf and his team from LSE1 prodded and provoked with a claim that the presence of a personnel manager is associated with a poorer employee relations climate, they touched a nerve with a predictable response. But why does the profession still feel defensive about the need to justify itself? Most personnel managers at an individual level feel confident that they are making a useful contribution. But the Metcalf team opened up an old sore how do we know personnel managers make a real contribution? And does the evidence support the kind of challenge thrown out by the Metcalf team? We were asked by the IPD to conduct an independent review of the existing research material and extend the analysis of the third Workplace Industrial Relations survey. Our findings are summarised in this article. Before reviewing the research, we need to explore why the effectiveness of personnel management gives rise to so much anxious navel gazing. Explanations can be found in the history of the profession, in the national culture and, more especially, in the distinctive features of the personnel role. Personnel management grew as a profession partly in response to the increasing complexity of larger organisations and partly in response to the need to tackle difficult problems. As the trend towards less bureaucratic organisations gathers pace and the problems of industrial relations and selection disappear or change, organisations may question why they need a personnel department. Ambivalence towards personnel issues has sometimes been reinforced by a national culture that gives primacy to financial and relatively short-term issues over the human side of enterprise. It is often considered, rightly or wrongly, that personnel represents the soft side of life at work and, as such, does not need to be taken as seriously as some other activities. One possible indication of this is that it is not considered a suitable career route for those who graduate from the more highly regarded MBA programmes. The contribution of personnel specialists has always been hard to identify because they work in partnership with line managers and succeed by exercising influence. In many cases, line managers take personnel decisions, perhaps within a framework established by the personnel department. Therefore, although we may be able to identify the impact of personnel decisions, we cannot always be sure whether the personnel specialists contributed towards them. Furthermore, we know that when things go well, people are happy to take the credit, but when they go wrong, it is easier to blame someone else. Where the responsibility for personnel decisions is ambiguous, it can be convenient to blame the personnel specialist. If personnel managers get results by exercising influence, this places some emphasis on their influencing skills. One of the consistent findings of surveys is that the influence of the personnel department is growing. For example in the
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1990 Workplace Survey2, even among finance managers 60 per cent felt that the influence of the personnel department had increased and only 8 per cent felt it had decreased. What is not quite clear is whether this reflects the greater competence and skills of personnel specialists or a growing realisation of the importance of human resources for business success. One indication that is might be the latter is that evidence of the steadily increasing influence of personnel has been reported for so many years that if we were to take it literally, personnel departments would now be dominating organisations. Clearly there is some way to go before this is the case. By exerting influence, personnel managers help to shape the framework of personnel policy and practice; line managers will generally take day-to-day personnel decisions, sometimes referring queries and problems back to the personnel department. It therefore follows that any attempt to seek a direct link between the presence of a personnel specialist and measures of performance such as employee relations climate, labour turnover or productivity will be a fruitless exercise. Other factors and other people are going to explain most of the results. It is more useful to take a realistic view of what the personnel department can do. We know that it can help to formulate policy and practice. To take a simple example, personnel departments can set up a sound appraisal system, develop the documentation and procedures, and provide training. They can monitor the system. But the actual appraisals must be completed by line managers and the impact of the system ultimately depends on their willingness to do this seriously and competently. Personnel departments should have a direct influence on the appraisal system, but only an indirect influence on its impact. We will follow this model in our review of evidence about the impact of personnel management on performance. But first we return briefly to the issues raised by the Metcalf team. The team showed a negative link between personnel managers and the employee relations climate. However, different results emerge depending on how you define personnel managers and how you measure employee relations climate. When we take a definition of the personnel manager based on time spent on personnel activities, professional qualifications, the presence of support staff and the presence at board level of a specialist personnel director rather than someone responsible for personnel issues, and also adopt a more cautious definition of employee relations climate, then the negative links mostly disappear. In their place we have mainly positive associations, even if they are generally not significant. It is worth remembering that the survey found a positive employee relations climate in nearly 90 per cent of work-places and a poor climate in less than 2 per cent. Using our model, we do not expect a direct link between personnel management and employee relations climate. Instead, we expect a link between the presence of personnel specialists and the existence of a range of sound personnel policies and practices. We will also expect a relationship between the existence of these polices and practices, and performance.
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Although responsibility for this second link rests as much with line managers as with personnel specialists, it can work only if the personnel specialists have ensured the policies and practices are in place. Even then, the link will not be straightforward. Personnel is part of a larger system which will impose constraints arising both outside the workplace e.g. government-imposed limits to pay rises and inside. When you start to look at the research into the link between personnel management, and policy and practice, the first thing that strikes you is that there is very little, and much of what there is focuses on the company level. One of the best recent studies is the second Company Level Industrial Relations Survey3 which emphasises the important role of a personnel director. In the 30 per cent of cases where there was a personnel director, the personnel department was much more involved in the formulation of human resource policy. Foreign-owned companies were more likely to have a personnel director. Head office HR strategy was very much a child of corporate business strategy one of the constraints highlighted above. In most cases there was no clear link between business strategy and HR strategy. The findings of the Company Level survey are reinforced in a study of 30 successful companies reported by Tyson, Witcher and Doherty4. They found personnel strategy was strongly influenced by market conditions and that personnel departments did not promote any human resource strategy based on a distinctive model. Purcell and Ahlstrand5, in their study of multidivisional organisations, reach a similar conclusion, suggesting that: What they are allowed to do limits their role in the management of change. In the process, their role in strategy formulation, while often dreamed of, remained marginal. Personnel managers are caught in the middle. They know the theory, perhaps, but have not the power to enact it. Not everyone shares this pessimistic view, The Cranfield/Price Waterhouse International study of personnel management found that 43 per cent of UK personnel directors claimed to be involved in the formulation of corporate strategy from the outset6. A study of personnel departments in Scotland reinforces this - Kelly and Gennard found that personnel directors were influential in the boardroom but achieved this by focusing on the bottom line rather than by promoting distinctive approaches to HR management7. However, we must be cautious in accepting the views of personnel directors about their influence without some corroboration. One study that examined the impact of personnel departments looked at 303 NHS Trusts and Units in England, Wales and Northern Ireland8, It found no relationship between any characteristics of the personnel department and either policies or ratings of effectiveness. However, the presence of a personnel director at board level was associated with greater personnel influence over major organisational decisions which, in turn, predicted effectiveness. All these studies indicate that there is little evidence that personnel specialists make much difference, They have insufficient influence to have a major impact
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on the direction of human resource management. The exception to this is the presence of a personnel director at board level, which has a consistently positive impact. The final and most extensive source of evidence about personnel influence on personnel policy and practice is the third Workplace Industrial Relations survey, the source of material for the Metcalf analysis. Since it is a carefully selected and weighted sample of about 2000 workplaces, it is an authoritative source. One of the first things to note is that the survey revealed a small increase in the proportion of establishments with a personnel manager, more particularly in organisations with 100 to 1000 employees, but it also detected a small decline in the proportion of organisations with a specialist personnel director (down from 43 per cent in 1984 to 40 per cent in 1990). Our analysis looked for any significant link between personnel management characteristics and the presence of a range of what are generally seen as positive practices associated with employee involvement and single status. Some typical results are shown in the table (see below).

Per sonnel funct ions and char act er ist ics: all est ablishment s
Personnel characteristics Specialist manager in workplace Director on board - main job concerns personnel/ HR issues More than 50%of time spent on personnel issues Formal personnel management qualification Support staff All of the above are present Appraisal Employee involvement boosted Problem solving/ QCs Team briefing Merit pay used for some staff Job evaluation Sick pay available to all Pension available to all

+ + + +

+ + + + -

+ + + +

+ + + + +

+ + + -

+ + + + + +

+ + + + +

+ + + + +
Source:WIRS 3

The analysis controls for type of workplace, and workforce characteristics, region and type of industry: Significant at the 1%level Significant at the 5%level Significant at the 10%level

We have controlled for a number of things like size of establishment, type of industry and trade union presence, to make sure these kind of factors do not influence the results. The positive items show where there is an association between aspects of personnel management and the existence of certain

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practices. (The significance levels refer to the statistical measure of confidence in the result.) The results clearly show that the presence of specialist personnel management, reflected in the presence of a professionally-qualified personnel manager who spends more than half their time on personnel issues, has support staff and has a specialist director on the board, is likely to result in more of these practices being in place. On this basis it does seem that in British workplaces where there is a professional personnel presence, there are also better personnel practices. But are these practices resulting in superior performance? If so, then we can be confident personnel departments are making a significant contribution. Again, there are few studies that carefully examine the link between policy and practice and outcomes. There are many that look at specific practices such as employee involvement and performance-related pay and conclude that the link to performance is poor. What we need are studies looking at a range of practices. However, we can start at the more strategic level. The Tyson, Witcher and Doherty study of 30 successful companies failed to find any distinctive approach to human resource management; but it did find that all these financially successful companies, in their different ways, took human resource issues seriously. This was manifested in carefully thought out policies on management development and on employee relations, and in the involvement of employees in managing change. However, this is a long way from showing that concern for these issues was a cause of company success. Storey, in a series of case studies, also showed that companies were paying more attention to HRM issues, but his evidence led him to be sceptical about the ability of management to implement them effectively and therefore about any impact on performance9. The NHS study mentioned earlier failed to find any link between personnel policies and any measure of performance. However, it did find a link between ratings of effectiveness and the extent to which polices were formally endorsed at board level, the influence of personnel managers over non-personnel decisions and the efficiency of the personnel department. Other studies, for example the study in the mid-1980s by Edwards10 on factory managers and a Lancaster study of 60 companies11, emphasise the importance of a set of integrated policies for any impact on performance. This finding is strongly reinforced in some of the most recent studies. One sophisticated American study compared human resource policy and performance in 30 mini steel mills. It found strong evidence that those mills where a high commitment human resource strategy was pursued showed higher performance than those pursuing a more traditional control strategy. This finding is reinforced by other studies, including recent UK work on new workplaces12. This shows that those establishments which had a coherent and clearly articulated HRM strategy and had a large number of the kind of HRM practices in place that were likely to promote commitment, also had superior outcomes to those that either had no strategy or an absence of such practices.
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Here, the measures of performance were HRM outcomes such as quality and commitment of staff, employee relations outcomes and ratings of benchmarked quality and productivity. Human resource management appears to pay off. The Workplace Industrial Relations Survey does not cover a sufficiently wide range of HRM issues for us to use it to conduct the same sort of test. In most cases, perhaps not surprisingly, there is no significant link between individual practices and outcomes such as absence, employee relations climate and estimates of productivity. Nevertheless, the small number of significant results, on balance, show a positive link. Furthermore, the Metcalf team study combined those items dealing with employee involvement and those dealing with single status into composite measures and they do find a stronger pattern of generally positive results. In summary, the research evidence shows that the presence of specialist personnel managers is associated with the presence of more HR policies and practices, including what would be widely recognised as good practices. The extent to which these are endorsed at board level and presumably integrated into a coherent strategy is strongly influenced by the presence of a personnel director on the main board. The link between practices and outcomes is more tenuous. The key is strategic integration. What this means is that personnel strategy must fit the business strategy, the personnel policies must be fully integrated with each other and the values of the line managers must be sufficiently integrated or aligned with the personnel philosophy to ensure that they will implement the personnel policy and practice. This is a tall order which will often require reinforcement through leadership and through the organisational culture. Where this can be achieved, then there is growing evidence that a distinctive set of human resource practices results in superior performance. We suspect many personnel managers would like to believe this but are unsure about whether such a claim stands up to scrutiny. As a result, they are reluctant to promote a distinctive line. The evidence is beginning to accumulate that HR management does pay off. Personnel managers should be more confident about getting this message across in their workplaces.

References
1. Does HRM boost employee management relations?, by S Fernie, D Metcalf, and S Woodland, LSE, CEP Working Paper No. 546,1994; and What has human resource management achieved in the workplace? EPI Economic Report, 8,3, May 1994.

2.

Workplace industrial relations in transition, by N Millward, M Stevens, D Smart and W Hawes, Dartmouth, 1990. The control of industrial relations in large companies: an initial analysis of the second workplace industrial relations survey, by P Marginson, P
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Armstrong, P Edwards, J Purcell and N Hubbard, University of Warwick Papers in Industrial Relations, No. 45,1993. 4. Different routes to excellence, by S Tyson, M Witcher and N Doherty, Cranfield School of Management, 1994. Human resource management in the multi-divisional company, by J Purcell, and B Ahistrand, Dartmouth, 1994. A European perspective on human resource management, by C Brewster and F Burnois, personnel Review, 1991, vol 20, issue 6. The role of personnel directors on the board of directors, by J Kelly and J Gennard, Strathclyde Business School, 1994. The nature and causes of effective human resource management, by D Guest and R Peccei, British Journal of Industrial Relations, vol 32, issue 2,1994. Developments in the management of human resources, by J Storey, Blackwell, 1992. Managing the factory, by P Edwards, Blackwell, 1987. Human resource management, corporate strategy and financial performance in British manufacturing, by S Fox, Management Research News, vol 14, issue 7,1991. The good, the bad and the ugly: employment relations in new non-union workplaces, by D Guest and K Hoque, Human Resource Management Journal, vol 5, issue 1,1994.

5.

6.

7.

8.

9.

10. 11.

12.

Questions:
What factors are likely to lead to more effective personnel practices being in place? What HR factors facilitate successful organisational performance? What problems do personnel specialists face when trying to raise their profile?

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CASE STUDY FEEDBACK


1. The factors likely to lead to more effective personnel practices are:

- the influencing strategies of personnel; for example,


improved performance as well as decision-making

- gaining commitment and involvement of staff to their


policies through the implementation process

- clearly articulated, integrated and well communicated


policies

- the presence of a personnel director trends in foreign


companies in the UK associated with enhanced professionalism

- professional training of personnel staff - greater emphasis on specialist line manager input.
2. The HR factors facilitating successful organisational performance include:

- measuring the performance of HR practice; for example,


absence, productivity, finance, training days, Industrial Relations (IR) climate/perception of skills and competencies available

- involvement and commitment of all staff - clear explicit strategy for communicating objectives.
3. The problems faced by personnel specialists include the cultural or soft issues:

- direct influences in policy outcomes - status of personnel role on the Board of Directors - responsibilities/authority - business expansion/pro action.

The article in the last case study offers mixed results for HR in relation to our previous discussion. First, HRM would appear to pay off in terms of

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employee behaviours, although organisational outcomes appear more difficult to identify. Second, a common view that a strong HR presence on the Board is associated with wide-ranging best practice is positive.

Trends in the management of HR functions


Can HR departments rise to the full strategic challenge through strategic policies fully integrated with those of the business? Some confidence seems to be suggested by the article in the last case study. We now expand on this by discussing some of the innovations in personnel that have taken place in the last decade. Some important trends occurred during the 1990s including the trend towards the audit and measurement of personnel performance and the need to focus on core activities to reduce costs. Some recent trends in the management of HR functions that we shall look at are:

Auditing performance. Devolution. Decentralisation. Outsourcing.


Each of these has been adopted to address some of the historical criticisms of HR departments. For example, auditing attempts to offer a results orientation and to link the contribution of HR strategy to business performance. Devolution and decentralisation have both been associated with maintaining a business focus. Outsourcing is associated with reducing the costs of HR services and maintaining links to a sufficiently broad range of objectives but only when required. We shall now look at each of these trends.

Auditing performance
This is central to the setting up of service level agreements and clear expectations of HRs role. In some institutions this has gone further and a fee structure has been established as a bonus for setting budgets that can be sensitive to internal outcomes and give added value in a business context. This practice has been prevalent in costing HRs contribution and also as a basis for open tendering of services whereby the in-house function is open to competition from private sector HR consultancy.

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The objective of auditing HR function is to ensure that the investment in personnel and training can be justified in business terms. It is therefore based on cost-effectiveness, contribution, service and the way best practice is followed. The information needed to audit includes operational data, costs, time spent on activities, the costs of external services, and departmental structure.

Devolution of HR activities
The objective of devolution is to ensure a more business-led personnel response to employment issues. It involves the reallocation of personnel activities from specialists either:

To line managers. To other specialists, such as the financial controller or


company secretary.

To other locations away from the main headquarters of


the organisation. Traditional personnel departments have taken responsibility for some or all of the following activities:

Human resource planning and work organisation. Recruitment and selection. Training, development and appraisal. Industrial relations. Reward and job evaluation. Organisation structure and development. Pensions and welfare. Health and safety. Discipline and grievances (legal matters). Management development. Redundancy.
HR departments adopt two roles:

As a specialised service. As a generalist service.

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These can be centralised or de-centralised, although specialist services such as compensation or industrial relations, are often retained centrally. Devolution of any of these activities can be a function of either a decision making authority or the day to day management of activities, or both. Hall & Torrington(1998) suggest that devolution of the following activities is most prevalent:

Work organisation. Training. Recruitment and selection. Appraisal. Employee relations.


However, there are no simple and straightforward criteria to guide devolution of activities. Organisations do not necessarily devolve the same policies or indeed to the same degree within the policy areas. However, some activities are more or less likely to be devolved. HR departments frequently retain strategic areas of the HR function such as policy-making, pay review processes and the design of appraisal schemes. It may also retain operational areas such as the monitoring of performance, provision of advice about disciplinary cases and the coordination of training. Activities that are likely to be devolved are the interview process, disciplinary interviews, job needs analyses and the negotiation of overtime and other work practices.

ACTIVITY
Imagine that your company has decided to devolve certain personnel activities, as described in the examples given above. 1. What do you think your reaction would be to this if you were:

- A line manager? - An HR specialist?


2. What do you think are the benefits and disadvantages of devolution?

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ACTIVITY FEEDBACK
Line Manager reaction: Ownership of people issues is critical to company performance, so your reaction as a line manager might be a feeling of empowerment and involvement. It might also be a reluctance to take on the extra responsibility because you lack the necessary skills. You may feel that personnel specialists have opted out of their responsibilities, or you may feel vulnerable on legal issues raised in employment. HR specialist reaction: As a specialist you might react favourably if the refocusing happened to be on the more strategic aspects of personnel work, ridding you of the administrative image. You might wish to retain core specialist areas such as recruitment, selection, and reward. You might have suggested feelings of loss of skill and control over personnel practices. You may lose influence in budgeting matters such as expenditure on training and development. The benefits of devolution that you may have suggested include:

Enhanced ownership/importance of people issues. Better working relationships between managers and
employees.

Empowerment for manager. Responsive decision making in other departments. Higher operational problem solving skills. Flexibility. Better working relationships between personnel and line
managers.

HR is freed up for a diagnostic and evaluative role.


The disadvantages might include:

Loss of integration of policies. Dilution of the strategic content of HR. Loss of professionalism and commitment to HR issues.

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The next trend is decentralisation of HR, which needs to be carefully distinguished from devolution in that it involves the movement of all HR activities to another site rather than some activities to another department or manager.

Decentralising human resource functions


The decentralisation in organisations has been very popular in recent years. Generally, organisations tend to centralise activities to achieve greater control of processes and costs, whereas decentralised activities are thought to allow companies to become more flexible, to speed up decision making and to become closer to their customer base. The influencing factors are the size of the organisation, and the influence and diversification of businesses and markets, since a large organisation with a single product will tend towards greater centralisation while multiple products and/or markets will require decentralisation. Often however, the decision is based on a location of power and influence in personnel decision making. There are implications too for the management of people. Centralised structures tend to emphasise the development of specialist skills and knowledge. Decentralised structures lend themselves well to developing flexible management and employee skills and cross-functional working. Hall & Torrington (1998) outline three different forms of decentralisation to illustrate the main issues of influence on HR decisions:

Type A may have either a HR unit reporting directly to a


head of department or one reporting indirectly to a central head of HR.

Head of department

Central head of HR

HR unit
Figure 2.1: Type A decentralisation

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Type B is the reverse of type A. It may have either a HR


unit reporting directly to a central head of HR or one reporting indirectly to a head of department.

Head of department

Central head of HR

HR unit
Figure 2.2: Type B decentralisation

Type C has only a HR unit reporting directly to a central


head of HR.

Central head of HR

HR unit
Figure 2.3: Type C decentralisation

Reporting lines are important in determining whether HR activity is likely to be driven by professional priorities or by management needs. There has been a trend in recent years for small to medium size enterprises to recruit generalist HR staff to provide some services and to buy in specialist services. Larger organisations are more likely to recruit specialists in the main policy areas previously outlined.

ACTIVITY
It can be argued that the decentralisation of HR may lead to an inconsistency of approach. Try to write down some of the implications of an inconsistent approach, for example, when HR is decentralised from a corporate level to a

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business unit level. We have given one example, but try to think of at least two more.

Each business will have its own interpretation of corporate HR and


thus its own strategy.

ACTIVITY FEEDBACK
Examples that we thought of are:

Each business will have its own interpretation of corporate HR and


thus its own strategy.

Employees will see themselves as part of the business unit rather


than part of the organisation.

There may be inconsistent treatment of employees but this can be


accommodated, as employees can be employed by the business unit rather than the organisation. In the case of decentralisation to a department this may be a problem. It could be seen as inequitable.

Outsourcing
As with many business functions, outsourcing has become an important method of achieving flexibility and reducing costs. The arguments for outsourcing HR services can be summarised as follows:

Outside organisations can afford to retain a greater level


of specialist knowledge that can be called upon when needed.

HR activities are not core skills and therefore can be


more easily bought in without loss of competitiveness or risk to business performance. The business of the business is not HR management.

Professional skills have a greater impact when brought


in. Outside consultants have a better change impact rather than insiders. However, like devolution we must be careful to look at what is being outsourced. For example, organisations have for many years used
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consultants for certain specialist activities that are required only occasionally. Examples might include:

Compensation, job evaluation and pension specialists. Search and selection specialists for senior management
posts.

Management development advisors. Legal advice on employment issues.


Core activities such as maintaining employee records, operating grievance and discipline procedures, collective bargaining, recruitment, training, reward and so on have not been outsourced. These are seen as central functions, which are either dependent on internal relationships being established or are areas that are confidential or legally sensitive. Centrality ensures internal accountability. It has often been said that the HR function needs to be part of the organisation culture to gain the commitment and understanding of managers and staff alike. There is also the question of organisational knowledge and confidentiality, which may influence the decision to retain services in-house. Let us now review these arguments more closely by reading the article in the next activity.

CASE STUDY
Read the article below: How to outsource Personnel: market testing and compulsive competitive tendering by Alan Fowler, (People Management, 20 February 1997) The compulsory competitive tendering (CCT) of some local government services dates back to the early 1980s. It began with manual functions such as buildings maintenance and refuse collection, and has since been steadily widened by statutory regulations, first to include activities such as leisure centre management, and later to professional support functions such as finance, legal services, information technology and personnel management. The governments current intention is that CCT will apply to 40 per cent of each councils personnel activities measured by cost an increase from an earlier figure of 30 per cent, which was already being targeted by many local authorities. In parallel with the detailed CCT regulations in local government, market testing has been introduced extensively throughout the civil service, the health service and many quangos. It has also been taken up in the private sector,

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particularly by companies following the core and periphery principle, under which everything other than core functions is outsourced. Market testing is much simpler than CCT. If market studies indicate that a non-core function can be satisfactorily bought in, the internal function is disbanded and an external contract is negotiated. Unlike CCT, it does not prescribe an arms-length competitive tendering process or forbid negotiations about bid prices. The difference between CCT and market testing is primarily a matter of degree: the legal formality of CCT is at one extreme, with less formal, no-commitment reviews of possible external market sources at the other. Once formal tendering has started under CCT, statutory regulations prescribe every stage of the process and require the contract to be awarded either to an external, private-sector provider or to the in-house unit. To win, the in-house function has to prove to auditors that its costs and bid have been calculated in accordance with detailed financial regulations; that it has been given no favourable treatment; and that the cost and quality criteria leading to its selection were known by, and applied equally to, all the private-sector bidders. Market testing does not require formal tendering unless this has been agreed in an earlier decision. It may involve just comparing the cost and quality of the in-house function against whatever information can be found about potential external providers. Despite the differences, those preparing a function for either CCT or market testing have to follow similar principles. In the case of personnel, a major preliminary decision is whether to consider outsourcing the entire function. CCT regulations require only a percentage to be put to the test, although local authorities can exceed this figure by any amount they choose. Market testing depends entirely on individual decisions. There are three main arguments against 100 per cent outsourcing. The first is that a significant proportion of personnel work is so central to the culture and strategic objectives of the organisation that it can be undertaken effectively only by the organisation itself. Because of this, personnel should be retained, at least in part, as an integral element of the business. The second point is more practical: the occurrence of situations such as industrial disputes may be unpredictable, but these issues require immediate action. It is all but impossible to specify such tasks precisely enough to contract them out, or to find an external provider that can guarantee the instant and informed response they require. This links to the third aspect, which is that there is no significant market for the provision of a total personnel service. The exception may be a company that is too small to justify or afford its own personnel specialist and so puts an external training programme out to tender. CCT and market testing provide an incentive to review the adequacy and relevance of many aspects of current personnel practice, and any decision about what parts of the function to
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outsource should be preceded by discussions with line managers about their real needs. The criteria that eventually decide the outcome of market testing or CCT exercises are cost and quality. It follows, therefore, that both factors need to be defined for the relevant in-house function before external comparisons can be made. Most HR departments know their total budgeted cost, but not all of them can break it down into functional components. This is essential for any true comparison. It may be necessary to introduce time sheets to obtain data about the proportions of time (and money) spent on different activities, while expert financial assistance may well be required to ensure that overheads are being allocated correctly. A function is not necessarily outsourced even if an external provider is potentially more cost-effective. Instead, the organisation may try to raise the standard of the in-house function while keeping outsourcing as an alternative if improvements are not achieved. Unit costs, such as the average cost per training day or per new recruit, and the hourly or daily costs of the personnel staff, often provide the best basis for comparisons with the external market. Defining quality is more difficult. In the absence of quality criteria, CCT decisions have to be made solely on cost, although the cheapest service is rarely the best. Where relevant, comparisons can be made on criteria such as response times to information requests, success rates for vocational training, or the proportion of recruits who are assessed as fully satisfactory at the end of their probationary periods. Both market testing and CCT involve making judgments about the general quality of potential external providers. This assessment relies partly on assurances given by these providers about their ability to meet the quality standards defined in the service descriptions or contract specifications, but it is also necessary to decide which broader quality considerations should apply. Two years ago the IPD, together with the Chartered Institute of Public Finance and Accountancy (Cipfa) and the Society of Chief Personnel Officers in Local Government (Socpo), published a guide to the evaluation of quality in personnel CCT. This suggested that the overall quality of both potential contractors and the in-house function could be assessed on a point system (see table).

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Assessing the quality of personnel providers

Quality factors Know-how and experience Access to specialist data and advice Acceptability and relevance of proposed methods Compatibility of style with that of the authority Price

Maximum scores 20 15 15 20 30

The details of the tendering and market-testing processes are outside the scope of this article, but an honest, in-depth review of the in-house personnel function against these criteria would be useful preparation. It might lead to improvements that reduce the pressure for market testing or, in a CCT environment, it could strengthen the in-house bid.

Question:
What do you understand to be the main decisions, problems and opportunities associated with the outsourcing of HR departments?

CASE STUDY FEEDBACK


You probably came up with some of the following: Decisions

Assessing quality and cost effectiveness. Extent of outsourcing outsource the whole of the personnel
service or parts of it?

Strategic or/and operational aspects of outsourcing.


Problems

Strategic and cultural centrality of personnel.

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Ability to predict pattern of demand for services and the


contracting implications.

Few consultancies able to provide the range of dedicated


services on a full-time basis for medium and large organisations.

Organisational knowledge and trust.


Opportunities

New ideas and expectations. Wider base of specialists to call upon. Higher level of specialisation cost effectiveness. Competition cost effectiveness. Clearer service level standards.

Outsourcing is a critical step for the organisation that has longer-term implications for the knowledge and commitment of one of its key functions. Any decision to do so would need to be based on a careful evaluation of costs, quality of service and impact on the longer-term adaptability and flexibility of the organisation. This decision will have significant implications for the reaction and co-operation of line managers and other staff. In short, it is a matter of confidence, identification and trust in a key aspect of the business.

ACTIVITY
Suppose you had to brief a Chief Executive Officer about the desirability of outsourcing all or part of a large, centralised personnel department combining the functions of general personnel activities, resourcing, training and employee relations. What would you note as the strategic and operational advantages of outsourcing? What are the operational risks?

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ACTIVITY FEEDBACK
Your notes might highlight and develop the following points: Strategic Advantages

Outsourcing retains core activities and outsourcing administration


aspects.

Personnel is viewed from a consultancy perspective and


organisational development strategy as a core business.

The growing supply of comprehensive outsource organisations


means that a purchase provider situation enables more effective contract compliance. Operational Advantages

Outsourcing has short-term impact on costs and numbers. Outsourcing expands the range of the available services. Outsourcing adds entrepreneurial capacity to Personnel to defend
the service.

Shared Services means a growing awareness of specialisation skills


and reflects the movement to network organisations. Operational Risks

Results may not emerge. There are cost versus quality issues. Lock-in and dependency upon third party may occur rather than
skills within the organisations control.

What has the experimentation with HR outsourcing achieved? We can say that the results have not been radical in many cases. There is some evidence that organisations are rethinking the advantages of outsourcing. BP Amoco had embarked upon a world-wide plan to outsource HR transactions to an e-business company, Exult, in search of savings against an annual budget of $300m for HR. The costs have risen rather than declined, as employees have tended to reject using the e-business system to deal with administrative issues. The cost of standardising all procedures was too high (People Management, Nov 2001).
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Nevertheless, the innovation in service provision, service levels and mode and location of provision is clear evidence of a proactive approach to changing requirements within a professional framework. Let us move on to look at one final area of adaptation and look at how technology has affected HR departments.

HR service centres: technology and the new division of work


Bringing technology and new dimensions of work to personnel functions is a natural step. Using centralised call centre technology as well as Intranets to allow independent access by staff for advice, rather than via line managers or localised resources, brings a new dimension to providing HR functions in the following ways:

New technology has enabled computerised systems to


improve the collection and categorisation of decision making data in HR.

New technology has provided opportunities to assist


with the decentralisation of HR functions, job evaluation, and competence assessment.

Training needs can all be developed in standardised


ways for line managers and individual staff.

Computer-based training can be tailored to the


individual, and allow for self-paced development and education. New service centres are redefining the way traditional HR face-to-face advisory and diagnostic functions are performed. Proximity to the client is no longer a critical consideration.

ACTIVITY
Identify the issues an organisation needs to consider when making a decision on establishing HR service centres.

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ACTIVITY FEEDBACK
These are some of the issues an organisation needs to consider

A distinction between high level corporate and strategic functions


requiring high skills levels, and the standardised delivery of mainly administrative advisory functions based upon established procedures and policies.

Cost reduction in terms of location, staff numbers and the


consistency of decisions.

Quality of service through standardisation of decision and high level


staff training.

Flexible delivery of service via technology. Importance of investment in personnel and HR service. Problem of depersonalisation from both management and
employees, with echoes of the 1970s and 1980s.

Risk of the distance of HR from business reality. Emphasis on specialist role rather than looking at business solutions. Retention of consultancy role is important using project based
thinking.

Risk of implemental distances between solutions provided and user


commitment to HR decisions by line managers.

Risk of isolation of HR practitioners from organisational activities. Ability to achieve convergence and synergy of HR practice across
global boundaries; integration of HR activities as a strategic asset.

Professionalism of services. Ability to measure service provision, speed of response and


customer feedback; customer service indexes clearly established.

Cover structure for HR personnel operational to consultancy


rather than hierarchy levels.

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CASE STUDY
An interesting development of the service centre concept occurs when large organisations consider changing from cost to business centres based upon income generation. Now read the short article below: BAE in HR export drive by Dominique Hammond, (People Management, 25th October 2001) Defence company BAE Systems has entered the HR outsourcing market by turning its personnel function into a separate business that will sell to other companies. The new company, Togethr HR, was formed earlier this year in partnership with business process management company, Xchanging. Togethr HR was created to sell HR services back to BAE after the company restructured following the merger of British Aerospace with Marconi Electronic Systems. The business process outsourcing market is estimated to be worth over 200 million worldwide. BT has also turned its HR function from a cost centre into a separate revenue-generating business to capitalise on the growing market for HR services. HR outsourcing has become a trend, but it is yet to prove a success, said Geoff Smith, consultant at William M Mercer. We are certainly seeing a number of suppliers developing a foothold in the market. BAE and Xchanging, which each own half of the new company, have jointly invested $20 million over the next five years to build a single, internet-based HR software system. BAE previously had 21 different systems for its 100,000-strong global workforce. BAE has transferred 462 of its 700 HR staff to the new company, most of whom will be based at a service centre in Preston. There is a massive market for these services and we are building the capability to meet those demands, said Alan Bailey, head of environment and business development at Togethr HR.

Question:
What do you consider to be the potential advantages and disadvantages of this approach. Try to think of at least two in each category:

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CASE STUDY FEEDBACK


The advantages could include:

Develops business awareness and skills for personnel practitioners. Potentially broadens the knowledge and skills of personnel staff into
new areas and organisational sectors.

Emphasises cost efficiency of service provision. Ensures that the capacity of the resources are fully utilised. Broadens the task range and scope for experimentation and
organisational analysis.

Fits into the broader network organisation models where the supply
chain can be integrated.

Develops a sense of professional practice, a client-centred mentality


along the lines of accountability and legal practice. The disadvantages, however, could include:

Dilutes organisational knowledge, commitment and internal working


relations.

Confidentiality and sectoral market information may be lost. May create a distance between organisation-based decisions and the
required level of professional advice, thereby reducing personnel involvement in strategic review. This could be the generalisation of personnel practice.

So what is the future role for HR?


Before we leave this unit we need to return to the question of the role for the HR department. We have looked at the impact of change, the challenges for the specialist and at some trends in personnel work. But what about the traditional functions of employee-centred activities, the management of the employee, and the personnel and development contribution to business performance? Torrington (1996) defines four roles for HR based on metaphors of:
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Strategic practitioner, aligning business and HR strategy. Administrative expert, building an efficient infrastructure
in which organisational processes can operate.

Employee champion, increasing employee commitment


and capability and providing for the employee voice.

Change agent, managing transformation and ensuring


capacity for change.

ACTIVITY
For an organisation that you have worked for or one that you have knowledge of, complete the role-assessment survey to assess that organisations HR role. For each statement, give a score from 1 to 5 where 1 is low and 5 is high. Human Resource Role-Assessment Survey by Dave Ulrich and Jill Corner Current Quality (1-5) HR helps the organization... 1. 2. 3. 4. accomplish business goals improve operating efficiency take care of employees personal needs adapt to change

HR participates in... 5. 6. 7. 8. the process of defining business strategies delivering HR processes improving employee commitment shaping culture change for renewal and transformation

HR makes sure that... 9. 10. 11. HR strategies are aligned with business strategy HR processes are efficiently administered HR policies and programs respond to the personal needs of employees

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12.

HR processes and programs increase the organizations ability to change

HR effectiveness is measured by its ability to... 13. 14. 15. 16. help make strategy happen efficiently deliver HR processes help employees meet personal needs help an organization anticipate and adapt to future issues

HR is seen as... 17. 18. 19. 20. a business partner an administrative expert a champion for employees a change agent

HR spends time on... 21. 22. 23. 24. strategic issues operational issues listening and responding to employees supporting new behaviours for keeping the firm competitive

HR is an active participant in ... 25. 26. 27. 28. business planning designing and delivering HR processes listening and responding to employees organization renewal, change or transformation

HR works to... 29. 30. 31. 32. align HR strategies and business strategy monitor administrative processes offer assistance to help employees meet family and personal needs reshape behaviour for organizational change
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HR develops processes and programs to... 33. 34. 35. 36. link HR strategies to accomplish business strategy efficiently process documents and transactions take care of employee personal needs help the organisation transform itself

HRs credibility comes from... 37. 38. 39. 40. helping to fulfill strategic goals increasing productivity helping employees meet their personal needs making change happen

Scoring Sheet for HR Role Survey Using the assessments in the quality column of the survey, complete this worksheet. Put your score from the quality column next to the number for each question, then add the total for each of the four roles.

1 Strategic partner Question 1 5 9 13 17 21 25 29 33 37 Total Score

2 Administrative expert Question 2 6 10 14 18 22 26 30 34 38 Total Score

3 Employee champion Question 3 7 11 15 19 23 27 31 35 39 Total Score

4 Change agent Question 4 8 12 16 20 24 28 32 36 40 Total Score

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ACTIVITY FEEDBACK
Clearly, your assessment will be unique to you. However, the role-assessment survey should have indicated where the balance of HRM sits in your chosen organisation. A higher score in column 1 indicates a more strategic emphasis, in 2, a traditional personnel role and in 3 a welfare role. A high score in column 4 indicates a complete change of role for HRM.

What should the scoring profile be? Ulrichs theme is to ensure a balance between the professional and operational activities (administrative expert and employee champion) and the more strategically linked activities of strategic partner and change agent. Another way of understanding the scoring profile is to take a contingent perspective whereby emphasis is placed on a strategic or operational axis (see Figure 2.8) depending on the balance of outcomes to be achieved. For example, at different stages of its life cycle, an organisation might need to focus on one or more positions. In the diagram, the strategic axis from top left to bottom right links strategic partner with change agent and the operational axis from top right to bottom left links employee champion with administrative expert.

S t r at egic par t ner Business focus Results orientation and performance enhancement

A dminist r at ive ex per t Professional practice New policies to support change or employee commitment

E mployee champion Achieving commitment through partnership or involvement strategies in times of change

Change agent Diagnosing culture and competence change to support business change and maintenance of employee commitment

Figure 2.8: Ulrichs strategic HRM perspectives

These then are the strategic roles that underpin the delivery of strategic HRM within organisations and from this point on in the module we will

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map onto these roles the activities and policies that occur within the key areas of the HR strategy:

HR planning and performance. Assessment and selection. Appraisal and the development of competence. Employee relations and organisation commitment.

READING ACTIVITY
Read the following article about SHRM: HR with attitude by Rob MacLachlan Ill make a prediction, said David Ulrich, halting his two-and-a-half-hour master class to share a sudden thought with the 2,000-strong audience. Within five years, a top HR person will change his or her firm, and the stock price will change too. The reason? Because it will be seen by the market as a test of the firms commitment [to good people management]. The implication? Because HR will at last be widely recognised as crucial to the firms business strategy and top team. Ulrich was doing a star turn at the annual conference of the Society for Human Resource Management (SHRM), the IPDs equivalent in the US. His prediction was prompted by one of the main conference talking points: the just-announced sacking of Al Dunlap, controversial chief executive of domestic appliances manufacturer Sunbeam. Dunlaps approach had been to improve cash flow and returns to investors by ruthlessly closing less profitable business units. This had dramatic short-term results, hyped as the Dunlap solution. But the sacker-in-chief was himself sacked when Sunbeams board realised he had nothing more positive to offer in the long term. Dunlap managed for investors, but ignored customers and employees. He was a liquidator, commented Ulrich, an edge of anger to his voice. The Dunlap solution is easy. Generating cash flow this year is easy. But generating cash flow for the future is more difficult. The important thing is to create sustained value, and the only way that you can do that is by creating long-term, sustained performance. There has never been a better time to be in HR, he believes. Partly this is thanks to the perception that when everybody was re-engineering, the people dimensions werent taken on board enough and it didnt have the impact that

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everyone sought. But, more importantly, the opportunity arises because the challenges facing businesses today all involve building HR capability. Ulrich comes across as a thinker about business management whose special interest is HR, rather than an HR specialist trying to find a wider audience. The difference was summed up by Craig Sturken, chief executive and chairman of Farmer Jack Supermarkets, one of the leading retail chains in the midwest, who attended with his HR director and 19 other chief executive-HR director pairs a one-day partnership forum led by Ulrich at the SHRM conference. Dave Ulrich is a businessman with an HR influence. Hes not a traditional consultant who stands at the front making speeches, Sturken said. He understands whats going on in business. Ulrich speaks the language of top executives because he concentrates on linking HR practice with the bottom line. As Mary Holden, Farmer Jacks HR director, said: Weve seen today how important it is to determine at every level what we really want to accomplish, and to move that down through every level of the business. We need to focus on what we deliver, not on what we do, Ulrich told the main conference master class on the following day. All the HR textbooks are incomplete because the chapters focus on roles rather than outcomes. Roles such as training and pay policy are important, but deliverables are more important. The sort of questions we should be asking are: how are we going to introduce cultural change, or build the organisations global capability? Ulrich believes that what will distinguish successful firms in the future is the way in which they organise themselves. Indeed, he has said that the only competitive weapon left is organisation. In a recent Harvard Business Review article1 he explained: Sooner or later, traditional forms of competitiveness cost, technology, distribution, manufacturing and product features can be copied. They have become table stakes. You must have them to be a player, but they do not guarantee you will be a winner. Winning will spring from organisational capabilities such as speed, responsiveness, agility, learning capacity and employee competence. Successful organisations will be those that are able to quickly turn strategy into action; to manage processes intelligently and efficiently; to maximise employee contribution and commitment; and to create the conditions for seamless change. This emphasis puts Ulrich directly at odds with Michael Porter, whose thinking still dominates US boardrooms. Porter, the leading business strategy guru, teaches that competitiveness depends primarily on capturing market niches by creating unique products or services for which customers are prepared to pay a premium. Once you get the business strategy right (in the boardroom), he seems to suggest, everything else will follow.2 Competitiveness doesnt come out of strategy alone, objects Ulrich. Thats only half of the game. Competitiveness also depends on whether you have the organisation you need to execute the strategy. If you dont have a good strategy, youre clearly in trouble, but having a good organisation is equally
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critical. Yet, in his latest essay, Porter dismisses the organisational side in two sentences. By organisation, Ulrich is not referring to structure. It doesnt matter how many levels of management there are, he says. Whats important are things such as speed, quality, simplicity, self-confidence, good decision-making. In other words, the capabilities of the organisation. He then told SHRM members, My job in HR is to help my executives identify the capabilities they need to win. He defined 16 broad organisational capabilities (see List 1) and challenged delegates to identify the four that are currently most important for their organisations. If you cannot get 70 to 80 per cent consensus among senior executives about the most important three or four capabilities that the firm needs to win, he said, you probably arent going to succeed. Ulrich would be last to claim that the 16 capabilities are exhaustive. He uses copious charts and worksheets in his teaching, but he told delegates: Adapt them, dont adopt them. In this case, his point was to emphasise the importance of clarity about the capabilities that an organisation needs, and consensus about the priorities. But getting senior executives to listen, let alone brokering a consensus among them, must seem a daunting task to many personnel professionals. Ulrich himself is painfully aware that the present role and calibre of HR people in many organisations does not position them to exercise influence at the top level. His recent Harvard Business Review article, addressed to chief executives and designed to persuade them to take the initiative on organisational capability, stated baldly: When more is expected of HR, a higher quality of HR professional must be found. His basic position is that the HR function must evolve or die and he strongly believes, on the basis of 20 years of research, that it must embrace four key roles if it is to survive. These are:

Partner in strategy execution. HR should be held


responsible for defining the companys organisational architecture. Consider the case of a company, Ulrich says, in which HR defined the organisations architecture in terms of its culture, competencies, rewards, governance, work processes and leadership. The HR staff was able to use this model to guide management through a rigorous discussion of fit did the companys culture fit its strategic goals, did its competencies, and so on? When the answer was no, HR was able to guide a discussion of how to obtain or develop what was missing.

Administrative expert. Dozens of processes within HR can


be done better, faster and cheaper, Ulrich says. Improving efficiency builds HRs credibility and enables it to advise other parts of the company on how to achieve similar gains.
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Employee champion. It should be the responsibility of HR people


to ensure that employees feel committed to the organisation and are contributing fully. This involves training line managers in how to get the best out of people, consulting on work processes, monitoring employee morale and acting as advocate for the employee point of view. Asked how trade unions fit into this scenario, Ulrich told People Management: The key question is not whether to be union or non-union, but how do we make sure that people have the skills and the knowledge to do the job? How do we work together to make the company succeed? If we spend too much time worrying about trade union recognition, theres a danger well take our eye off the ball.

Change agent. HRs role in managing change, Ulrich says, is to


replace resistance [to change] with resolve, planning with results, and fear of change with excitement about its possibilities. This means creating the right culture and, in particular, mapping out how to move from the present culture to the desired one. To grow into these roles, Ulrich says, all HR professionals need to develop the competencies that the best in the profession already have. His model of desirable HR competencies (see List 2) is derived from more than 20,000 responses collated in three different research exercises in the past decade. The respondents were personnel managers and other managerial colleagues a mixture designed to give a 360-degree view, and the updated results, which Ulrich issued at the SHRM conference, point in a clear direction. The data shows the relative importance of five broad competency areas that respondents felt HR professionals needed. The first competency, understanding the business, means being familiar with key concepts in strategy, marketing and financial analysis, and understanding the processes involved in producing and delivering the companys products or services to customers. Ulrich describes it as a ticket of admission to the top table. Without this understanding, you dont even get a hearing. But business understanding alone gives you little leverage in an HR role, hence its relatively low contribution towards overall effectiveness. The relatively low rating given to knowledge of HR practices (access to the best techniques available) is an uncomfortable point. It explains why many organisations in the US and the UK are able to bring in someone from outside the profession to manage the function and take board-level responsibility for it. Nonetheless, were seeing this a bit less now, Ulrich told me, because more chief executives are recognising that there is an important body of knowledge in HR, and that without access to it, mistakes could be made. But one of the problems is that few people are fully aware of this body of knowledge. Sometimes it seems that academics live in a world of theory and HR professionals are too taken up with their immediate problems, he continued. As a result, the collective expertise of the profession is not honed and passed on
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as well as it might be. (It can be difficult to bridge the gap. Ive heard academics claim Im not academic enough, and HR people that Im too theoretical, Ulrich said.) He believes that considerable progress has been made in demonstrating HRs effectiveness, citing in particular the work of Mark Huselid at Rutgers University,3 which shows that companies bundling HR practices have 33 per cent greater market value per employee than those that dont. Other work on the benefits of the balanced scorecard approach, and on HR efficiency and benchmarking indices, is also promising. Yet, he says, there are two issues here. Question one: do we have effectiveness research in place? Id say the score here is four or five out of 10. Question two: is it known and used by HR professionals? Here its more like two or three out of 10. When I say to practitioners, talk to me about this, their eyes mostly glaze over. The third and fourth competencies managing culture (that is, to recognise important patterns) and managing change (making it happen) are essential if HR is going to claim the key roles urged on it by Ulrich. But they are not competencies that are by any means unique to, or indeed prevalent among, HR professionals. Thus, the function needs a major shift of emphasis if more of its number are to become as effective as the best. But it is the fifth competency, personal credibility, that is regarded as most important to overall effectiveness. Ulrich explains that someone with high personal credibility demonstrates, for example, business insight, high integrity, appropriate risk-taking, chemistry with key constituents, and continuous learning. Another crucial factor is a track record of success. Credibility [also] comes from doing the little things well. Your HR function is as strong as your weakest link, he told SHRM members. Yet even when an HR person has all five of these competencies, Ulrich believes, another factor must be brought into play. And what is the latest sophistication in this theoretical tour de force? Simply (but how difficult in practice) the ability to act with an attitude. The key to success in any profession", he claims, is that once you have the competence, you must act with an attitude. Typical behaviours might be making confident predictions (based on professional knowledge) or making bold stands (based on principle). Ulrich gave several real but anonymous examples, the best of which concerned a company whose chief executive died suddenly. Half an hour into the board meeting called to pick his successor, the HR director slammed the table and objected to the process that was starting. Im going to stop this discussion right now, he said. This is wrong. Until we have agreed on a model of competence for the chief executives post, I wont agree to an appointment being made. The board was then led through a six-hour discussion of the challenges facing the organisation and the qualities needed in the new chief executive. A competence model and the desired behaviours were then agreed.

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When the board met several days later, it matched candidates to the model and chose a successor. The HR director had made a crucial intervention. His professional knowledge and principles had given him the confidence to act with an attitude when it was justified and necessary. Ulrichs parting shot to the SHRM audience hit another nerve. Ive realised one of the strangest things about acting with an attitude, he said. Most HR managers had come into HR because they cared about people. For a long time now, the function has been wary about wearing its heart on its sleeve. But this starting point, he seemed to suggest, can give HR professionals providing they have the necessary competencies some of the moral strength to act with an attitude. We should continually be asking: is my company really building the policies, the practices and the procedures that would make this an organisation everyone is delighted to work for? Because if we dont, we are not only hurting the company; we are hurting the profession as a whole. List 1. A question of priorities What four organisational capabilities is it most important for your company to excel at? 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Be the preferred employer Be the quality leader Have a shared mindset Be intrapreneurial Make timely decisions Manage costs Manage information Manage work Be fast in the marketplace Be marketplace agile Manage the strategic vision Manage stakeholders Empower individuals and teams Ensure supply of talent Reward for performance
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16

Support employee development

(Adapted from a list of organisation cultributes or cultural attributes developed by Ulrich with Bob Eichinger and Mike Lombardo) List 2. Key competencies of HR professionals Relative Importance to effectiveness Understanding of business Knowledge of HR practices Ability to manage culture Ability to manage change Personal credibility HR as guardian of the brand Ulrich uses concepts from marketing to draw a more direct link between the competitiveness of companies and their HR policies. The objective of any business is to build a brand that customers are loyal to because they think of you as delivering high quality, keen prices, good design or whatever. But increasingly, he says, brands are becoming focused not on individual products or services (which change so fast), but on firms themselves. At this level, a brand is the identity that a company projects. It follows that organisational culture is crucial to this type of brand. The attitudes and behaviour of managers when they make key decisions, and of employees in their everyday dealings with customers, could do a lot either to strengthen or weaken the brand. A vital role for HR is to ensure that they strengthen it. Marketing people may build the organisations brand identity, but translating that into company behaviours and employee practices needs HR people, Ulrich told PM. It is up to personnel professionals to work out what that identity means in terms of recruitment, pay, training and so on. Ulrich cited Virgin as a good example of a strong organisational brand. Its not any one product that makes Virgin successful, but a brand of enterprise, he said. Virgins HR team would have had to work through what it is that employees need to know and how they need to act to enable Virgin to build the brand identity it wants. Of course, there are other capabilities that may not be directly linked to the brand, but are just as important, such as the ability to respond quickly to change. I was in a firm recently, he said, where managers spent so much time on analysis that they never seemed to get anything done. % 14 17 19 22 27

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References
1. 2. Harvard Business Review, January-February 1998. Last year People Management ran a profile of Michael Porter (23 October 1997) and an extended report on his presentation to the IPDs Harrogate conference (6 November1997).

What does this article show in relation to our previous discussion about the evolution of HR departments? Ulrich identifies the importance of the contribution and results orientation of HR. His restatement of the importance of bundling of best practice tends to justify the importance of a strong professional HR practice in the organisation. The article also confirms the importance of HR upskilling through the adoption of consultancy skills. Ulrich offers a typically combative and rousing conclusion, unashamedly unitary and managerial in focus.

Evaluation of the HR Function


We have already touched on this subject in the sections on auditing performance and in looking at the future role of HR. However, with the changing role of HR, and its very existence being questioned in some organisations, it is important to formally evaluate the effectiveness of the HR function within an organisation. It should be emphasised that in the modern organisation, the HR function is not performed solely by HR specialists. Responsibility for the HR function, as we have seen, also lies with Line Managers from the business. Fulfilling the HR function is very much a partnership between the HR department and the business. Thus HR departments are increasingly viewed as enablers to the organisation and to the people in the organisation. They provide a strategic service and, as such, should be customer centric. The effectiveness of their service should be measured. Developing people, bringing out talent, supporting the organisational strategy, and being corrective in situations where there are deficiencies are the functions of HR. These need systems, values, and competencies that have to be communicated, trained, developed and measured. So how do we measure the effectiveness of HR. Unlike other business functions, measuring effectiveness of the HR functions can be subjective. Nevertheless to get an accurate picture, the customers of the HR service, that is employees and managers, should be consulted for their views on the desired and actual role of the HR function. The key areas for evaluation are:

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1.

HR Policy Formulation Includes strategic policy and how well it supports organisational strategy and goals, and development of core competencies, culture change, etc. How well does policy support devolution of functions where appropriate (e.g. education and training, recruitment)? How well do the enabling policies (to develop skills, career management, rewards, recognition) work?

2.

Planning How effective is HR planning, recruitment planning, career planning, succession and workforce planning? How well is workforce diversity, job design, organisational structure and change planned?

3.

Development How effective is foundation and induction training, professional development, leadership and management training, career development, mentoring, staff assignments and movement?

4.

Staff relations Areas for assessment include management of industrial relations/employee relations, enterprise bargaining, grievance resolution, communication, promotion of teamwork.

5.

Performance Is there a business code of conduct (covering ethics) and how well is it adhered to? How effective is induction, how is performance managed, how are staff supervised, how effective is the appraisal programme? Are rewards and recognition programmes effective in enhancing performance?

6.

Staffing Practices How effective is appointment and selection? How competitive is remuneration (and does it attract staff of the right calibre to support organisational aims)? How effective is delegation? How effective and fair is the job classification system, work level standards? How flexible is the work environment and is it in keeping with technological developments? How equitable are staffing practices in promotion, rewards, separation?

7.

Health and Safety What level of training is there for occupational health and safety? How do you rate the work environment and culture? How are staff with disabilities and long-term illnesses supported? How well are injuries handled?

Such an evaluation can be carried out by an external audit, but it also can be carried out internally. What is important is that corrective action be taken following an evaluation of the HR function.

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ACTIVITY
With the permission of your HR Manager, consult a cross-section of staff (line managers, business managers, staff from all levels and job categories), to get their feedback on the seven functions identified above. You may wish to design a questionnaire based on the information given in this section to elicit their feedback. Having conducted the survey, summarise your findings (in no more than one page). Identify what works well, what are the areas of weakness/failure and your recommendations for improvement.

READING ACTIVITY
Read the next article. Although it dates back to 1993, the APAC evaluation of service model that it describes is still relevant to the auditing the HR function. When Personnel Calls in the Auditors by Derek Burn and Leah Thompson, (People Management, January 1993) It has never been easy for any organisation to make an objective assessment of the effectiveness of its personnel function or to compare such an assessment with those of others. Effectiveness, at least to some extent, is relative to the required or perceived role of the function, and there is ample research evidence that this role varies widely between organisations. Ultimately, the test for any personnel unit is whether it contributes to the achievement of its organisation's business objectives - another major variable. Broad-based assessments of these kinds are inevitably subjective and do not lend themselves to statistical comparison. Yet many personnel managers (and their organisations) understandably feel a need for more detailed and objective means of assessing their performance and how this changes over time and compares with other organisations. APAC the audit of personnel activities and costs, which incorporates audits of service satisfaction (APSS) and policies and procedures (APPP) - provides just such a mechanism for setting benchmarks, both in terms of measuring internal progress and by comparing standards across a broad range of organisations. Three-tier approach APAC adopts a three-tier approach to assessing the performance of the HR function. The starting point module one gathers fundamental data about the
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operation of the department, corporate statistics and cost-effectiveness. After analysis this module provides the benchmark from which future progress of the department may be measured. The results can also be compared through the APAC database with organisations of similar size and type to provide a broader perspective of what might be achieved. Module two (APSS) focuses on application: assessing reaction to the personnel service provided and the HR needs of user departments. Module three (APPP) recognises the need for fundamental professional standards by auditing policies and procedures. The first module of APAC is designed to highlight the activities of the personnel function. The costs of providing them and the impact of personnel on the 'bottom line' of the business. This module provides the facility to analyse the time spent on each of 42 human resource activities; the costs associated with the in-house personnel function; the costs of external services, such as training, recruitment and general consultancy; the percentage of time spent by line managers on recruitment, reward and training activities; and measures of activities to establish cost-effectiveness. It also analyses the personnel department organisation structure best suited to achievement of specific business requirements. For example, a small firm would not normally need a personnel director; this kind of organisation would typically have a personnel manager reporting to a director of administration, with personnel officers responsible for tasks such as recruitment, training, remuneration and benefits, employee benefits and administration. In larger companies the structure of the department would depend on whether it had a centralised or decentralised decision-making structure. Both would usually have a main board personnel director and central personnel services, but centralised firms would need personnel units in their product divisions, while a decentralised organisation would distribute them on a site basis. An HRM environment, with personnel providing a centralised consultancy service to line managers who make and implement their own decisions on staffing issues, needs a different structure again. The time analysis schedule provides a simple means of recording inputs by every member of the personnel team, including secretarial staff, in a structured manner enabling both internal and external comparisons to be drawn and a basis for service-level agreements to be established and monitored. There are eight functional headings: staffing, development, employee relations, organisation evaluation, reward systems, records and administration, health and safety, and management. Each in turn is sub-divided into discrete activities. Staffing, for example, is broken down into HR policy, manpower planning, recruitment selection, selection interviewing, other selection activities, staff administration, discipline and dismissals, redundancy, terms and conditions, and staff handbooks.

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The database that can be drawn on for comparative purposes is substantial, with over 150 statistical comparisons from over 200 organisations providing key measures to be used in establishing the way forward. The statistics are analysed by size and type of organisation, and much of their meaning can be lost by quoting simple averages of composite data. However, key statistics (with their averages) include: Personnel staff to full-time employees Managerial/professional personnel staff to full-time employees Salary and bonus costs of personnel department staff per organisation employee Personnel salary and bonus costs as a percentage of the total Overall cost of the personnel function as a percentage of overall organisation costs Recruitment costs per new recruit Training costs per employee year (internal and external) - private sector 1:95

1:168

208

1.5%

1.7% 650

172pa,

Examples of other comparisons include staff turnover, absenteeism and sickness data, specialist advisory costs (e.g. legal, pension and actuarial), and clerical and secretarial personnel staff to managerial and executive staff. The second audit module assesses the level of service satisfaction. The audit of personnel service satisfaction (APSS) takes the main personnel functions and assesses the level of service under seven key satisfaction indicators. The seven main functions have been defined as staffing, development, employee relations organisation, reward, records, and health and safety. Satisfaction attributes include delivery of service, communications, professionalism, commitment, management, decision-making and value. The functions are the same as those identified in module one of APAC, so internal salary costs and time can readily be compared with the level of service satisfaction achieved under each of the attribute headings.

Professionalism Each attribute is defined in some detail. Professionalism, for example, is defined thus: "The standard and quality of services provided is of a level that is expected of professional practitioners. Ethical standards, objectivity and independence are maintained, knowledge and technical ability
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cannot be challenged. There is a clear perception of the reality of situations and application of practical solutions." The assessments of satisfaction are usually carried out by line managers and staff representatives on a five-point scale. In smaller organisations all employees (as users of the personnel service) may be asked to rate the function. Level one equals low quality and poor standard of service. Level two indicates a need for improvement in several) areas to achieve a level of service quality which meets the required standard. Level three means some improvement is required in limited areas to meet the required standards of quality and service. At level four, most areas are addressed to a very satisfactory standard, and level five shows that, without exception, the quality and service levels are outstanding. After rating the function as it is perceived now, assessors are asked to state if they believe more or less personnel department input should be given to each function in the future and whether line management should be more or less in involved in future delivery Thus it will be seen that by correlating these assessments to the time analyses in module one we have a powerful tool to measure, develop and improve the direction and value of human resource management. The chart shows average scores from APAC's database. The third audit module - APPP - is used to check that 'good practice' is being pursued in personnel policies and procedures. This module provides a checklist of all the legal requirements, details of IPM codes of practice, and sound, tried and tested personnel procedures against which an organisation can check its performance. This module is particularly useful in start-up and change situations and where several sites of the same organisation have drifted apart in their application of policies. The APAC methodology can, at one level, be self-administered following a brief training workshop. In more complex organisations, consultancy support is advisable to ensure consistency and interpret the statistical and qualitative findings. Once the measurement process is in place, the scope, size and structure of the personnel function can be fine-tuned to harmonise with the current demands of the organisation. Over 200 organisations, including ICL, Scottish and Newcastle Breweries, 3i, a major clearing bank, government bodies, county councils and NHS trusts, have used one or more APAC modules to conduct a self-appraisal of their function and to discover how they compare with standards achieved elsewhere. The Berkshire experience Berkshire County Council has used the APAC system in two ways directly, to assess the size and cost of the personnel function in comparison with other organisations; indirectly, as an approach to monitoring how well line managers are handling their devolved HR responsibilities.
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In 1989 the county council adopted a policy of devolving responsibility for HR decision-making to departmental line managers. It was then recognised that if they were to take on increasing responsibility for managing the human resources under their control, they would require training and guidance on best practice as well as their legal responsibilities. These managers were therefore given training in good practices within a legal framework. In addition, guidance was provided through a 'human resource management specification', which was first published in April 1990. The specification was not prescriptive, so managers had the authority to establish ways of carrying out their activities in a way which met their business needs. For example, the RB specification set out the principles of effective performance appraisal, but departmental managers were free to design their own appraisal systems to suit their particular needs and style, provided the general principles were upheld. The council gave managers this freedom to manage within a devolved framework provided that effective monitoring was undertaken on a regular basis and reports prepared to assure members that the council's resources were being used effectively and properly. To this end, the HRM specification identified those areas of human resource activities which would be monitored and in some instances described how this monitoring would take place. While it is perfectly feasible to collect data on what a department is doing in any area of human resource management - e.g. how long it takes for a particular vacancy to be filled - this information says very little about the way a department handles the recruitment process. It was therefore necessary to collect more than statistical information before judgments could be made about departmental practices and effectiveness. The information required for any one functional area consisted of a mixture of statistical information and examination of available records. In the majority of cases, a sample of line managers were interviewed during the monitoring process to obtain information directly from them. Although several departments employ professionally qualified personnel staff, these staff were usually seen only at the beginning of each monitoring exercise, to obtain basic data and their overviews of how the department operated. The variety of responses to questioning made for interesting comparisons within and between departments. Having gathered the data and relevant information from within departments this was collated in a way that was readily understandable by and accessible to councillors and officers alike. Concerns over specific shortfalls were expressed to the chief officers of individual departments, along with suggestions for improving their standards. The report for councillors provided an overview of the situation and areas of activity which required improvement were identified, along with recommended actions. Following debates among members, an approved list of required improvements was made available to departments for incorporation in their priority actions for the next year. Their success in implementing these improvements will be monitored in successive years.
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Comparisons The devolution of decision-making to line managers raised questions about the size and cost of the smaller personnel function that resulted. To make fair judgments about this, comparisons were needed with similar organisations elsewhere. In April 1990, when Berkshire began to gather information about departmental activities, it was difficult to obtain comparative information about other local authority activities, let alone the private sector, which would have provided the competitive comparisons sought. At that time, Berkshire did not know if adopting devolved accountabilities would significantly affect professional personnel staffing levels in comparison to other businesses. This question and many others were answered by use of the original APAC study undertaken by MCP Management Consultants. This showed that Berkshire's personnel staffing levels and costs as a proportion of permanent staff are significantly lower than those of other organisations in both the private and public sectors. Data made available through this and other subsequent studies have enabled the council to make an objective assessment of the impact that devolution has made, and continues to make, on its ability to meet service demands.
Professional Delivery Communication s Commitment Decisions Management Value

Staffing Developmen t Employee relations Organisatio n Reward Records Health and safety

4.5 4.2 3.7 2.6 3.0 4.6 4.5

3.2 4.2 4.1 2.8 3.1 4.3 4.4

3.0 4.5 3.6 3.0 2.5 4.1 4.4

3.1 3.9 3.3 3.1 2.5 4.4 4.3

3.6 3.2 3.0 2.4 2.3 4.3 4.1

4.1 4.1 3.0 2.6 2.7 4.7 4.2

2.4 3.4 2.5 2.2 2.8 3.8 4.5

APAC matrix for Berkshire County Council

Summary
This unit has considered the emerging debate about the role of HR in organisations.

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We have tracked the historical developments, and have noted that the idea of HR departments giving way to newly-empowered line managers is problematic. What happens to professionalism, expertise and coherence of strategy? We examined the nature of the so-called HR crisis and looked at the fundamental split. Should, and can, HR become strategic? What are the consequences for effective HR management? Like any function, HR needs to be able to demonstrate value added and adopt flexible structures be they centralised or decentralised, relating to the business situation. We examined the relative merits of devolution, decentralisation and outsourcing. We also looked at the emerging trend of HR Service Centres, personnel factories of shared services. At the heart of the debate is the role of face to face aspects of HR and the reality of being properly customer driven. We arrived at a new balance for HR via Ulrichs four perspectives for HRs role. What seems to emerge is a clear-cut role for HR, central rather than peripheral, if they can rise to the emerging professional challenge of policy and process skills. Finally we briefly looked at the evaluation of the HR function within an organisation.

REVIEW ACTIVITY
Now answer the following questions to refresh your knowledge of this unit: 1. What are the organisational and specialist changes that are likely to impact on the management of people? What are the problems that HR departments face in adjusting to the new agendas? Identify three key trends in the design and organisation of HR departments. How might they address issues raised in Question 2? How and why might HR departments set up methods of service monitoring? What advantages do audits offer HR departments in the management of people?

2.

3.

4.

5.

6.

Evaluate the impact of devolution and decentralisation on the formulation of an integrated human resource strategy.

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7.

What do you understand by the term multiple roles for HR? How might it overcome some of the weaknesses perceived of old operational Personnel and new SHRM from Unit 1?

REVIEW ACTIVITY FEEDBACK


Answer 1 The likely changes are:

Fragmented organisational structures with key skills outside


organisational boundaries.

Flexibility debate. Need for a new basis of managing people; systems to process. Rebuilding psychological control.
Answer 2 The problems faced by HR departments are:

The requirements for strategic and business thinking. A crisis of identity and confidence.
Answer 3 Key trends that you might have come up with include:

Devolution of functions. Decentralisation. Becoming strategic rather than operational. Developing audit and value for money indicators.
These trends might lead to a greater focus on business, moving personnel closer to the activity of the organisation and an evaluation of the contribution made by personnel. Answer 4

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The methods of monitoring might include service level agreements, or contracts with service suppliers. Personnel departments might do this to demonstrate service relevance, business focus and cost effectiveness. Answer 5 The advantages of audits are:

Legitimacy and credibility. Value for money. Effectiveness of service delivery. Relevance of service delivery. Basis for adopting service focus.
Answer 6 The advantage of devolution and decentralisation is in getting closer to the business (best fit) while the disadvantage is that services become fragmented and unintegrated, subject to short-term response, rather than longer-term development of organisation-wide competitiveness. Answer 7 Ulrich provides us with the multiple role model. It reflects:

Professionalism, increasing the qualifications of specialist Personnel


people there is a non-dilution of professional expertise.

Business focus, balancing management and employee interests. Change orientation, moving from a systems to a skills basis. The employee perspective, retaining employee interests.

References
The Strategic Managing of Human Resources, edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, 2004 (Key text for this module) Foot M. and Hook C. (1996) Introducing Human Resource Management. Longman.

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Guest D. (1998) Human Resource Management, Trade Unions and Industrial Relations in Mabey C, Salaman G and Storey J (eds) Strategic Human Resource Management: A Reader London Sage. Hall L. and Torrington D. (1998) The Human Resource Function: The Dynamics of Change and Development. London, Pitman Publishing. Torrington D. in Sparrow P. and Marchington M. (1998) Human Resource Management. The New Agenda, Financial Times, Pitman Publishing. Storey J. (1995) Human Resource Management; a critical text. London,Routledge. Ulrich D. (1997) Human Resource Champions Boston. Harvard Business School Press.

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Unit 3

Employee Resourcing Strategies: Planning and Competence Assessment


LEARNING OUTCOMES
Following the completion of this unit you should be able to:

Evaluate the contribution that human resource planning makes to


key human resource decisions.

Identify and apply models of human resource planning to produce


organisational HR requirements.

Explain the role and function of competence assessment in HR


strategy and apply competence assessment models for individual planning.

Evaluate the strategic options available in recruitment and selection. Design and apply a human resource strategy.

Introduction
The first part of this unit deals with human resource planning and the structure and role of competence in the human resource system and the second with strategic options in recruitment and selection and the development of a human resource strategy. We shall consider a number of important issues. The first is human resource planning, labelled as such to reflect the qualitative aspect of diagnosing personal competence and skills. We shall then consider the structure and role of competence in the human resource system, moving on to consider how an understanding of competence can be used to improve the performance of recruitment and selection activities. We shall then draw together the knowledge that we have gained so far to develop a human resource strategy. Competence is at the very heart
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of such a strategy; it is from an understanding of the demand and supply of competence that human resource systems can be developed. Historically, personnel systems were designed first and without a firm understanding of the competence and capability that the business was trying to develop. We shall also consider the strategic issues in the recruitment and selection of people. We shall review the trends in recruitment practice and look specifically at how a deeper enquiry about peoples competence can enhance the validity and reliability of selection decision making. We shall review how techniques of recruitment and selection have been enhanced to cope with the challenge of competence. To complete the unit we shall look at the design, application and evaluation of HR strategy.

READING ACTIVITY
Please read Chapters 2 and 6 of your key text, The Strategic Managing of Human Resources, edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, which covers some of the subjects of this unit.

The contribution of human resource planning


The first point to make is that there is a difference between manpower planning and human resource planning. The distinction need not concern us unduly here, suffice to say that human resource planning is usually associated with a broader level of analysis. The evolution of HR planning has been led by many developments:

Computerised HR information systems. Closer links between the business environment and the
activities of HR managers.

Skill shortages, necessitating the need for skill databases.


Organisations are increasingly focusing on HR planning for reasons including:

Supply of skills to address strategic and demographic


change.

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Need to focus more on demand and supply from an


external and internal perspective of the organisation.

Value of using scenario planning to model the fit with


future business environment. These are two aspects of organisational design significance for HR planning. Firstly, the need to alter the way work is performed where securing the supply of some skills is important. This stimulates policy decisions on recruitment practice, for example, the use of part-time workers and the better use of female staff through childcare support or career break schemes, the adoption of mobile and home-working. Secondly, a basis for looking at achieving flexibility in the workforce to meet cost requirements and to create environmental, work and authority structures to encourage retention of highly skilled employees. Mobile and home-working feature in this category also. The changing nature of the internal and external labour market requires the need to develop a strategic response. In previous units we stressed the changing expectations that staff might have of work (work/home balance, commitment to organisations) and the changing nature of job structures, perhaps resulting from technological change. HR planning is seen as an increasingly necessary process to ensure the organisation is keeping these issues central to its thinking and that the outcomes from the planning process feed into all HR decisions. Acting non-strategically or in a non-planning way will stifle creativity in thinking behind HR policies. Let us consider demographic changes, for example. In response to the shortfall of younger people in the workforce (specifically, 16-19 year olds in the UK), and an increasing rate of early retirements, organisations are faced with the following responses:

Do nothing. Allow entry standards to reduce;


outsourcing activities can address the absence of internal skills.

Compete. Intensify recruitment and pay higher salaries,


which might tend to increase costs, and short-term poaching of staff.

Substitute. Review new labour market sources. Act. Improve the research mix, organisational image and
working environment, restore employee turnover. Substituting and acting are the strategic responses addressed by human resource planning, while doing nothing and competing are tactical.

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ACTIVITY
Can you think of ways in which to balance the demand and supply of labour using the four responses, discussed above. We have suggested an action for an organisation under each of the headings. Try to write down at least one other under each of the headings in the space below. Do nothing/tactical (addresses demand) overtime Compete/tactical (addresses supply) recruit staff Substitute/strategic (addresses supply) retrain older workers Act/strategic (addresses demand) improve employee development

ACTIVITY FEEDBACK
These are our suggestions: Do nothing/tactical

- overtime - reduce production output - outsource.


Compete/tactical

- recruit staff - schools liaison - improve the company image.

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Substitute/strategic

- retrain older workers - reduce labour wastage - tap into new labour markets underrepresented groups.
Act/strategic

- improve employee development - improve the skills mix - restructure jobs.

We have presented a view of why human resource planning might help us to form strategies, the point being that tactical or operational responses may in the long term be more costly in terms of repeat activities, for example, recruitment. More importantly, they may have a detrimental impact upon the capability and know-how of the organisation. This illustrates the point that the pressures are building within organisations to think in the medium to long term about the issues in an integrated way. The next question is how might we go about this. But before we do so, let us briefly look at professionalism in HR planning.

Models of Human Resource Planning


The use of statistics to forecast long term requirements, for example for graduates and engineers, has often been avoided in all but the largest of organisations. The approach advocated by HR is the so-called social science approach introduced by Bennison & Casson (1989). This is based on the concept of the manpower system and the manpower map forming the basis of management judgements about social factors: wastage, retirement, skill changes, behavioural/cultural requirements of staff and essentially the basis of the replacement policy. The important concepts behind the social science approach to planning are as follows:

Wastage a broader term to include not only physical


staff but also key skills, experience and perhaps even such additional aspects as commitment. In practical terms, this means high turnover.
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Profiling in terms of expansion and contraction of the


business, key skills, attitudes and so on. This gives a better match between the activities of the business and the skills that staff possess, for example, IT/business consulting businesses moving from computer applications to knowledge based competencies.

Replacement the essential decisions that feed into the HR


policy areas covered by Unit 1; that is, decisions about structuring/profiling of jobs, developing staff from within or buying in from outside, depending upon an assessment of the availability of those skills on the external environment. This illustrates the need to collect a wider range of information to support longer scenarios of demand and supply. Human Resource Planning includes three stages: 1. 2. Reconciling future resourcing needs with future HR plans. Considering and applying HR policy so as to have an impact upon the flows of human resources in an integrated way. This includes the pattern of engagement of staff and their movement through the organisation and the stages of exit. Assessing the effectiveness of the HR policies in accessing, creating and using human resource capability.

3.

This might be conceptualised using the following model, which illustrates how organisations can view the flow of people and skills into, through and out of the organisation. It can also be the basis on which decisions about reshaping the flows of skills and people can be made. Two scenarios follow the model to serve as illustrations.
Or ganisat ional E nt r y: S upply Or ganisat ional E x it Retirement Experienced/Expert

Senior Management Professional


Horizontal flexibility Redundancy

Mid-career

Early career

Vertical career move

Post-training move

Figure 3.1: Human Resource flows

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Figure 3.1 represents HR flows for either the whole organisation or a segment of core skills/occupations under review. Scenario planning using HR flows is central to the process of human resource planning. The organisation must ask itself fundamental what if questions and model accordingly. We shall consider two scenarios: Scenario 1: Financial institutions operating in a newly deregulated environment may need to restrict the internal progress of staff without specific development objectives being met in terms of say, new product knowledge or skills in customer service. There may be a need to bring (buy) new staff in at mid-career level instead of the norm for the industry, which was promotion in early career. Under these conditions, the longer-term relationship of staff to the organisation may have to be curtailed where change is not possible. Hence organisational exit via redundancy should be planned for. The scope for internal progress will not be automatic but be based on performance and contribution. There will be more emphasis on horizontal job change rather than vertical promotion. Scenario 2: A manufacturing organisation that has traditionally relied upon hiring (recruitment) and firing when demand for production declines has relied on the availability of the external labour market. Faced with increasing competition for the right level of skills, the organisation could be forced to review this short-termist approach and move towards the practices adopted by the Japanese in plants around the world. These include a longer term focus on job security and employment, broader use of multi-skilling and horizontal flexibility and a focus on organisational skills rather than narrowly designed careers and jobs traditional to European employment practice. Organisations are becoming flatter with fewer stages or changes between levels. It is clear that organisations now require more flexibility, as job structures change, with demands for people to become more accountable. Horizontal job changes, career changes and organisational flexibility will all impact upon the decision-making process. For the purposes of this unit we will concentrate upon internal organisational analysis. Let us now look holistically at the model of how the planning process might operate.

A model of the HR planning process


We have said that a broader range of data is required to feed into Human Resource Planning. It will be of both a quantitative and a qualitative or judgmental type.

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ACTIVITY
List at least four examples of data from the external and internal operating environment that you think will be of use in producing an effective planning process. We have given one example under each heading to start you off.

Quantitative Number of employees and posts

Qualitative Skills mix of the workforce

ACTIVITY FEEDBACK
You might have listed the following examples:

Quantitative INTERNAL ENVIRONMENT Number of employees and posts Levels or grades of jobs and skills Number of leavers, wastage rates Sickness and attendance figures Retirements Requirement location of key skills Internal development capability Graduate entrants

Qualitative

Skills mix of the workforce Attitudes and behaviours, for example, customers and clients, flexibility and specialist skills Labour market availability of key skills Competitive use of skills Education output Promotions Ratio of managers to staff

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Quantitative EXTERNAL ENVIRONMENT List of target universities for graduate recruitment Recruitment agencies List of multi-media channels for recruitment e.g. newspapers, internet, TV/radio, professional journals Market rates for resources in areas of skill shortage Acquisition targets for resource expansion

Qualitative

Appropriate specialisations, links to industry and reputation Specialisations and appropriateness to organisational requirements, track record Reach, readership circulation and readership profile

Knowledge and key competencies of human resources in acquisition target, and match with organisational strategy. Ease of integration

We can now pull the factors from the last activity into a model of the planning process. Such a process is made up of four steps: 1. Investigation and analysis The organisation must gather knowledge about:

The external environment and labour market, looking at


for example, national training plans and the location of markets.

The internal environment and labour market: the age and


gender balance of the workforce, the number of employees, wastage rates and so on.

The organisations systems, resources, culture, practices


and industrial relations.

Commercial performance requirements such as sales


targets, product mix, market segments and profits. 2. Determination of demand This is one of the key areas of forecasting in the short, medium and long term. The organisation must determine the demand profile of skills, including their life cycle and decline, and the competence mix. 3. Determination of supply This is the second key area of forecasting. The organisation must determine the supply of skills both internally and externally.

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4. Decision-making The organisation must then make plans to balance supply and demand of skills. The influences will include skill levels, development and the cost effectiveness of accessing a wider skill base. The areas in which decisions will be taken include:

- recruitment - retirement and redundancy - selection and assessment - outsourcing - promotion and reward - development and retraining - organisation development and culture - the type of employment contracts - performance management - employee relations.
The model shows how investigation and analysis of four areas feeds into a forecast of the supply and demand profiles of skills. These in turn feed into the decisions that are made. If we take the financial services sector, including banks, building societies and credit/loan agencies as an example, using the above model we suggest that over the last 10-15 years the following picture might emerge:

External environment: reduced demand, changing skills,


increased competition.

Internal environment: redundancies, new career skills,


new culture.

Organisation systems: a need for performance and


productivity improvement, incentives, flexibility.

Commercial performance requirements: sales of more


products, new markets reducing margins.

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ACTIVITY
Using this analysis, what forecast might you have made if you had been in this sector (Financial Services)? What decisions might these forecasts have given rise to?

ACTIVITY FEEDBACK
You might have forecast:

Limited internal and external supply of the key skills. Requirement for more specialist expertise. Need for attitude changes. Need for flexibility.
In turn, this could give rise to decisions such as:

Recruitment specification changes. Deeper view of personal qualities required of staff. Flatter job structures. More internal development. New contracts. Redundancy. Reward for performance.

From the last activity feedback you might be able to see how the HR flows triangle could be fundamentally re-shaped in this industry. Because of deregulation and the expansion of competition for financial services that were previously protected, banks and loan institutions have faced demands for increased product ranges, more specialised
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products, better customer service skills, increased marketing activity and the need for culture change, and have encouraged staff to adapt to these changes. At the same time, the flow of staff from administration to commercial, technical and IT activities has meant that organisations have had to buy in more specialist services or create specialist service centres (such as telematic call centres), which in turn is changing how the work is structured and performed. At one level the challenge can be for more accountability and customer-led jobs, and at another it can reduce administrative jobs to a factory environment where they are closely structured, measured and monitored. In many sectors of the new economy, including Finance and Banking and IT, skills have moved from being administrative and routine skills to more complex competencies based around diagnostic and interpersonal skills and knowledge. This is an important qualitative recognition to add to the levels of knowledge captured about overall job creation and employment growth. Clearly this has important consequences for selection, labour market and developmental strategies. Key issues faced by such sectors are the need to focus on retention of key staff together with the allowance and possible encouragement of turnover on certain categories of employment (i.e. redundancy, early retirement and wastage). The training implications are about internal skills upgrading. From a recruitment point of view targeting external staff with the right knowledge and skills becomes critical. There are also employee relations implications such as the need to communicate the new expectations of staff and demonstrate support for the changes. This may require high level counselling and appraisal processes including outplacement for departing staff. Throughout this unit we have used terms such as skills, competence and attitudes but we must now develop a firmer analysis of them. Throughout the 1990s there was a growing awareness of the need to specify and categorise the core competences that may offer a unique competitive advantage. Most major organisations now engage in some form of competence analysis to underpin strategic decisions on people; for example, NatWest bank, Shell, IBM, BP and many others. This analysis may focus on managers or may extend to the whole workforce. Understanding core competence and emerging competence and the culture to achieve a higher performance is at the heart of HR strategy. Before we turn to ways of understanding and specifying competence, let us briefly look at professionalism in HR planning.

Professionalism in HR Planning
Needless to say, professionalism in HR planning is vital for organisational success. The first aspect of professionalism is understanding the customer, the customer requirements and providing customer satisfaction. As we have already noted, HR is increasingly viewed as a service; a service both to employees and to the business. As

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such, customer requirements need to be well understood. Delivering the right services to the customer at the right time, to the right quality and to the right cost must be the goal of HR. As we have already noted Human Resource Planning includes three stages: 1. 2. Reconciling future resourcing needs with future HR plans. Considering and applying HR policy so as to have an impact upon the flows of human resources in an integrated way. This includes the pattern of engagement of staff and their movement through the organisation and the stages of exit. Assessing the effectiveness of the HR policies in accessing, creating and using human resource capability.

3.

Professionalism is key to organisational success at each of the stages. Let us examine some of the contemporary issues in this context. In todays global business environment, the customer demands on HR are changing rapidly. From the point of view of the business, HR needs to understand the changing resourcing requirements of the business, flexibility in headcount in response to business cycles, the core competencies the organisation is trying to create and the culture it is trying to establish. HR has to understand the needs of a mobile workforce supporting a global organisation, the knowledge-based workforce the organisation is trying to nurture, the frequent re-structuring due to increased mergers and acquisitions activity, integration of new staff and so on. From the employee point of view, HR needs to clearly understand the increasing needs for workplace flexibility, distance and e-working, improved work-life balance, accessibility of HR operations (which can be effected at any time and from anywhere). Some of the evolving requirements identified above can be enabled by technology. For example, technology underpins mobile/home working and facilitates the accessibility of HR operations at any time and from anywhere. Yet it must be emphasised that technology alone cannot drive results, deliver customer satisfaction or deliver professionalism. Professionalism requires that HR practices be fair, open and transparent. Today, there is a legal obligation for organisations to ensure equality in the areas of race, disability, age, sexuality, gender and religion and belief. HR practices must ensure that equal opportunity regulations are adhered to by all levels of the organisation (guarding against discrimination). Policies and practices should cover recruitment, promotion, remuneration, working conditions, customer relations and the practices of contractors, suppliers and partners, Procedures must be in place to ensure that managers do not stifle or limit the promotion prospects of particular groupings or minorities, or discriminate in the selection of new recruits. Professionalism in this area requires the adoption of formalism in capturing customer requirements

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and selection criteria, and checking adherence against the agreed criteria. This applies to all aspects of HR practices including recruitment, selection, promotion, and separation. Professionalism is also enhanced by engendering, within the organisation as a whole, a culture of equality and respect. One way to promote this is to ensure workforce diversity training is provided to all levels of staff.

ACTIVITY
In 1997 the Ford Dagenham plant was in the spotlight for discrimination against Asian workers. The case received so much adverse publicity that the Ford president, Jacque Nasser, had to intervene. Read the short article on this case at the following website: http://www.diversityatwork.com/news/dec99/news_europe2.html Since the serious issues disclosed in 1997, Ford has made wide-ranging changes to restore its professional image and promote diversity in the workplace. Now read the article The Business Case for Diversity is Stronger than Ever by the Diversity Director, Ford Europe: http://www.hoggett-bowers.com/item.asp?txtID=11433 Another important aspect, which is often overlooked, is professionalism with respect to upholding the principles of freedom of association and effective recognition of the right to collective bargaining. Employees must be able to exercise their rights to freedom of expression, peaceful assembly and association, as well as a fair means of collective bargaining without discrimination, including the right to form trade unions and strike. It is incumbent on HR to incorporate these rights into organisational policy.

Categorising HR Capability: Competence Models


The role and function of competence assessment
In Unit 1 we spent some time thinking about skills and capabilities needed to achieve competitive advantage. We now need to think about how we might give this more effective definition, and for this we need to look at competence. This term is now widely used in HR management. It is used to:

Systematically model jobs.


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Underpin change. Profile people for their development in jobs. Underpin selection decisions. Focus education and training, and personal development
plans.

Contribute to performance planning and reward


decisions. However, the concept is not without controversy and its definition can be complex. What does competence involve? We shall look at some models in due course. Hammel & Prahaled (1994) talk of bundles of skills, emphasising a broader concept than purely skills themselves. This definition implies a mix of skills, knowledge, behaviour, information and experience of the organisation. Skill is used generally to describe a more tangible set of trainable or learnable tasks. Competence, with its broader coverage, is more difficult to define but is less easy to imitate and indeed develop. There are a number of terms used to expand the notion of competence. These include:

Core competence; unique to the organisation and its


activities.

Threshold competence; needed to achieve satisfactory


performance.

Differentiator competence; difficult-to-imitate capability


that gives competitive advantage.

Emerging or decision competence; the assessment of


demand and supply.

Life cycle competence; matching competence to strategic


changes in the business.

Functional competence; linking task performance based


upon criteria, standards and range statements, outlining the contextual situations in which the task is performed.

Personal behaviour/effectiveness competence; for


example, problem solving, communication skills, decision making, integral skills, learning effectiveness and so on. This is at the heart of the supply-side analysis strategy level of the HR plan. Organisations that operate strategically will attempt to define competence at each of these levels and for individual jobs. The results from this will be imported into individual job and personal profiles.

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Organisational competence
We have looked at competence in a general sense. But at this stage we must clarify what is meant by organisational competence, and HR competence. Increasingly organisations are focusing on core competencies and organisational competence. Core competence and organisational competence have become buzz words. So what exactly do they refer to? Core competencies are seen as giving an organisation its competitive edge, and in many cases is viewed as essential to its survival. The terms core skills, core competencies and organisations capability (or organisational competence) are related, but often misunderstood. An organisations core skills, core competencies and distinctive capability make up its strategic core. Core skills are associated with an individual, core competencies with a team, and the organisations combination of core competencies make up its distinctive capability. This distinctive capability of the organisation is referred to as organisational competence. At its simplest, a core competence is a unique capability that affords some type of competitive advantage to the organisation. It corresponds to a business process, and involves a combination of skills, functions, systems and knowledge. To determine if something is a core competence, one has to ask the question, Does it give the company a unique advantage over its competitors and help make the company profitable? It is strategically vital that the business, in partnership with HR, develop, extend, protect and exploit its strategic core (core skills, core competencies and organisational competence) to the full. It is organisational competence that enables an organisation to perform more effectively than its competitors, and offer unique advantage to the marketplace. Core competencies leading to organisational competence are also likely to be persistent and not readily replicable. Organisational competence is derived from an organisations people their skills, experience and knowledge; the HR competence. Increasingly, the HR competences that organisations are looking for are adaptability, analytical ability, life-long learning ability; skills that are persistent and applicable in a variety of business contexts. Today, and especially in sectors of the knowledge economy, greater value is being placed on generic skills that are highly adaptable to particular situations and roles, rather than very specialised skills. Thus in the professional grades, and particularly in the global environment, employers are looking for HR competencies such as:

Intellectual ability: in a commercial environment, this


translates to the ability to balance organisational objectives with market realities.

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Relational ability: ability to work in a team, relate easily


and cross-culturally, and show empathy.

Professional knowledge: strong business knowledge in


the relevant field (e.g. technology, finance, operations, marketing).

Negotiating skills: ability to balance conflicting objectives


from different parties.

Flexibility: in moving from one role to another, mobility. Perseverance and determination: the ability to execute
and achieve successful outcomes. Additionally at the management levels HR competencies include leadership, cultural awareness, communication, motivation.

Applying competence models


In some respects the use of competence has been most valuable in the identification of management skills, and setting the directives for organisational development. We are now going to look at some examples of competences at different levels. Nordhaug (1993) offers us a comprehensive view of competence, but it is used throughout the employment system.

Meta-competences
These are the most general competences and include:

Literacy. Analytical capability. Creativity. Ability to communicate. Ability to co-operate. Ability to tolerate uncertainty. Negotiation skills.
These skills are important at all levels, but particularly for management. They are also important for adaptability and change. Many of them can come in part from education, but perhaps even more from heredity, upbringing, socialisation processes and work experiences.

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Industry competences
These competences are not tied to any one firm in an industry:

Knowledge of the industrys history, structure and


development.

Ability to analyse the operations and strategies of


competitors.

Knowledge about key persons, networks and alliances in


the industry.

Ability to relate to other companies in the industry.


There is an ongoing debate as to whether managers need industry-specific skills. Some argue that managers can transfer from one industry to another with no loss of effectiveness, while others argue that different industries have unique economic, market and technological characteristics, and that familiarity with technical matters, products, personalities and traditions is a type of knowledge that is only acquired through long experience in an industry (Kotter 1982).

Intra-organisational competences
These are organisation-specific competences:

Knowledge about colleagues. Knowledge of aspects of the organisational culture. Knowledge of networks, alliances and communication
channels within the company.

Familiarity with political dynamics within the


organisation and its sub-units.

Knowledge of the firms strategy and goals.


Intra-organisational competences are inextricably linked to the organisational culture of the firm, and vice versa. Indeed, some of the meta-competences may be ineffective if they are not linked to relevant intra-organisational competences; thus general leadership skills must be linked with knowledge of specific organisational conditions. This type of competence is usually derived from introductory courses provided by the organisation, but much more from the individuals ability to internalise organisational norms and values.

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Standard technical competences


These are competences with high task specificity but low firm or industry specificity:

Typing or word-processing skills. Computing skills. Knowledge of accounting and budgeting principles. Craft and professional skills that can be applied across
industries. The educational system, vocational training programmes, apprenticeship arrangements and in-house training systems are the standard ways to achieve these skills.

Technical trade competences


These competences are task- and industry-specific, but not specific to the organisation, for example:

Skills in assembling computers. Bartending skills. Hairdressing skills.


These skills are usually developed through vocational educational programmes that are focused on one industry only, although almost all of them require considerable experience in addition.

Unique competences
These competences are firm- and task-specific:

Skills related to particular tools crafted in the firm. Skills in repairing tailored technology. Skills in operating specialised filing or data systems. Skills related to the maintenance of specific
organisational procedures. These skills are often connected with a unique aspect of an organisations core competences. By definition, these skills are generated within the organisation, and are often developed through in-house training or mentoring and perhaps especially through informal learning.

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Recent trends in organisations are to create leaner, more efficient management layers (flatter structures). A key feature of organisational strategy has, therefore, been to focus on management competencies and management developmental needs. The following 11 high-performance management competencies were identified in an article The kind of competence for Rapid Change, Tony Cockerall, (Personnel Management, 1989): 1. Information search Gathers many different kinds of information and uses a wide variety of sources to build a rich informational environment in preparation for decision-making in the organisation. 2. Concept formation Builds frameworks or models, or forms concepts, hypotheses or ideas on the basis of information: becomes aware of patterns, trends and cause/effect relations by linking disparate information. 3. Conceptual flexibility Identifies feasible alternatives or multiple options in planning and decision-making: holds different options in focus simultaneously and evaluates their pros and cons. 4. Interpersonal search Uses open and probing questions, summaries, paraphrasing, etc to understand the ideas, concepts and feelings of another: can comprehend events, issues, problems, opportunities from the viewpoint of another person. 5. Managing interaction Involves others and is able to build co-operative teams in which group members feel valued and empowered and have shared goals. 6. Developmental orientation Creates a positive climate in which individuals increase the accuracy of their awareness of their own strengths and limitations and provides coaching, training and developmental resources to improve performance. 7. Impact Uses a variety of methods (e.g. persuasive arguments, modelling behaviour, inventing symbols, forming alliances and appealing to the interest of others) to gain support for ideas, strategies and values.

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8. Self-confidence States own stand or position on issues: unhesitatingly takes decisions when required and commits self and others accordingly; expresses confidence in the future success of the actions to be taken. 9. Presentation Presents ideas clearly, with ease and interest so that the other person (or audience) understands what is being communicated; uses technical, symbolic, non-verbal and visual aids effectively. 10. Proactive orientation Structures the task for the team: implements plans and ideas: takes responsibility for all aspects of the situation. 11. Achievement orientation Possesses high internal work standards and sets ambitious yet attainable goals; wants to do things better, to improve, to be more effective and efficient; measures progress against targets. Thus flexible dynamic and organic organisations are producing new challenges and activities for managers, particularly in the areas of information collection, dissemination and assimilation. Furthermore, developmental needs of management takes place through observation, o appraisal (360 see later units) and simulated activity mainly through assessment centres where managers are placed in a range of group practical exercises to assess behavioural competence where the capacity to think and act is measured. Competency feedback is given to managers as to their progress against the organisations strategic competence. This is a form of strategic alignment of behaviour and attitudes critical to achieving the integration at the heart of the SHRM model. Competence feedback is then fed into individual personal developmental plans, and education and training provided where appropriate.

Example Models and Selection Decisions


Completing our view of models of competence, let us review two further approaches, those of Pedlar & Burgoyne (1994), and WH Smith.

Pedlar and Burgoyne


In this model of the eleven qualities of a successful manager, you should note how important the personal and interpersonal aspects are. Of the eleven attributes only two might be described as traditional measures of

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competence, knowledge of organisational practice and professional know-how and skill. The eleven qualities are: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. command of basic facts such as goals and plans of the organisation, and product knowledge relevant professional understanding; technical, marketing and financial knowledge continuing sensitivity to events and being open to information analytical, problem-solving, decision-making skills social skills and abilities; interpersonal skills emotional resilience and the ability to cope with stress proactivity; the inclination to respond purposefully to events creativity: being able to come up with unique responses to situations mental agility, grasping problems quickly balanced learning habits and skills: being independent learners, the ability to think in the abstract; the ability to use different learning processes and a wide view of the nature of management self-knowledge; the skill of introspection.

11.

WH Smith model
This model is used to underpin graduate recruitment and development, and covers nine competences that are sought in each area are as follows: Written communication:

Communicates easily on paper with speed and clarity. Presents ideas concisely and in a structured way. Uses appropriate language and style. Grammar and spelling are accurate.
Oral communication:

Speaks to others with ease and clarity. Expresses ideas well and presents arguments in a logical
way.

Gives information and explanations which are clear and


easily understood

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Listens actively to others.


Leadership:

Shows skill in directing group activities. Has natural authority and gains respect of others. Capable of building an effective team. Involves all team members, gives advice and help when
required. Team membership:

Fits in well as a peer and as a subordinate. Understands own role and the role of others within a
team.

Shares information and seeks help and advice when


necessary.

Offers suggestions and listens to the ideas of others.


Planning and organising skills:

Can make forward plans and forecasts. Can define objectives and allocate response to meetings. Sets realistic targets and decides priorities. Devises systems and monitors progress. Makes good use of time.
Decision making:

Evaluates alternative lines of action and makes


appropriate decisions.

Identifies degrees of urgency for decisions. Responds to situations quickly and demonstrates
flexibility. Motivation:

Shows energy and enthusiasm. Works hard and is ambitious.

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Able to work on own initiative with little detailed


supervision.

Sets own targets and is determined to achieve them.


Personal strength:

Is self confident and understands own strengths and


weaknesses.

Is realistic and willing to learn from past failures and


successes.

Is reliable, honest and conscientious. Can cope with pressure and control emotions.
Analytical reasons:

Can quickly and accurately comprehend verbal and


numerical information.

Able to analyse developments objectively and to reach


logical conclusions.

Can present well reasoned and persuasive arguments.


(HR Vision, Managing the Quality Workforce, Stephen Connock. Institute of Personnel Management, 1991.)

ACTIVITY
Using the Pedlar & Burgoyne and the WH Smith Graduate Competence frameworks, complete a profile of your own level of competence development against each of the criteria. Try to identify specific evidence and examples from your working and personal life that illustrate your competence.

Selection decisions
In selection decisions, as we shall see, it is important to collect and assimilate various forms of evidence to improve decision-making. For example, a selection framework composed of assessment group activities, application forms, interviews and tests may be used as follows:

Assessment centre group activity

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This is best for observing skills of oral communication, leadership, team membership, planning and organisation, and decision-making. Also good for observing energy, enthusiasm, target setting, analysis and presentation skills.

Application form
This is best for assessing written communication skills.

Interview
This is best for assessing skills of oral communication, team membership, decision-making, motivation, personal strength and analysis.

Test
This is best for assessing decision-making and motivation skills and, if conducted verbally, oral communication skills and the ability to present a reasoned argument. Depending on the particular role for which selection is being undertaken, certain selection methods are more appropriate than others. For instance, when selecting call centre staff an assessment of telephone style/manner is essential. For an engineering apprenticeship, a numerical aptitude test might be best suited. Whereas, for management roles, assessment centre group activities are invaluable as they enable leadership, decision making, negotiation, motivation and presentation skills to be evaluated in a group context. As the process of selection becomes more complex, decisions have to be made more rigorously as we search for key competences that differentiate more successful strategic performance. Selection and assessment becomes a key tool for identifying talents and integrating and fitting them to the organisational purpose.

ACTIVITY
Why is competence analysis seen to be more beneficial today in selection than traditional approaches, and why might it be a powerful tool to assess the future direction of organisational change?

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ACTIVITY FEEDBACK
Competency analysis is based upon criteria sampling of actual job performance factors and, therefore, relates directly to the job demands. By determining both threshold and differentiator competence, organisations can track and monitor shifts of core, emerging and declining competence. This can then be assessed for individuals across the organisation or for individual career development and deployment.

So how do organisations assess competence? Competence is usually assessed by means of assessment centres, focused interviews (often acting as behavioural event interviews) and the job analysis process via the expert panels and selection decisions, and clearly the same techniques can be used for internal selection and development decisions. Increased competence profiling is being used additionally in reward decisions and will be seen to be at the heart of specifying organisational culture and change management objectives. Competence is at the heart of strategic decisions that influence the nature of the organisation capability now and for the future. A word of caution needs to be introduced at this point. Kandola & Whiddett (2000) have argued that to completely focus on competency-based selection is flawed. Commenting that in graduate recruitment the examination of competence out of the business context of performance may be misleading, they agree that it should not be the only basis of assessment. They also argue that a rigid interpretation of competence tends to restrict diversity of objectives in both selection and subsequent performance management systems. The 2000 survey of graduate recruits suggested 61% of recruiters were still using non-competence methods, a statistic that had not changed much over the preceding decade. Kandola & Whiddett also refer to Keenans argument for a competence approach, based upon objective standards, although he accepted that Management Charter Initiative (MCI) based standards tended to focus on minimum standards rather than differential strategies. Despite the criticisms a competence-based approach at the general level of HR planning is taking hold of corporate thinking.

Emotional Intelligence
In an alternative model of competence, Goldman (1998) identified 25 surface behaviours that emanate from five basic core capacities. These

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include self-awareness, self-regulation, motivation, empathy and social skills. Goldman concludes that emotional intelligence determines our potential for learning the [management] practices or skills. Critics are questioning the uniqueness of this approach and there is clear synergy with the Pedlar & Burgoyne model of competence or so-called key attributes. Woodruff (2001) agrees, reminding us that success based upon interpersonal skills and cognitive ability is critical to the resource based view of organisations. Clearly, competence and emotional intelligence overlap and are at the forefront of policies of acquisition and retention of talented employees. More recently emotional intelligence has been put forward as an alternative approach to measuring human behaviour as a basis for understanding what differentiates performance. We conclude that emotional intelligence is purely an extension of the competence argument that reinforces its importance rather than introducing anything distinctive. In the next section we move on to link competence with strategic options for recruitment and selection.

The strategic options in recruitment and selection


A great deal of emphasis has been placed upon the identification of competence as a strategic formulation, and on attracting and retaining core competence. This will place demands upon the professional practice of two areas of HR policy and systems:

Recruitment and labour market strategy. Structure and content of assessment practice.

Recruitment strategies
An area of HR policy on which the identification of competence as a strategic formulation will place demands is the recruitment and labour market strategy. How then do we set up planning systems to achieve recruitment strategy? The labour market is changing. The effect of the EU in opening up employment across national boundaries has been demonstrated by the introduction of a wide range of international staff with medical functions in the UK. For many years, engineering and manufacturing, as well as professional, staff from the UK have been working in Europe. In recent years, recognising the severe shortage in specific areas such as

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IT and medicine, governments in Western Europe have been loosening immigration controls for people with sought-after skills. The use of flexible employment strategies such as home-working and teleworking has allowed new labour markets to be opened up, and part-time and flexible hours have introduced further labour market scope. The Internet has extended the scope for advertising and reaching potential employees. Each of these has strategic implications for recruitment.

Strategic approaches
Faced with uncertainty, Rynes & Barbour (1990) suggested three strategic approaches to the labour market:

Changing attraction practices. Changing inducement offered to applicants. Targeting non-traditional sources of applicants.
Changing attraction practices This involves a number of steps:

Broadening channels of recruitment. Changing recruitment behaviour. Changing recruitment measures.

ACTIVITY
For each of these steps, try to identify a possible example: 1. 2. 3. Broadening channels of recruitment Changing recruitment behaviour Changing recruitment measures.

ACTIVITY FEEDBACK
You might have included the following:

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1.

Broadening channels of recruitment

- opening up information channels through open days, creation


of higher quality organisational information and broadening familiarity of the organisation through train/shopping centre adverts

- using consultancy head hunters to target candidates with


known experience

- new channels for advertising in, say, ethnic newspapers or via


the Internet, radio/TV to increase number of customer attention points

- using trade press to improve targeting and shelf life of the


recruitment message. 2. Changing recruitment behaviour

- informal questioning of telephone contacts prior to the main


selection process

- job previewing to allow a deeper level of job knowledge, such


as in hospital work, particularly on acute wards

- use of co-worker information and contact to increase


credibility

- mixed race and gender recruitment panel including targeted


advertising, to support under-represented groups. 3. Changing recruitment measures Generally improving the range and quality of information; importantly, moving away from glossy brochure to information on company situation, department and job objectives to give a sense of reality

Changing employee inducements and rewards Practices here might include:

Salaries, benefits, relocation benefits and mortgage and


removal assistance where costs are higher, for example in London, Paris, Hong Kong and New York.

Highlighting scope for progression, growth and the


breadth of experience say through project work.

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'Golden Hello' bonuses or bonuses for existing staff who


introduce new staff who stay more than a year. These were frequently used in the US until the latter part of 2000, where unemployment had been at a record low and turnover was high. Targeting non-traditional sources of labour We have already mentioned ethnic groups and distance workers. We could also add the targeting of under-represented groups, for example, post code discrimination by guaranteeing tests or interviews to all local workers to improve the organisation's local reputation. Following the introduction of the Disability Discrimination Act in the UK, employers may be encouraged to develop positive strategies to recruit disabled people through targeting.

Other factors in strategic recruitment/retention


Candidate friendly recruitment This is a term introduced by Peter Herriott in the 1990s. Herriott (1994) said the decade would be characterised by:

Quality of design of recruitment activity: information,


timing and candidate responsiveness.

Increasing use of IT in recruitment. Importance of knowledge and the fast turnover of


organisations (SME and dot.coms) in the recruitment challenge.

Movement away from bureaucracy to openness in


recruitment. Supporting the rather more extreme views of demographic downturn and regional disparity, Herriott agreed that the following would apply in labour markets:

A sellers' market for knowledge workers. Applicant power to choose employers, reversing power
relations in selection.

Need for more openness and transparency in job data


and decision making.

Wider use of advanced selection practice to allow for


more self-selection.

User friendliness in the selection process.

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His ideas not only apply to knowledge workers, professional and highly skilled employees, but also to core workers in medical professions and administrative staff in certain large cities. Certainly globalisation confirms this trend. For example, ticketing functions for airlines can be completed in India, software applications can be developed in India or small, cheaper software houses. Even customer Service Centres can be relocated from high cost areas such as London to Sunderland, and to India, where Indians are trained to speak English with an American accent to suit Californian householders. There is much validity in Herriot's prognosis, but perhaps not for the reasons he suggested.

There is a 'sellers' market' for certain job categories where


organisations are competing on price, outsourcing and restructuring of jobs.

Applicant power is being exerted through work/life


balance pressures and the desire to reduce intense workloads, either through legal mechanisms, for example, the introduction of the 35-hour week in France, or UK workers choosing part-time or distance working options.

Better recruitment data and screening of candidates; the


use of previews assists more self-selection.

Increasing use of the Internet has reduced some of the


complexity, even if the pressures to produce competence based material has complicated the process. Professionalism in recruitment and marketing of the organisation We have seen how objectivity has been improving in the selection process. This has implications for cost effectiveness. Assessment centres and tests are expensive to operate, particularly if they are used in short-listing and pre-selection of large numbers of candidates. Thus HR departments are under constant pressure to demonstrate the balance of the business case against professionalism. For recruitment, this means:

Recruiting quality staff. Objectivity and fairness. Cost effectiveness and high retention.
Connock (1991) proposed a professional market of recruitment aligned with marketing principles. Recruitment was to be based on the following principles:

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Market Research What does the prospective employee (customer) know and feel about your organisation? Awareness, favourability and familiarity indices were created for age and gender. Segmentation Segment the geographical areas of the job holder by occupation. Selling and targeting Prospective employees were set against the background of the business vision. Connock did this successfully by promoting Pearl Assurance to London workers to attract them out of the city to Peterborough. The promotion involved name awareness to corporate image with specific companies targeted at selected groups such as school leavers and housewives. Broader techniques of recruitment These include open days, poster campaigns and bus adverts. Jobs and skills profiles Wider access to competency/knowledge, skills and attitudes to allow staff selection. Recruitment support This includes:

Corporate image brochures, application forms and so on. Data on job contact and organisational context. Professional staff available to deal with enquiries within
published service standard. Selection Multiple systems to improve decision making but geared to job demands. Recruitment audit This would cover rates of candidate enquiries, destination review of successful candidates, benchmark data on recruitment project management, performance indicators for each stage of the recruitment process. For example:

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Notification, shortlisting, selection tests, contracts/after


appointment.

Total applications by media/meeting criteria. Cost per head per appointment. Satisfaction surveys from candidates and from personnel
on service support, etc. e-recruitment There are two facets to e-recruitment: the use of the Internet as a recruitment and media channel, and e-assessment to automate administration. For example, Cable and Wireless now processes invoices of temporary staff in the same way that it processes other goods and services. Carter (2000) cites the ability of Oracle to handle a pool of 5,000 candidates. Details of freelance workers can be handled more quickly, reducing selection and recruitment timescales by 50%. Organisations reportedly benefit from a 40% reduction in costs of authorising and submitting cost records with the attendant benefit of real information on hours and costs of temporary workers by project or contract. In the UK, Sainsburys has an e-procurement and e-HR management system across 428 branches. The system allows a direct link up with the Reed Employment Agency. Sainsburys also report that the integration of movement and HR has allowed more strategic devolution of HR strategy to line management.

ACTIVITY
Online psychometric testing might seem ideal; it is flexible and saves travel costs and time. Suggest at least two disadvantages of online testing.

ACTIVITY FEEDBACK
You might have thought of any of the following:

Possible lack of confidentiality. Security risks.

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Collusion between candidates or a candidate and a third party. Untrained people may start providing untried products. Control of the process and effective feedback on a non
face-to-face basis may be difficult.

It may lead to an increasing use of selection without interview.

The use of screening tests alone for shortlisting is still practised in the HR profession. However, structured telephone interviews, biodata tests and psychometric tests with interviews are already widely used to reduce candidate lists. e-Assessments also provide further opportunity, as we shall see in a moment. We need to balance the advantages and disadvantages, safeguarding the use of online tests and ensuring some of the strategic benefits of cost, speed, candidate flexibility, without compromising professional integrity and fairness. Proponents argue the low reliability of interviews and promote the speed, autonomy and wider access of potential employees to information on careers guidance, appraisal and development information. This allows more control over the process to support the 'sellers' market and power of the applicant predicted by Herriott. Albery (2001) argues that e-assessment allows further technical enhancement to services through the use of adaptive 'tests' where new questions can be generated in response to answers given. This test can be shorter whilst retaining accuracy. Retention strategies for untapped talent markets Organisations often focus recruitment on their experience of retention. Demographic pressures in the UK have reduced the number of school leavers, particularly as more people enter Higher Education. A review of skills and competencies has brought a reappraisal in some areas of the virtue of older workers in terms of experience, customer focus and retention. This is not a universally held view, as age and qualifications often still prevail. Women currently make up 45-50% of the workforce in the UK, but with traditional approaches to child rearing, organisations often lose highly trained staff for lengthy periods of time, or altogether. The options to avoid this include:

Child care assistance through financed crches. Childminder assistance funding.


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Career breaks schemes for up to five years with return


guaranteed.

ACTIVITY
Suggest what key HR management considerations might be used to develop an orderly scheme that ensures take-up and promotes commitment and equity in scheme operation in terms of retention strategies. Try to write down at least two considerations.

ACTIVITY FEEDBACK
You might have identified the following: Eligibility criteria published:

- service/position related - open to scrutiny.


Length of break:

- flexible and fixed 3-5 years - who determines/notice - organisation/employee.


Return guarantee:

- same job or grade? - maybe reserve list or guarantee first option.


Pay and benefits:

- pension contributions, pay freeze - retention of benefits such as cars.


Keeping in touch to maintain experience, trends and adaptation to change.

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Other resourcing strategies often relate to school and college leavers so we find organisations following a range of strategies to recruit high calibre people:

Women-only engineering careers. Sponsoring school leavers - paid work experience/care


fees.

Adopt a school campaign and schools liaison and


cadetship.

Scholars combining in-home training with education.


As we conclude this part of the unit let us review the key outcomes so far. We have considered the flexibilisation of recruitment practices in the search for competent employees. We have evaluated the key techniques to enhance the performance of recruitment activity to secure these same competences: candidate-friendliness to secure employee commitment; professionalism to improve project management, evaluation and the 'market' offer to potential recruits. We have endeavoured to assess how e-recruitment can more widely distribute recruitment 'reach' to relevant labour markets and engage with a more economical selection process without reducing the integrity, validity and reliability of the selection decision making process for employer and employee. Finally, we summarised key recruitment strategies to secure 'underrepresented' employee groups to complete our review of strategic change in recruitment practice.

Structure and content of assessment practice


Now let us consider the actual assessment and selection process. The two issues here are job analysis and selection procedures.

Job Analysis
We have discussed the attention now being applied to defining requirements through the design of competence models. At this point we need to add that the process of job analysis must take place at two levels to ensure synergy:

Job design; competence requirement. Personal job holder; competence attainment.


It is also important to note the relationship with the organisational structure and culture. For example, the introduction of new organisational forms of flatter, flexible team based structures will lead to job design questions, more accountability, broader task functions, and self monitoring, which will in turn lead to a shift in culture to a more
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incentive, dynamic and complex environment. It is at this point that we need to assess the new job and person competencies. One of the methods of assessing these competence changes is the critical incident method. Critical incident methodology involves the evaluation of important situations in an employee's working life to assess what happened, why it happened and what skills were involved in achieving the outcome. Examples of these important situations are team working and group decision-making. These situations can of course involve both positive and negative incidents. This methodology illustrates not only what is done but also why and how it is done as a basis for selecting key behaviours from staff. What is actually done can be compared with a template of desired behaviour. Try it now for yourself.

ACTIVITY
1. In the scenario identified above, where flatter, flexible team based structures are introduced, what key criteria might be important for recruitment and selection arising from the new culture and structure? Select five incidents in the last year when you did something well and five incidents when something went less well. (For example, a positive example of team working might be offering feedback.) For each incident answer the following questions:

2.

- What was the background of your involvement in the incident,


what was your role?

- What did you do, specifically? - How is this an example of effective/ineffective behaviour?
(Think about the personal competences model.)

- What competences seem to be emerging? Is there a pattern?


(You could try this by interviewing a manager in an organisation in a positive sense by depersonalising it to assess what an effective manager is. It will improve your behavioural event interview techniques at the same time.)

ACTIVITY FEEDBACK
For the first part of the exercise you might have come up with some of the following:

Openness to new ideas.


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Adaptability. Desire to improve. Self confidence. Team working skills. Accept responsibility. Broad vision. Seek performance feedback. Tolerance of change.
This will form key selection criteria.

Strategic selection procedures


Two key methods used for improving the reliability, validity and depth at which we assess candidates: the assessment centre, and the Behavioural Event Interview introduced by Bethall Fox. There are obviously others including:

Application form data. Biodata. Tests of aptitude and ability to perform specific skills. Personality tests. Pschychometric tests of ability, for example, IQ,
numeracy, verbal and spatial awareness.

Reference details.
Today the aim of selection is to align assessment more closely with the specific criteria and demands of the particular task. A strategic approach to assessment is generally associated with attempting to use specific skills and/or competences for assessment:

In a simulated environment. Through careful questioning of past activity through


application forms, where a batch of competence-based information is requested.

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Through careful behavioural event interviewing.


Competence-based application forms have been introduced widely to broaden the scope away from personal information, personal statements of why a person might want a job or be suited to the position, that is, aspirational, and towards a more careful review of their experience, of say leading a team, decision making or leadership. Similarly the behavioural event interview focuses on:

Specific past events. What that person actually did. Why and how they did it. How they interpreted the outcome.
The candidate should be discouraged from 'we' statements and concentrate on 'I' target data to isolate their personal contribution. This type of interview involves the interviewer in a broad counselling style using plenty of why, how, what questions to isolate behaviour and reasoning. Sometimes the 'competence' is revealed and the candidate is encouraged to select an example. At other times, the competence is hidden and initial incidents are interrogated to ascertain core skills. In any event it can be somewhat threatening to a candidate to have to focus on the self only, and it can display a mistrust of the candidate, so a careful pre-briefing can be necessary to avoid creating the wrong impression!

ACTIVITY
Try it yourself. Try interviewing somebody against a competence profile to ascertain their past experience. Try it from the detailed competence and the hidden competence standpoint. Be careful to record the evidence carefully against the profile that you have highlighted. Try the WH Smith model. Be sure to record only what is said happened and what the person particularly did or said. Don't spend more than 10 minutes on this; results can be achieved in a 10 minute pilot interview.

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ACTIVITY FEEDBACK
There is no individual feedback to this activity but you may want to reflect on your findings. You will have built up an evidence base of behaviours that is probably superior to what a person says they would do. This type of hypothetical link may be useful to test knowledge; for example, how would you deal with an angry customer? It may not tell you as much about how they would react. Clearly the best way is to see them do it or simulate it, but this can be costly. The behavioural event, structured or focused, interview is a good way of improving the validation and reliability of the interview and at the same time focusing closely to strategic behaviour/competence derived from the business plan.

It is also important to focus on equal opportunities (EO) in selection as a legal and ethical issue, which may also:

Influence the ability to access a wider labour market if


you are known as EO employer.

Influence commitment and involvement of staff. Avoid legal sanction and the consequential reputation
problems. In other words, strategic recruitment and selection involves a consideration of the 'fairness' factor on business and ethical grounds.

ACTIVITY
What do you understand by 'fairness' in selection decisions? Note down in a sentence or two what you understand by this term and how it is achieved.

ACTIVITY FEEDBACK
Fairness is usually thought of as standard, consistent and transparent behaviour in assessing interview candidates. It might be achieved through any of the following:

Advertising genuine jobs.

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Confidentiality of information. Not trying to entrap or ask unfair questions that are not related to
the job.

Informing candidates of the process and outcomes. Treating candidates equally and consistently. Assessing candidates through ability derived from 'fair' criteria based
upon job demand.

Being clear about the job prospects and conditions of employment.

The concept of 'fairness' in selection involves both the process and the content of the selection procedures. Many organisations now adopt very systematic procedures based around:

Written and agreed selection criteria, monitored and


approved by HR professionals and matched against an updated job description prior to an advertisement being placed.

Application forms designed to minimise personal data


unnecessary to take a selection decision; for example, age, gender, family circumstances; that emphasise skill and competence as well as qualifications.

Short-listing procedures that record how each candidate


matches the criteria and is either accepted or rejected audit trail to be lodged with HR.

Matching of interview questions against selection criteria


and recording accordingly - maximum levels of standardised questions of candidates to ensure 'fairness'.

Job-related interviews that are behaviour focused Trained and accredited interviewers to ensure the core
skills of listening, observing, evaluating, collecting evidence, building confidence and empathy.

Test and reference data used as 'confirmation' data rather


than as selection or short-listing mechanism.

Matching the candidate to the profile and then


comparing candidates to assess (a) appointability and (b) best fit, in that sequence.

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Many organisations do not have the resources to sustain this level of rigour and others reject the apparent rigidity. Increasingly, the demands of external scrutiny and indeed building the basis of the employee relationship at an early stage through a demonstration of professionalism, is extending the range of such fair practice. Despite these practices, women and ethnic minorities remain under-represented in professional/management jobs in particular, and in many cases employment generally, and over-represented in fragmented or insecure employment.

Designing, applying and evaluating human resource strategies


At this point you may want to reflect on two issues:

Who takes responsibility for HR planning? What does Human Resource strategy looks like?

Who takes responsibility?


Buller (1988) has identified the importance of the strategic levels in planning. He describes:

Administrative linkage, that is, non-strategy. One-way linkage; a flow of information down from
corporate planning to allow HR decisions to be made.

Two-way linkage; reciprocal flows of information to


inform and be informed by corporate planning.

ACTIVITY
With Bullers levels in mind, who do you think is responsible for HR planning?

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ACTIVITY FEEDBACK
It seems likely that the collection and synthesis of data into forecasts is going to be led by a strong HR specialist working in close consultation with senior and line managers, particularly on the interpretation and meaning of the scenarios. It therefore seems logical that the creation of integrated business-led HR policies will be carried out by HR but with strong input, discussion and final agreement from senior managers from the business. Clearly, Board representatives need to present and lead the discussion and provide expert assessment of policy options against business objectives, and ensure a commitment to decisions and subsequent implementation.

Some commentators might dispute both the reality and desirability of such a model based on HR competence and the value of such planning. However, it does provide a way of utilising HRs professional skills and expertise, but in collaboration with managers from the business. This approach avoids more simplistic categorisation of responsibilities. In the end, it is not a question of who ultimately has the authority to make HR decisions, but the quality of the data, content and process of planning and the wider involvement of key stakeholders that matter.

What does HR strategy look like?


Schuler, Jackson & Storey (2001) identify features of a HR strategy, as shown in Figure 3.2.

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S t r at egy For mulat ion


Establish vision, mission and values and general strategy Facilitate and participate in development of vision, mission, values and general strategy Identify strategic business issues (SBIs) and strategic business objectives Interpret HR meaning of SBIs and SBOs and set HR objectives Craft strategic plans Corporate Business Identify general HR implications of corporate and business unit plans Strategy implementation Develop and implement plans Operational units Functional units

Develop and implement HR plans Use 4-task model to develop plans Implement HR policies & practices

Outcomes for stakeholders Shareholders and owners Employees Customers Strategic partners

Review, revise, refocus Business strategies and plans HR strategies and plans

Figure 3.2: The strategic management process and its implications for HR management.

CASE STUDY
Read the article below to discover some of the answers to What does HR strategy look like?.

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Putting People First a human resource strategy for health services in Wessex by Ken Jarold and Alex Selkirk THE AIM OF THIS STRATEGY This aim of this document is, therefore, to provide a framework within which health authorities can:

Effectively plan and control the size and mix of the workforce to
ensure that every employee is utilised fully and able to meet the challenges of work;

Attract, develop and retain good staff at all levels; Encourage understanding of business objectives and the need to
improve quality, effectiveness and efficiency;

Help maintain an informed and motivated workforce; Manage staff fairly and with displayed respect for each individual
employee;

Make full use of the freedoms which are now becoming available to
extend progressively the scope for flexibility in local determination of pay and other benefits for staff;

Provide equal opportunities in employment to all staff based purely


on their ability to do the job, irrespective of race, colour, creed, sex, marital status or age; and

Develop comprehensive and effective education, training and


development strategies. IN BRIEF There are major Human Resource Challenges facing Wessex RHA (Regional health Authority): in the short term, in managing the organisational changes resulting from the White Paper (Government) proposals; in the longer term, in managing the implications of the demographic developments of the next decade. The successful management of these challenges, which requires integrated working by all parts of the Service, is fundamental to achieving the prime purpose of the RHA: ensuring that everyone living in the region has good access to health services of high quality and that the people of the region will enjoy improved health. Health services in Wessex must be ARMED to meet these challenges. Authorities must seek to improve the way they:

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Attract. Recruit. Motivate. Educate. Develop staff.


This will also increase our ability to retain staff and facilitate improvements in utilisation. In broad terms, therefore, three kinds of action will be required:

To reduce the demand for staff. To improve utilisation. To compete more effectively in the labour market.
This action will encompass strategies for the education, training and development of staff and for the use of information systems. These actions must be guided by explicit and widely-understood personnel policies and by a continued commitment to equal opportunities in employment. In particular, action must be taken to ensure that health authorities deploy and motivate staff effectively and pursue methods of delivering care which make the best possible use of manpower. Manpower information systems will need to be developed further to ensure accurate and timely information is available to assist managers in controlling manpower. Manpower targets should be refined and developed. Turnover and absence rates should be set and progress towards achieving these monitored. There should be clear definitions of the roles and responsibilities of staff. Methods to measure performance will need to be developed and the use of Individual Performance Review should be applied more widely. Policies to encourage the retention of staff need to be researched, developed and implemented quickly; e.g., flexible working patterns and child-care provisions. The feasibility of improving and extending the benefits available to staff needs to be examined and initiatives pursued on the local determination of pay. Training and development strategies need to be refined and developed to ensure the potential of existing staff is fully utilised and people encouraged to
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remain in the Service to fulfil their career aspirations. The development of managerial and leadership skills is vital to the success of this strategy. Such skills will enable the NHS in Wessex to manage the changes emanating from the White Paper and prepare it for the challenges of the coming decade. THE NEED FOR CHANGE Staff: the primary resource of the NHS The NHS is a manpower-intensive organisation and is the largest employer in both the United Kingdom and the Wessex region. Some 43,600 people are employed by health authorities in Wessex. Labour costs account for around three-quarters of all expenditure and the effective delivery of services is heavily dependent on the goodwill and commitment of appropriately trained staff deployed in the right numbers to the right places. Traditionally, the labour market has been able to provide sufficient numbers of people to sustain expansion. Pressure to provide working conditions and practices which make the most effective use possible of staff have therefore been guided by financial rather than manpower supply limitations. The NHS recruits from a broad age and ability range, and people are deployed across a wide spectrum of professional disciplines in a variety of skilled and unskilled work (there are more than 100 different professions serving the NHS). However, large sections of the workforce are trained in what could be deemed to be specific health care tasks (medical, nursing and paramedical support functions). The NHS is the sole training organisation for many of these professional groups. Changing demographic factors The NHS faces the prospect of a continuing demand for more, and increasingly sophisticated, services which will intensify the pressures for additional skills and manpower. Between now and the year 2000, the number of people living in Wessex will increase to 3,181,000. This is a rise in excess of ten per cent and more than twice the national average. The numbers of elderly people those that require most health care will also increase substantially: a rise of 56,000 in those aged 75 and over and, again, an increase in excess of the national average. It is anticipated that the demand for acute services will increase by 30 per cent over the next ten years. However, the traditional sources of supply of labour to meet this increased demand are declining. By the turn of the century, the number of school leavers entering the job market in Wessex will fall by 25 per cent. Those with five O levels and two A levels, the category from which the NHS has traditionally recruited the majority of its workforce, will fall by 30 per cent.

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The fall in labour supply is exacerbated by the increase in demand for labour across the economy as a whole and nationally an increase of 2.2 million jobs is predicted by the year 2000. Competition for staff from other sectors of the economy will be vigorous particularly for trainees and for those with transferable skills but also for those trained in specific health service professions who are prepared to pursue alternative careers. The combination of these recruitment and retention difficulties with financial pressures makes it realistic to assume that, at best, it will only be possible to maintain the workforce at around its present level. It may be advisable to expect a reduction in the workforce, and the deployment and utilisation of staff must be planned accordingly. Such factors would be sufficient in themselves to justify a radical reappraisal of the way human resources are sought, utilised and developed. However, as an organisation concerned with the care of people in the community we must also ensure that the well being and motivation of the people who work for the Service our most important asset receives a higher priority. The Action Required Three kinds of action will be required: to reduce DEMAND for staff, to improve the UTILISATION of staff in post and to COMPETE more effectively in the labour market. Such actions are inter-related and none can be pursued in isolation. Therefore, to be effective, the Human Resource Strategy must be seen as an integral part of the overall business strategy. THE DEMAND FOR STAFF A reduction in the demand for staff will be achieved in the following ways:

By a careful scrutiny of development plans to ensure that they


are both affordable and necessary;

By a clear definition of roles and responsibilities linked to


achievement of objectives to ensure that overlaps and gaps are avoided and accurate forecasting of manpower needs is facilitated;

By reducing the pressure to increase staff by imaginative


planning of the deployment of staff;

By making good use of information systems and capitalising on


the opportunities they create for improving the use of skills;

By improving the retention of staff.


Efforts should be intensified to ensure that workload and funding assumptions are accurate. This will allow the Service to match resources to demand and to

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develop at an affordable pace. Consultant expansion programmes, for example, will need to be directed towards pressure points within the Service and be linked precisely to the developments outlined in short-term programmes. It may be necessary to restrict developments in some specialities until action has been taken to meet the shortfall in others. Waiting times should remain a guide to demand but they will need to be used in conjunction with other performance measures. Medical manpower targets for 1998 are now being produced and interim targets for 1993 will be issued during 1990. Manpower forecasts should also reflect the changes which are taking place in the composition of the workforce and the pattern of provision. This is particularly important within the nursing profession where students will have much of their service contribution replaced by support workers. Targets have already been set to ensure that registered nurses can help health visitors and district nurses meet workload targets, given the continued expansion of community services. The roles of staff should be subject to regular scrutiny and skill-mix review to avoid duplication and the use of inappropriate skills. For example, in high-technology areas, well-qualified nurses should be engaged in patient rather than technical activity. Also, it may be possible to reduce the demand for skilled staff in a number of professions by augmenting the role of the helper or aide. However, this assumption will need to be tested and applied only when it is of clear benefit. THE UTILISATION OF STAFF The improved utilisation of staff will come about by:

Involving staff in more effective activities as a result of quality and


standards initiatives;

Ensuring that qualified staff are employed to maximum effect; Improved identification of the education, training and development
needs of individual members of staff to meet work objectives and to satisfy their personal career aspirations and by improving the use of training resources;

Reducing time lost through turnover, absence and poor employee


relations;

Increasing the commitment of staff, especially through regular


feedback on performance, improved communications, better recognition of personal contribution and the development of a caring culture for staff;

Providing effective leadership at all levels of the service to ensure


change is managed well.

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Effective means of measuring and monitoring work performance will need to be developed and introduced further. For the medical profession, medical audit will have an important role identifying more effective working practices and use of facilities. Nursing standards provide the means to assess objectively the performance of nursing services and will help maximise quality and staff time. Increased emphasis should also be placed on the use of facilities which promote effective use of manpower; centralised surgical units, for example. Similarly, maintenance, closure, leave and locum arrangements should be carefully co-ordinated, with savings re-directed into priority areas. Overtime and absenteeism need to be monitored carefully and action taken to identify their causes and to reduce their incidence. The development of occupational health schemes should be given increased priority. Shift patterns and working routines should be devised which make the most effective use of staff and reflect peaks and troughs in demand more accurately. Staff time should also be used more flexibly and directed toward areas of greatest need. There is a continuing need to ensure that the right skills are in the right place to meet workload demands. The restructuring of the nursing workforce following the introduction of clinical grading is of vital importance. It should also allow DHAs (District Health Authority) to further consolidate training, increase the opportunities for clinical practice and improve the recruitment potential of the Service. Manpower plans should identify the number of staff required at each grade and formal development programmes should be instituted for newly qualified personnel. More high quality training in management should be provided for specialist staff, particularly doctors, the principal deployers of health care resources; management development programmes for middle level nurses should be more widely established, in order to improve their effectiveness in resource management initiatives; and clerical and administrative tasks should be carefully identified and carried out by non front-line personnel. Efforts to reduce the hours of junior medical staff should continue. More flexible rota systems should be introduced and greater use must be made of the staff grade. Whilst it is recognised that some groups of staff will have high turnover rates, such as junior doctors on fixed contracts, the causes of staff turnover will need to be clearly identified and action taken to eliminate negative factors. COMPETING EFFECTIVELY: THE SUPPLY OF PEOPLE If the NHS is to compete effectively in the labour market, it will be necessary to pursue action on a number of fronts:

The introduction of more flexible employment practices such


as the recruitment of mature and part-time staff, more
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flexible shift and working patterns and the employment of people working at or from home;

The introduction of working conditions of good quality and of


sufficient flexibility to meet the requirements of potential and existing staff such as child care provisions, career break schemes and provision of health care to staff;

Improved and imaginative recruitment strategies, e.g., building closer


links with local schools, colleges and the community, targeted recruitment literature and shorter and faster recruitment processes;

The provision of employee benefits to compete with those of other


major employers, e.g., sports facilities and clubs;

The implementation of an up to date education, training and


development strategy which will encourage people to see the service as an employer which can offer career satisfaction. Action must be taken to ensure that training provision makes optimum use of resources, achieves high standards and offers courses which closely reflect service needs. It should be a goal of the Service to attain regional self-sufficiency in supply either through the provision of training places within the region or by arrangements with other authorities and institutions. The scope for collaboration with other organisations should be explored. This may involve joint training projects with local authorities, who for example employ some 20 per cent of those trained in Occupational Therapy, and closer contact with higher education institutions. We must recognise, however, that particularly scarce skills may need to be shared. A number of national initiatives have a bearing on action to safeguard supply, such as Education and Training Working Paper No. 10 of the Working for Patients series, Achieving a Balance and the introduction of Project 2000. Education and Training sets out proposals for training provision for all staff, except doctors and dentists, to safeguard the quantity and quality of training the RHA will continue the work currently being undertaken in this area e.g., training provision for occupational therapists, physiotherapists, radiographers, finance and personnel staff and will extend it to other staff groups. Achieving a Balance will effect measures to ensure that UK qualified registrars (career registrars) have a reasonable expectation of progressing to a consultant grade. Therefore, there is a need to relate the number of UK graduates in training at Registrar level to future consultant opportunities. In many specialities, this will mean some reduction in the number of career registrar posts over the period to 1998. Definitive quotas will be issued by the DoH in due course but it is clear that DHAs will be required to establish an

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appropriate number of training grades which also acknowledge service demands as well as career aspirations. The Education and Training Strategy for Nurses, Midwives and Health Visitors is now being implemented, resulting in a rationalisation of schools and the establishment of regional-self sufficiency in supply. A standard approach to the training of support workers as required under Project 2000 will need to be developed by health authorities, building on the work of the NHS Training Authority, and conversion and development courses for enrolled nurses should be introduced. A strategy for post-registration education has been devised to meet manpower requirements for more qualified nursing staff and the required numbers of graduate nurses will need to be assessed by mid-1990 and change implemented by 1991. THE MANAGEMENT OF PEOPLE In the 1990s, the NHS will be facing stiffer competition from rival organisations for good calibre staff. Many of these organisations will be able to offer more attractive financial rewards but the move towards more locally-determined terms and conditions will continue in the NHS. The RHA will encourage DHAs to develop a pay policy to make full use of the freedoms which are now becoming available, in accordance with the aim stated in the White Paper to extend progressively the scope for pay flexibility linked to local labour market conditions. However, pay should not be seen as the only means to reward staff or potential recruits: the Service must also develop a range of measures to support this process. Employment Practices Each authority in Wessex will be required to publish explicit personnel codes and policies which should identify the values, culture and action needed to ensure that the contributions of managers and staff are harnessed to the objectives of the organisation. Benefits The RHA will continue its work in the field of non-pay benefits with increased emphasis on staff as sole rather than prime beneficiaries. DHAs are encouraged to participate with the RHA in these initiatives as their involvement will improve the Services purchasing and negotiating position. Support at Work The RHA will examine the feasibility of: more flexible working hours and patterns of work; job sharing; creche and child-care facilities; and career break schemes, which may help open up new sources of recruits and help retain existing staff. Counselling The NHS is in a state of constant change. However, that envisaged by the White Paper will be particularly vigorous and comprehensive. The RHA has an ongoing commitment to the provision of counselling; the counselling of staff affected by change will be crucial to the future success of the Service. In some instances, external counselling may be appropriate. Individual Performance Review The initiatives above will be complemented by the promotion of a culture of shared understanding of
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business objectives, systematic feedback on achievement and a closer connection between achievement and reward. PR will be extended to more grades in the Service (ward sister/A & C grade 6) by the end of 1989/90. IPR will also become the principal method by which training and development needs are identified (a formal system for analysing the investment in training will be instituted by October 1990). Communication The morale, motivation and commitment of the workforce is dependent upon a clear understanding of the organisations aims, objectives and limitations. It is vital to engage in practices which develop rapid communication between all levels of the Service and to develop systems which convey easily accessible, consistent and unambiguous messages. All communication with staff should be conducted in a spirit of openness and honesty. Leadership To achieve these aims, it is essential to recognise the importance of acquiring strong leadership qualities at all management levels. Health authorities will need to invest more time and training in developing such skills. Managers will need to lead by example and give both purpose and direction in order to harness the energy and commitment which exist throughout the service. INFORMATION Developing information systems The successful implementation of this Strategy depends heavily on the effective use of information and information technology particularly at local level. Whilst much has already been done to introduce new manpower and personnel systems, greater efforts now need to be made to ensure that information is accurate, of high quality, timely and sufficiently widely available to meet the aims of this Strategy. All authorities should distinguish between operational systems which enable managers to monitor their own performance especially important for the delegation of responsibility to local level and those systems which are required to feed into the statistical network. These latter systems are those which need common definitions and coding structures and which should lead to the production of national and inter-regional information, not just on manpower but also on the relationship between manpower, activity and costs. It is of fundamental importance that action is taken now to ensure that suitable systems (manual or computer) are in place to help health authorities tackle the manpower and personnel issues of the 1990s. These systems should be designed to assist those who provide direct care to manage resources better and monitor quality and improvements in care. The types of information needed to help meet the key manpower and personnel issues outlined in this strategy are now described. They should not be viewed as comprehensive and instead are illustrative of the minimum required.
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Demand Reducing the need for staff and the Services dependence on highly-skilled personnel is related to the availability of staff in the labour market and to the control of unit costs, the latter being particularly emphasised in the White Paper. Information systems should, as a minimum, offer the following:

The control of staff numbers through the setting and


monitoring of staffing levels;

The control of unit costs through the development, production


and monitoring of unit cost measures including the proportion devoted to staff costs;

A means of increasing productivity through the development,


production and monitoring of productivity indicators;

A method of matching the skills of staff to the demands of the


Service, and of monitoring skill mix so that quality is improved and demand and supply requirements are satisfied. Information systems should be designed to produce these indicators on a sufficiently regular basis to influence annual plans and to set annual targets for changes in staff numbers and skill mix. They should also provide enough timely information to enable the effective day to day deployment of resources. Such changes will need to be integrated with activity and cost information. In addition, comparative data between units, districts and regions is required to assist in the setting of targets. To facilitate this, information systems will need to address standard definitions and codes. Utilisation In order to reduce turnover, improve retention and to maximise the use of resources, information systems should facilitate the following:

The setting and monitoring of targets for turnover and lost time
(including sickness and absenteeism), recording hours of work and overtime;

The retention of staff through indicators which monitor


stability; for example, the numbers of staff who have been in post for more than one year and the average length of service;

Indicators that prompt improvements in productivity and


enable health authorities to, as part of the White Paper proposals, draw up contracts that match staff to workload more accurately.

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Information systems should be designed to produce these indicators on a regular basis to all levels of management so that action can be taken when targets are not being achieved. Supply This strategy emphasises the importance of effective recruitment, education, training and employment practices. Information systems should, therefore, enable the following:

The recording of identified and impending vacancies and the


recording and monitoring of actual vacancies and the difficulties being experienced in filling them;

The identification of the numbers entering and successfully


completing training and development programmes and the numbers subsequently qualified, employed and/or retained (taken together with other data on retention, and on wastage and vacancy rates, it should be possible to determine the effect of training on recruitment and retention and the success of the training programme itself);

The production of information on the characteristics of the


workforce and the monitoring, at appropriate intervals, of the numbers of agency, part-time and full-time staff; of the age structure of the workforce and of the numbers of male and female employees (information should aid the planning of changes to cope with demographic problems such as the employment of more part-time, mature women whilst that on agency staff should help ensure that they are used minimally and only then when there are good service or economic reasons to do so);

The collection of information on the policies which other


organisations are introducing to deal with the demographic challenges of the 1990s;

The monitoring of pay levels and local pay policies and the effect
they have on the ability of the Service to fill vacancies (this information, coupled with that on turnover, retention and vacancy levels, should help health authorities identify what changes in pay policy would be the most effective.) EDUCATION, TRAINING & DEVELOPMENT (For simplicity, the word training is used throughout this section rather than education, training and development)

Strategic aims The RHAs Education, Training and Development Strategy derives from its mission statement and embraces the following principles:

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Training is an essential part of the wider Human Resource


Strategy and must be linked to the achievement of corporate objectives.

Training should be Service directed and must be organised in a


way which ensures that staff have the skills and competencies to perform effectively in their current roles with the capability of adapting to the future needs of the organisation. The objective should be to create a more flexible workforce and enhance productivity through a clearer understanding of skill and competency needs and a better utilisation of skills and skill-mix. Service plans should always include a realistic statement of their manpower and training implications.

Training represents an investment not a cost when linked to


Service objectives. It should be measured by the quality and effectiveness of outcome, not simply by the direct cost of provision. The level of investment should be quantified and justified in the face of competing claims for resources. Performance methods and proper evaluation methodologies should apply. The RHA will need to explore and establish a funding policy for training in the region, taking into account the proposals in Education and Training Working Paper 10.

Training is an important ingredient in the motivation of an


effective workforce. In particular, it has a positive effect on recruitment and retention and should be used to widen entry gates into the Service as part of a total employment package.

Training is an integral part of the management process the


active support and commitment of top management is vital. Line managers must assume a prime responsibility for developing their staff by providing continual learning opportunities and experience as part of every-day job centred activities. The role of professional trainers is to support this process.

Education and Training should be based on the systematic


assessment of staff needs, utilising personal development plans to identify the relationship between an individuals development and the organisations needs and objectives.

Training is considered fundamental to the initiation of


organisational change, growth and development.

Needs and priorities Predictions of manpower requirements for the next decade stress the need for staff to be prepared to:

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Use acquired knowledge and skills in rapidly changing circumstances; Perform multi-task operations; Work in multi-occupational teams and cross existing
professional/occupational boundaries;

Discover and acquire the knowledge and skills to cope with


unfamiliar circumstances;

Diagnose relevant problems and opportunities and take action to


bring about desired results;

Act in, and help provide and/or manage, an integrated service with a
clear understanding of its wider purpose. The general needs listed above provide a basis for examining/re-examining training needs within the Service. The prime responsibility for identifying these needs must rest with health authorities and with every manager in those authorities. The introduction of individual performance review marks a major step forward in establishing a systematic assessment and review of individual training needs. Plans should increasingly contain a standard for the number and type of staff who should have a specific qualification and the desired level of training, in order to perform a particular task (e.g. for accident and emergency departments, at least one member of nursing staff who has received specific A&E training at an approved course should always be on duty). The production of realistic manpower plans by each health authority is a first and fundamental step in the complex process of developing both a district and a regional overview of manpower needs, and therefore, training needs. It is imperative that manpower information on both wastage and turnover and other lost time is collected and analysed in order that manpower plans can be regularly updated. In respect of the regionally-managed training services, manpower forecasts have been based upon Summary Analysis of Strategic Plans projections and specific training and manpower surveys conducted on behalf of the Regional Training Council. Organisation The RHA is firmly committed to regional self-sufficiency and the devolution of training activities to the lowest practical management level in the organisation, including entering into training contracts where possible. These commitments have to be met within a coherent and recognisable framework across the region which:

Ensures job centred training; Makes optimum use of scarce training skills, knowledge and
expertise and is cost effective;
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Avoids duplication of events, re-invention of the wheel and


resultant waste of resources;

Meets the requirement for cross-fertilisation/exchange of views


and ideas between health authorities. Following the experience of devolution and in the light of requirements set out in the White Paper, the RHA considers its role in training to be:

Forecasting the number of staff required in the region derived


from mid to long term manpower strategies;

Assessing the range of skills required to meet service needs and


objectives including, where appropriate, setting service-led standards;

Deciding upon the most effective means by which required


staff numbers and skills levels might be achieved;

Defining standards to be attained in the delivery of training


services;

Contracting with other agencies for the provision of training


services whether these be health based or in the higher education sector;

Requiring district health authorities to prepare Education,


Training and Development Strategy plans and programmes supported by appropriate levels of investment;

Monitoring the performance of districts in the discharge of


their training responsibilities;

Communicating examples of good practice across the region; Providing a point of reference and liaison with National
agencies particularly the National Health Service Training Authority. In terms of providing training, the RHAs involvement will be confined to those activities where:

The region is the only sensible level for an activity to be based


either on grounds of cost or scale;

Regional staff, including consultants and registrars, are the


prime audience;

Some element of piloting or pump priming is required.

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Funding The RHA is committed to the belief that it should aim to be self-sufficient in the supply of staff. It may not be feasible, however, to supply some types of training within the region and therefore collaborative arrangements with other training organisations may be required. Providers must:

Ensure they have a supply plan for each staff group; Identify for each service the number of staff that should have a
specific qualification or have received some sort of education and training (i.e., set standards for levels of training);

Determine the number and type of staff that need to be trained in


order to satisfy short and long term supply requirements;

Draw up an annual training programme setting requirements for


local and external training, and clinical placement with regionally or nationally approved training organisations;

Enter into contracts with training organisations that meet local


requirements. Working Paper 10 sets out proposals for the funding of training which, in general, point to direct funding by the RHA and greater use of contracts to cover training provided by the education sector or NHS training institutions. Management development The prime aim of the RHAs management development policy is to maintain and improve the quality of general management and individual managers in the region so that the RHAs demanding health service objectives and standards are achieved. The successful development of the organisation to meet the needs of the future depends on effective manager development. Individual Performance Review is regarded as the principal vehicle by which the development needs of individuals are identified. Authorities are required to ensure that there is a mechanism, IPR or similar, for identifying training needs and designing programmes to meet those needs for managers at all levels. Every manager has the responsibility for developing their own staff and identifying potential successors. But management development must also be seen within the broader context of unit, district and regional requirements for resources. Each part of the organisation, therefore, has a responsibility for planning and co-ordinating the identification of key management positions and planning the development of staff to fill these posts. The RHA will take a lead role in developing a regional strategy for succession planning.

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ACTION 1. The RHA will consult formally with DHAs on this strategy with the aim of assisting DHAs to develop their own Human Resources Strategies during 1990, where they have not already done so. Each strategy should at least address the following key elements:-

2.

- definition of responsibilities and accountabilities to


facilitate skill mix reviews and the organisational review process involved in delegation of responsibilities;

- development of indicators to help control staff numbers,


productivity and unit costs;

- identification of training needs to improve effectiveness of


existing staff, with particular emphasis on the skills needed to implement White Paper proposals, i.e. management, business planning, finance, personnel, information technology, contracting, negotiating and marketing;

- development of a training and development strategy to


meet retention and recruitment needs;

- development of employment policies and practices to aid


retention and recruitment of staff;

- development of an equal opportunities policy to eliminate


discrimination and promote good employee relations and equality of opportunity;

- development of a reward strategy which is fair and


equitable and takes account of the increasing flexibility to reflect local conditions;

- development of fair and equitable personnel policies to


provide the basis for good management practices; and

- development of a communication strategy to ensure staff


understanding and commitment to the organisational changes taking place.

3.

The RHA will agree with DHAs a set of respective priorities for action, with target timings where appropriate and will co-ordinate initiatives around the region to avoid any unnecessary duplication of effort.

REFERENCE

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Jarrold, Ken and Selkirk, Alex (edr) (1992) Putting People First: a human resource strategy for health services in Wessex, Winchester, Hants., Wessex Regional Health Authority.

QUESTIONS:
What are the visions and values of the Health Trust? What are the SBI and SBO? What are the Corporate and Business Strategic Concerns? What are the four tasks in relation to Wessex? What are the key policy areas?

CASE STUDY FEEDBACK


What are the visions and values of the Health Trust? The aims of the strategy set out the values and the need to utilise skills further. There is little on participants and stakeholders needs. What are the SBI and SBO? The need for change covers the core strategic business issues, and the one strategic business objective. These are loosely covered by the reference to the Working for Patrick which will specify these more directly. What are the Corporate and Business Strategic Concerns? These are:

Reducing demand for staff. Improving utilisation. Competing more effectively in the labour markets. Demand, utilisation, internal/external supply, management of people
strategy, information systems and utilisation of staff-planning, HRD. What are the four tasks in relation to Wessex?

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Employee assignments and opportunities: utilisation of skills and


competing for supply and information.

Employee competence: management of people. Employee behaviour: not clearly specified but suggested in
Needs and Priorities under education, training and development.

Employee motivation: aims, management of people, balanced


scorecard approach (introduced in Units 1 and 2 and referred to again in Unit 4) to supply of people. What are the key policy areas?

Equal opportunities/retention: recruitment imaginative. Reward strategy: reducing turnover improved retention. Communication strategy to support change: education, training
and development including management development education strategy, job restrictions/definitions. Organisations that follow this approach clearly are trying to create a working relationship between the business requirements and the basis of people skills and activities that will contribute to the success of the organisation. We called this integration in previous units. However, you might have noted how such an approach might build confidence in the workforce and patients through the transparent communication of the HR aims and objectives. This form of direction-setting and identification of expectations of staff and the support that the organisation will offer may help to cement a sense of commitment and fairness in the employment relationship. We referred to the psychological contract in earlier units and this is an example of a step towards building this. Patients are likely to derive confidence that the workforce is well developed to do their work and are employed in efficient and effective ways to ensure value for the investment, a matter of wider interest to governments and the public who fund healthcare. In a private sector business these statements build confidence in the effective management of resources for quality and reliability which is, of course, of interest to customers and suppliers as well as staff. The public pronouncements of intentions raise expectations and are insufficient without careful implementation, as the non-fulfilment of the bargain may create a heightened sense of dissatisfaction. We could describe this as raising the stakes and in a sense this can both be a pressure and commitment to improve HR management once the intention is public but, of course, the risks are greater. We must also advise caution about the overly rationalistic view of organisations making explicit their intentions in changing times. If the environment is uncertain then such planning may quickly become redundant; constant change of intentions can confuse users and put up the risk of diluting confidence and trust in the management which is linked to the earlier point.

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That is why some strategists now are emphasising more flexible or emergent plans that are more adaptable, what we have referred to before as more general statements of direction or scenarios of the future. For employees, of course, these are rather less tangible and related to the day-to-day world of work that they experience. This will engender less interest and commitment if this is the case. However as a working plan for the organisation based on resource planning then it may have a more realistic framework for organisational decision-making, what we have perhaps referred to as the resource based view of HR strategy. The difference of approach is perhaps determined by the need to engage the whole workforce in the process of HR change. Alternatively, where the size of the organisation is large, more low key statements of direction and involvement of staff may not be feasible in terms of assuring consistency of implementation across the organisation or mobilising knowledge and commitment to change. Although the style and approach may differ, the imperative for a strategy is not diminished.

The above case study illustrates the possibility for HR strategy. It covers the relationship between human resources and business strategy. It offers a comprehensive strategic response or matching strategy as laid down by the concepts of Unit 1. The case shows how demand and supply issues are evaluated in a HR planning process. People management is placed at the centre of the business outcomes and key HR levers are identified as a basis for achieving the people outcomes. Strategic HR outcomes are recorded, for example employee commitment, leadership, flexibility and performance-based strategy, which we shall address in Unit 4. Competence is not central to this strategy, which is unusual, but we might infer the competences required in terms of skill enhancement and flexibility. This is a multi-task operation and a multi-occupational team-based approach. Of course, management competence is at the heart of the strategy. Finally, we see the level of integration being attempted from the business strategy to the HR response across each of the policy areas. There is much controversy as to the extent to which organisations actually produce a formal HR strategy and communicate it to employees. Large organisations, health care and public authorities including universities have widely engaged in the process. Critics have concentrated on the impact and reality of the plans and the degree to which they are implemented.

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Strategy formulation
Establishing vision and values
This describes the kind of company and its business priorities. This has important implications for the style and climate of the HR working environment. Schuler et al (2001) describe the Merck Pharmaceutical mission as the provision of superior product innovation to improve the quality of life focusing on ethics as well as shareholder returns. Barclays Bank in the UK has recently launched a campaign of size and strength but perhaps lost the sense of closeness to customer and service values.

Focus on strategic business issues and objectives (SBI and SBO)


Objectives are set for each. So, for example, Schuler et al (2001) describe the strategic business issues for American Express as follows:

Becoming more globally competent. Open through acquisition. Become more innovative. Enhanced customer focus and solution orientated.
From the business objectives emerge core competencies and then the skill/knowledge mix of people and numbers of people.

Crafting strategic plans


This stage is the link between the vision and values and the SBIs, and is crucial to the achievement of the strategic plan.

Corporate strategic concerns


Indications of factors to consider are:

Ensuring planning for the future. Building high performing portfolios/acquisitions,


diversities, alliances, etc.

Capturing synergy between related businesses. Establishing investment priorities and steering resources
into opportunities.

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Monitoring approaches to strategy by unit management


business level concerns.

Interpreting changing marketing conditions. Devising approaches to competing successfully. Selecting competitive strategy. Responding to changing environments. Uniting initiatives across departments.
HR will be involved in numerous ways. For example, Schuler et al (2001) stress the importance of the following:

Compatibility of corporate culture in strategic alliances


and skill sets through due diligence activities.

Requirement for new talents and employee behaviour to


fit life cycle.

Strategy implementation
Developing and implementing plan four task model
The four task model amplifies in HR terms what we need to do for people. The four tasks are:

Managing employee assignments and opportunities;


sourcing and deciding how to grow and develop then to attract and retain people.

Managing employee competencies; core, emerging and


developing competence definitions against SBI.

Managing employee behaviour; what is the devised


organisation/corporate culture to sustain the business.

Managing employee motivation; willingness to perform


and commitment to the organisation through development, growth, job assignment and reward strategies. The policy and practices to support the four task model include:

Recruitment, selection and internal career development. Training, development and corporate learning. Performance management.

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Compensation and reward. Health, safety and working environment. Employee relationships. Organisational change and design.
Having outlined what a HR strategy might look like we now need to consider how to evaluate it.

Review and evaluation of HR strategy


Evaluating HR strategy has always been seen as more problematic than its formulation or implementation. However, most commentators see the need for two tiers of evaluation:

Strategic. Operational, which can be subdivided into: - outcomes - processes.


Strategic evaluation Becker & Huselid (1998) suggest a need to concentrate on evaluating the translation of unit objectives from strategic objectives, and to be able to access what the performance choices of the organisation are and the extent to which the skills, motivation, structure and HR system influence those choices. Kaplan & Norton (1992) suggest that evaluation must cover a balanced set of measures including financial, customer, internal business processes and the learning and growth perspectives. We shall return to this balancing of performance measures later in the module. Other ways of considering the strategic evaluation of HR have been summarised by OCreery (1997) in four key areas:

Strategic importance of HR in the organisation. Whether HRM practice in the organisation reflects best
practice.

Whether HRM practices support organisational goals. The extent to which HR policies and practices work
together to support the organisation goal.

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Translating these into auditable qualities might lead to an assessment of:

Capability Leadership effectiveness Workforce competence Performance culture

Assessment 360 approach Documentation, development plan and results Employee surveys of management commitment to performance objectives Clarity of objectives and feedback

(Source: Yeung and Berman B, 1997) Operational evaluation: outcomes Hiltops & Despres (1994) offer a basis of performance indicators that serve to complement our audit basis for Personnel Departments in Unit 2 as a basis for evaluating services, delivery and contracting purposes. Recruitment and Selection

- number of long term vacancies/total number of jobs - average length of time to fill jobs - proportion of vacancies filled internally - average time spent in a job or function per employee - measures of candidates satisfaction with recruitment
professionalism

- favourability, familiarity and awareness, inducing of


potential recruits. Training and development Number of training days/hours employees per year:

- total training budget/total employment expenditure - application of training objectives to workplace/job


improvement

- level of personal development activity, coaching etc.


Compensation and rewards

- total compensation cost/total revenues


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- basic salary/total remuneration - number of salary grades/employees - incentivisation/basic salary - incentives/organisational performance pre tax profits - incentives / cost improvements.
Employee Relations

- number of resignations/headcount - average length of service - rate of absenteeism - levels of supervision/employees - level of grievances/disputes - participation in quality improvement activities - satisfaction with communications and consultation
channels

- satisfaction with leadership and management.


Overall HR Management

- total revenue per employee - headcount this year/last and periodically - part-time/outsourced staff to full-time staff - employment cost and expenditure - number of HR professionals per employee - age distribution of employees - service level achievement and satisfaction of HR
department. Operational evaluation: process This normally constitutes attitude surveys to track and monitor staff reaction and opinions to such things as:

- leadership style effective working relations - support and encouragement for training

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- effective participation and involvement in appraisal,


communication and job improvement processes

- involvement and knowledge of organisation performance


and change communication processes

- satisfaction with job and terms and conditions - ability to raise concerns and have them effectively
resolved There are many more factors that could be included, but the basic aim is to understand behaviour, opinions and reactions to the working environment. We shall see the full importance of these later when we discuss the development of an effective learning climate as key strategic capability. From Unit 2, we can already see how an understanding of employee attitudes could be seen as critical to understanding the level and nature of employee commitment to organisational goals and indeed the level of commitment or nature of the psychological contract with the organisation. For example, we might use an attitude survey to assess commitment and identification with the service/product and customer needs and so on. We might also assess such matters as job interest and effort put into improving business processes.

ACTIVITY
Suggest at least two design and/or follow-up considerations for such an attitude survey.

ACTIVITY FEEDBACK
The important design and follow-up consideration for attitude surveys are:

Careful design and piloting with target audience. Consistent application yearly or bi-annually. Publish results benchmarking honestly. Following actions through cross-sectional groups.

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Openly debating the findings through establishing


communication for team briefings, consultation groups.

Confidentiality of survey. Strategic importance attached to findings and actions.

The important thing to consider with process evaluation is that the process in itself contributes to positive employee relations. The process, and the publication of the results and actions on the audit, symbolise a transparent and learning approach by management. It can be seen as a high risk strategy; once you have started you are to some extent open and at the mercy of employee opinion, however well or badly-founded these opinions are. But this approach is totally consistent with approaches toward the other key stakeholder in the business, the customer. It can be seen as representing a new deal with employees and perhaps suggesting a change in management style and a raising of the employee profile. This may be the way to achieve greater identity and commitment. The stakes have never been higher in the move towards achieving high commitment and high performance through culture changes. You might want to refer back to this when we discuss the principles behind the learning organisation.

Summary
This unit has introduced the importance of having HR Planning systems and processes in place to support HR Strategy. We have examined the broader context and information now used for planning and the links to human resource policy decisions. The depth and range of information to be collected is increasing as witnessed by the competence models. The importance of competence is twofold. First, it creates a common language by which managers can understand and make decisions about people requirements in a relatively consistent way. Second, it enables the key link to be made through which business strategies can be articulated in people terms, to enable HR strategies to be written. We have identified the components of HR Strategy and discussed the best of the key resourcing strategies to support its achievement, that is, recruitment and selection.

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REVIEW ACTIVITY
Now answer the following questions to refresh your knowledge of this unit: 1. Why is Human Resource Planning becoming of strategic importance within organisations? Identify three tactical and three strategic methods of improving labour supply. Identify three key areas of competence developments for yourself using one of the models provided in the unit. What other Human Resource Systems can competence models support and assist with the decision making process? Identify the main steps to HR strategy formulation and implementation. Outline the main strategic approach to recruitment. How can organisations improve the reliability and validity of recruitment? What are the internal/external resourcing strategies that organisations can use to enhance recruitment and retention?

2.

3.

4.

5. 6. 7.

8.

REVIEW ACTIVITY FEEDBACK


Answer 1 HR planning is seen as having increasing importance in addressing both quantitative and qualitative approaches to planning, with the strategic importance of identifying core competencies and sponsoring new techniques. Answer 2 Tactical methods are to intensify recruitment, introduce overtime, and outsource work. Strategic methods are to use substitute/new labour markets, employee development, and to restructure jobs

Answer 3
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This is a flexible question for you to answer in conjunction with one of the models in the unit, Pedlar and Burgoyne or WH Smith. Answer 4 Other systems that can be supported include:

- organisational restructuring - recruitment - skills utilisation - career management - appraisal, personnel development planning - reward management - culture change.
The competence model is the central feature of an integrated human resource strategy. Answer 5 The main steps in formulation are:

- establishing vision and values - focus on SBI and SBO - drafting strategic plan - corporate and business concerns in planning.
The main steps in implementation are:

- managing employee assignments and opportunities - managing employee competence - managing employee behaviour - managing employee motivation policy and practice alignment - recruitment and selection

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- training, development and corporate learning - performance management - compensation and reward - health, safety and environment - employee relations - organisational change and design review and evaluation - strategic education - operational evaluation - outcomes - processes.
Answer 6 The main strategic approach to recruitment is in:

- changing attraction practices - changing inducement offered - targeting non-traditional sources.


The strategic issues involve:

- candidate-friendly recruitment - professionalism in recruitment and marketing the organisation - use of e-business recruitment - resourcing strategies retention of talent.
Answer 7 The reliability and validity of recruitment can be improved through more rigorous approaches to selection with:

- focused behavioural event interviews

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- competency-based application forms - structured fair recruitment and selection practice - wider use of simulation based upon job demands, for example
in assessment centres

- multiple selection methods to triangulate results.


Answer 8 The resourcing strategies that can be used to enhance recruitment and retention include: the retention of women employees with career breaks, for example; strategic alliance with schools and school leavers (colleges) and focus on older workers and distance workers.

References
The Strategic Managing of Human Resources, edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, 2004 (Key text for this module) Albery, R. (2001) Frames of Mind: How are safeguards built in?, People Management, 14 June. Atkinson, J. (1989) Four stages in demographic downturn, Personnel Management, August pp. 20-24. Bartram, D. (2001) in Albery, R. Frames of Mind: How are safeguards built in?, People Management, 14 June. Becker and Huselid (1998) High Performance work systems and firm performance: a synthesis of research and managerial implications, Research in Personnel and Human Resources 16(1), pp. 53-101. Bennison and Casson (1989) The Manpower Planning Handbook. Maidenhead: McGraw Hill. Bramham, J. (1994) Human Resource Planning, Wimbledon: Institute of Personnel & Development. Buller, P. (1988) Successful Partnerships: HR and Strategic planning at eight top firms. Carter, M. (2000) Contract Shift Featuring e-Procurement, People Management, 23 Nov.

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Connock, S. (1991) HR Vision: managing the quality workforce. Institute of Personnel Management. Fowler, A. (1990) Performance Management: the MBO of the 90s Personnel Management July edition Goldman, D. (1998) Working with Emotional Intelligence, Bloomsbury. Hammel, G. and Prahalad, C.K. (1994) Competing for the Future. Cambridge MA: Harvard University Press. Herriott P (1994) Candidate friendly selection for the 1990s, Personnel Management, 22 (2), February, pp. 32-35. Hiltops, J. and Despres, C. (1994) Benchmarking the performance of human resource management, Long-Range Planning, 27(6) pp. 43-47. Kandola, B. and Whiddett, S. (2000) Fit for the job?, People Management, 25 May, pp. 30-38. Kaplan, R.S. and Norton, D.P. (1992) The Balanced Score-Measures that Drive Performance, Harvard Business Review, January-February. Kotter (1982) General Managers, Oxford, Free Press. Nordhaug, O. (1993) Human Capital in Organisations. New York: Oxford University Press. OCreery, M.F. (1997) B824 Unit 9 Evaluating Human Resource Initiative. Open University. Pedlar, M., Burgoyne, J. and Boydell (1994) A Managers Guide to Self Development Maidenhead: McGraw Hill Rynes and Barbour (1990) Applicant Attraction Strategies: an Organisational Perspective Academy of Management Review, 15(2) pp. 286-310. Schuler, RS., Jackson and Storey, J. (2001) HRM and its links with Strategic Management in Storey, J. (ed) Human Resource Management. A Critical Text. Thomson Learning. Woodruff, C. (2001) Promotional Intelligence, People Management, January, pp. 26-29. Yeung, A.K. and Berman, B. (1997) Adding Value through Human Resources : Re-orientating Human Resource Management to Drive Business Performance, Human Resource Management Journal 36(3), pp. 321-35.

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Performance Management
LEARNING OUTCOMES
Following the completion of this unit you should be able to:

Critically evaluate the main ideas and assumptions supporting


Performance Management Systems (PMS) and how PMS support a strategic approach to the management of people.

Design PM systems to fit varying organisational situations and


objectives.

Critically evaluate the integration of individual and organisational


objectives and measures.

Design appropriate appraisal systems to support a strategically


integrated PM system.

Introduction
One assertion that can be made about the strategic management of people is that the systems and processes are only a means to an end, to the achievement of organisational goals. In this unit we argue that to maximise the benefits of people management, the key factor is the integration of the HR systems. Performance Management Systems (PMS) are a key integrator by allowing objectives in a business plan to be fed into the rest of the HR systems that we encountered in Unit 1. We need to clarify what we mean by Performance Management Systems. Bevan & Thompson (1992) offer the following definition (adapted):

PMS communicate a vision of the organisations


objectives to the employees.

PMS provide the departmental/business unit and


individual performance targets that are drawn from the wider organisational objectives.

PMS provide a formal review process of how the


objectives have been met.
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PMS establish the basis for identifying training,


development and reward decisions as outcomes from the review process.

A fully integrated PM system (objective setting, review


process and linked development and review system) provides the basis for evaluating the effectiveness of the whole performance process in providing enhanced organisational performance. A carefully modelled system will provide the necessary information to report on capability as well as outcomes achieved. This unit will concentrate on PMS design, and appraisal decisions.

READING ACTIVITY
Please read Chapter 7 of your key text, The Strategic Managing of Human Resources, Edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, which covers some of the subjects of this unit.

The Ideas and Assumptions of PMS


PMS refers to a set of techniques and procedures for improving organisational performance. There is nothing new in attempts by organisations to find different ways of achieving this. The history of HR management is full of attempts by consultants and personnel experts to define such approaches. Management By Objectives (MBO) was one such approach; various forms of appraisal have been used to attempt a collective, organisational control over individual performances. Most of these have been problematic in design, intention and management in terms of effective implementation. Before we look more closely at design issues, we should try to explore what is distinctive about PMS. We begin on a note of caution. One needs to be cautious about the long-term impact of a PM system given the limitations of overly reactive systems and the potential lack of ownership of PMS by line managers and staff. Organisations have to be careful to avoid the risk of elaborately designing systems that are later unused, or used in such a way that is superficial with little lasting impact upon performance. An important way to mitigate this risk is to ensure that there is sufficient business input into the design of the PMS system.

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Despite the cautions, PMS have several positive qualities that distinguish them from previous systems such as Management by Objectives (MBO):

PMS have business-led outcomes that may be assessed


against definite business objectives.

The system is integrated with interlocking procedures


and flows of information.

There is a mix of quantitative and qualitative objectives. There is a focus not only on system design but also on the
manner of implementation, that is, PMS are process/culture sensitive and as such, are flexible.

PMS rely on a participative approach by managers and


staff alike, which can align with other organisational processes, for example, employee relations, communications and decision-making processes.

PMS have a distinctive and adaptable philosophy, that is,


it is people as well as systems oriented.

Distinguishing features
The features that make up PMS can be seen as a series of steps linked to an overall business strategy, as follows: 1. 2. 3. 4. 5. 6. objective setting ongoing review of objectives the development of personal improvement plans linked to training and development formal appraisal with feedback pay review a competence-based organisational capability review.

ACTIVITY
Imagine that you work for a university or college and you wish to introduce an integrated performance strategy and system. The strategic objectives might be oriented towards expanding courses for postgraduate students and addressing cost effectiveness in course delivery. The business strategy is to:

Expand the range of postgraduate courses.

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Complete a market review of demand for courses. Establish a competitive view of regional and national course
provision.

Review size, to teach larger class sizes through technologies and


use of independent methods, for example, distance learning.

Extend the market for students by attracting non-local markets.


Use the steps in the model to indicate how your PM system might be used to support this strategy. You need not include steps 4 and 5, as they tend to be optional. We have done step 1 for you: Step 1: Objective setting

Introduce selected new courses and models allocated to teams


and individuals respectively to build on key capability and professional development.

Set objectives based on developing skills in the use of learning


technology, for example, virtual learning environments and web-based activities.

Develop personal skills in the design and delivery of web-based


material.

Develop skills in writing distance learning materials. Develop coaching skills to support learners in using
independent teaching with the lecture-based system.

ACTIVITY FEEDBACK
The system may look like this: Step 1: Objective setting

Introduce selected new courses and models allocated to teams


and individuals respectively to build on key capability and professional development.

Set objectives based on developing skills in the use of learning


technology, for example, virtual learning environments and web-based activities.
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Develop personal skills in the design and delivery of web-based


material.

Develop skills in writing distance learning materials. Develop coaching skills to support learners in using independent
teaching with the lecture-based system. Step 2: Formal appraisal

Review progress, and course and module project against project


plans.

Review extent of personal experimentation in trying out new


tutoring system and skills.

Review of personal skills development in web-based teaching.


Step 3: Personal development plan, training plan and career plan Personal development plan

To reflect the practice and research into the model of tutoring. Establish networks of people inside and outside the organisation to
exchange ideas on distance and web-based tutorials.

In-house review of tutoring and teaching systems to adapt to new


teaching and learning system. Training plan

Web design training in the use of technology. Revised professional updating to support new careers. Support career change as detailed below.
Career plan

Review priority of teaching, research, consultancy and management


of programmes within individuals future workload.

Step 6 (Steps 4 and 5 omitted): Organisational capability and competence review

Evaluation of core skills in teaching, facilitating learning, consultancy


and research.

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Review balance of skills based upon existing and planned future


profile of courses and organisational activities.

Review size, to develop existing staff or buy in from the outside


labour market.

Feedback capability profile into the decisions about scope and


pace of service profile by each college faculty in terms of ability to adjust.

Business strategies Step One Objective setting


Ongoing review Ongoing review

Personal/job improvement plan Career development plan Training plan Performance rating

Step Two

Formal appraisal

Organisation capability review

Step Four

Step Three

Pay review

Reflecting on your study of Units 1 and 2, you should note that key words start to reappear:

Integration of HR response to strategic demand. Integration of available skill, competence and attitudinal
supply.

Integration of the HR policy levers.


This is the HR management implication of establishing these procedures at the organisational level. In this way a holistic as opposed to narrow approach (for example, appraisal systems with explicit business links) can offer the basis for an established and embedded HR system. We could even expand step 3 by including career planning, coaching, counselling and mentoring activities to enhance capability and skill formation resonant with the resources-based view of SHRM.

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Clearly this is a highly formalised system and many organisations could not afford to engage in all these steps, particularly the separate development plans. The key features are:

The business led and linked objectives. The ongoing participation review process framed around
a clear management style of open feedback (see below).

The definition of both formal training needs and


job-based learning objectives linked to a capability and competence review, which can lead to a review of the wider HR policy. There are many links here with the HR planning approach that we encountered earlier in the module and it is possible to get an early view of the integrative power of PMS within the HR system interventions. The key management processes that take place within PMS are:

Formulation of clear organisational objectives, cascaded


down to departmental, business unit or team level.

Measurement of objectives. Appraisal decisions. Performance-related pay. Coaching and counselling staff at the job level to enhance
skill and learning capability.

Success management or career management.


We shall return to these in due course, but first we need to look at a potential problem with PMS.

PMS systems in different organisations


In the next activity we ask you to look at an article by Fowler (1990) in order to address criticism of various attempts at performance appraisal systems by organisations in the past. Performance appraisal schemes are not new. The discussions of managers about the progress of employees, their effectiveness in behaviours such as communication and their reliability have long been used. However, in line with our thinking on strategy, these behaviours, traits and outcomes need to have a clearer overall purpose.

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CASE STUDY
Read the following article on Performance Management: Performance Management: The New MBO? by Alan Fowler Management has always been about getting things done, and good managers are concerned to get the right things done well. That, in essence, is performance management the organisation of work to achieve the best possible results. From this simple viewpoint, performance management is not a system or technique, it is the totality of the day-to-day activity of all managers. But if the methods managers use to achieve results are left to their individual initiative, two problems arise: There is no guarantee that all the managers will work to a coherent set of organisational goals and priorities. Managers vary considerably in competence, so performance standards are unlikely to be consistent or universally high. As a result, the history of management consists largely of attempts to evolve managerial processes which, by systematising good practice, ensure that what all managers aim for and achieve is what the organisation requires. The recent emergence of the concept of performance management with its related formal systems which have already acquired the generic title of PMS is the latest in a long line of such attempts. Is this just the flavour of the month? Will these systems be any more successful than previous techniques particularly management by objectives (MBO), which PMS resembles quite closely? A broad review of past developments provides some clues. Several features emerge from a 60-year view. No single theory or technique has proved to be adequate by itself to secure a high level of organisational and managerial performance, and none has lived up to initial expectations; but most have had some lasting beneficial effect, however limited. There have also been two largely unrelated and sometimes opposing approaches, one concerned with work processes, the other with the human element with people. These two streams of development derive from what 1960s theorists described as the scientific and human schools of management. There are, of course, more complex and academically sophisticated categorisations of management theory, but from a practical viewpoint the two approaches of process-oriented or person-oriented techniques provide a sharper focus. In simple terms, the thinking behind the evolution of management techniques seems to be as described in the two boxes below.

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THE PROCESS APPROACH High performance is best secured by analysing the work which needs to be done to achieve a predetermined result, and then designing the most efficient sequence or method of work activities. In short, to find the one best way. There is an assumption that employees will follow this method because, from an analytically logical viewpoint, it is patently obvious that it is the best way of working.

THE PEOPLE APPROACH High performance can be achieved only through people. So, if the right people are selected for the right jobs in the right numbers, if they are trained in the appropriate skills, and if they are effectively led and motivated, then they will inevitably work well. There is an assumption that; by and large, competent, motivated people will evolve their own best methods of working.

Almost all management techniques and systems developed this century fall into one or other of these categories. Table 1 shows this in summary form. This is not an exhaustive list, and it does not include current developments in performance management or total quality, but it serves to highlight the historic contrast between the two approaches.

TABLE 1: CATEGORIES OF MANAGEMENT TECHNIQUES THE PROCESS APPROACH Work study Critical path analysis Operational research O&M PPBR (planning and review) Cost benefit analysis Job evaluation Statistical manpower planning Management by objectives (MBO) THE PEOPLE APPROACH Selection test techniques Training needs analysis Training techniques Joint consultation Industrial democracy Merit rating Quality circles Human resource planning Performance-related pay

Although most techniques concerned with process have been developed separately from those concerned with the people dimension and vice versa it would be going too far to argue that there has been a wholly rigid distinction. At least some of the systems which fall mainly into one category have some linkage with the other approach. For example:

Work study though essentially process based has been used for
incentive payment schemes. Such schemes reflect a managerial view that people are motivated by factors other than the sheer logic of a best method system of working.

MBO, while firmly based on a rational model of organisation


structures and operational objectives, also recognised the motivational effect on employees of knowing what they were expected to do, and through an appraisal process learning how well they were doing it.

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Job evaluation requires jobs to be analysed in process terms. It


essentially separates the person from the work, seeing the job as an impersonal set of working activities. Yet its rationale is to achieve felt-fair pay levels a people objective.

Most performance-related pay schemes, while designed


primarily to motivate, use performance criteria which are drawn directly from the rational process model. In general, though, most management techniques and systems start with an assumption that one of the two approaches process or people is predominant. To assist consideration of what todays PMS might learn from this analysis it is helpful to look in more detail at why some of the earlier techniques have not lived up to their initial expectations. Some common causes of failure can then be identified. Critical path analysis (CPA) was developed during the Second World War to control the scheduling of major projects such as the production of new weapons systems. After the war it was taken up with much enthusiasm by project-type industries such as civil engineering, where in the early 60s it was seen as the key to successful contract completion. Go into any site managers office at that time, and one wall would be filled by a multi-coloured critical path chart produced by a central project planning unit. But ask the manager to point out where the current state of the contract lay on this chart and it was not uncommon for him to explain that life was not quite as orderly as that. He had found some short cuts, or unforeseen problems had arisen which meant the chart was no longer a sure guide. He had made adjustments to the work programme on the hoof and had not yet told central planning, so the chart had not been revised. A mixture of the unpredictability of work, the initiative of the site manager and his preference to do things his way rather than the planners all combined to undermine the validity or acceptability of the plan. CPA is, of course, still used extensively and can be a powerful planning tool but it is not the predominant answer it was once thought to be to the problems of managing large, complex projects. Merit rating. In the 1950s, merit rating was seen as the other side of the job evaluation coin. Job evaluation measured the worth of the job; merit rating assessed the worth of the individual. Through financial recognition and reward, it would stimulate employee effort to achieve high standards of performance. Although merit rating in its simple original form is still used by some companies, there has never been any hard evidence that it actually raises performance standards. A major reason for this must be that its design wholly failed to establish a clear connection with specific process or performance objectives. It was based instead on highly subjective assessment of behavioural or personality factors such as initiative, co-operativeness or creativity a classic case of a people-oriented approach which ignored the realities of work processes.

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Quality circles. Although the purpose of quality circles was clearly to raise quality or process standards, the system itself was founded firmly on theories of motivation through involvement an essentially people-based approach. Many organisations launched quality circles with great enthusiasm at the end of the 70s only to experience a fairly rapid decline in the interest and commitment of managers and employees. Some organisations achieved success and some quality circles have become firmly established, but this seems to have occurred in only a minority of cases. In an article in PM [Personnel Management] in February 1985 (Quality circles why they break down and why they hold up), Ron Collard and Barrie Dale commented on studies in which some 20 reasons for failure had been identified, of which company restructuring, employee turnover and lack of co-operation by supervisors and middle managers were the most common. [Now] a broader view is possible, and two main reasons can now be suggested. First, many circles were not compatible with company culture. Participative shopfloor working sat uneasily within hierarchical and authoritarian environments. Secondly, circles were introduced without changes being made to formal working methods and systems. In a wave of enthusiasm for harnessing the talents of their people, companies overlooked the need to reshape their processes for example, the procedures for making design or production changes. So ideas generated by the circles entered the formal procedures at an unconventional point in an unconventional way, and were then often lost or delayed by the unchanged formal system. Management by objectives (MBO) was the first attempt to systematise the whole process of management. It was certainly thought to be the answer by many of its proponents. Yet it too has fallen largely into disuse at least so far as the detailed system marketed by Urwick Orr, and its derivatives, is concerned. True, the basic idea has survived that if management is about getting things done it is as well to define what is required and review progress regularly, and it forms the basis of todays PMS. But MBO as one specific technique had expired within 10 years of its much publicised launch. Why? The answers are particularly relevant to PMS. First, the standard, packaged MBO system fitted the culture of a few organisations, but not that of many others. It required a highly structured, orderly and logical approach characteristics which were more compatible with traditional bureaucracies than with the opportunistic world of the entrepreneur. Few managers though many administrators are naturally as systematic as MBO required. Secondly, there was only limited recognition of the importance of defining the organisations corporate values and goals. The emphasis was on the role of the individual manager. One result was that objectives set in one department could be inconsistent with those of other parts of the organisation. Thirdly, schemes were often perceived by line managers as a centrally imposed additional task, Management development specialists often owned the system not the line managers who had to put it into effect.
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Systematic objective-setting consequently became a formal once-a-year exercise bearing little relationship to managers day-to-day decisions. An annual event could not keep pace with the rate and volume of change occurring between each years appraisal interview. In addition, there was an over-emphasis on quantifiable objectives to the detriment of important qualitative factors. And, finally, the system was administratively top-heavy. Form filling became an end in itself. Three general causes of failure can be drawn from this review. 1. People-based systems can rarely operate effectively without some form of process-based support. Being enthusiastic is not enough. In any but the very smallest of organisations, a framework of procedural systems is necessary to ensure that good ideas and desirable changes can be quickly and efficiently implemented. This is where the biggest risk exists for current developments in total quality management. A new-found enthusiasm for quality will almost certainly need support from major revisions to existing work processes, whether technical or administrative. It is not clear from some current total quality management literature that sufficient attention is being given to the process side of the quality story. The main emphasis, influenced strongly by Tom Peters frenetic evangelism, is on changing attitudes. But nothing turns enthusiasm more quickly into cynicism than the lack of efficient procedures to convey good ideas into practical action. 2. Process-based systems will fail if inadequate attention is given to the changes in attitudes or skills which are needed for them to operate effectively. This is not just a question of mounting a training programme. The question of ownership of the systems is also of critical importance. Far too often, new techniques are imposed from the centre and seen by busy line managers as unwelcome additions to an already heavy managerial load. Many appraisal schemes are perceived in this way as the pet projects of the personnel department a chore to be disposed of as rapidly as possible so managers can return to their real work. Both types of system will fail if they are incompatible with the organisations culture (its style, beliefs and values), or unless they are an integral part of a planned programme of cultural change. Frequently, however, new management techniques have been introduced without thought about their cultural impact. Highly structured work planning or staff appraisal schemes are injected into organisations whose whole style is informal and flexible. Or attempts are made to induce collaborative or participative working in one part of an otherwise highly controlled and status-conscious environment. In either case, the alien implant is quickly rejected. The recognition of culture is probably the most important single addition to management thinking in the last decade. Its application to the design and implementation of management systems is not yet firmly established.
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Will todays performance management systems avoid the pitfalls of the past and achieve the integrated approach which should lead to success? As Table 2 shows, PMS shares many common features with MBO, even though some of the jargon has changed. MBO divided jobs into their key results areas principal accountabilities in PMS terminology. Both systems set objectives within each segment of the job; both distinguish between task-based objectives and personal development goals. Both require the identification of performance measures and the periodic appraisal of achievement against objectives. But, as Table 2 also indicates, there are some important differences, In full-blown PMS, the starting point is a definition of the organisations mission, aims and values a cultural feature not found in MBO. Corporate and divisional objectives are then identified which reflect or support the corporate mission. The objectives of individual managers (and then their support staff) are evolved similarly as part of a cascade of integrated goal and standard setting. Unlike MBO, which was generally limited in application to managers, PMS schemes are being extended to all staff. The whole process is far more cohesive and strategically focused than MBO and consequently stands a better chance of success. In most PMS schemes, too, there is a recognition that performance cannot be assessed solely by quantified measurement. Qualitative performance indicators are given full recognition, for example, by the use of customer attitude and opinion surveys. This, too, gives PMS a higher survival rating than MBO.

Table 2: MBO and PMS compared MBO Packaged system Applied to managers Emphasis on individual objectives Emphasis on quantified performance measures Jobs divided into key results areas (KRAs) Objectives set for each KRA Performance measures Task and personal goals Annual appraisal including discussion of new goals Most schemes used complex paperwork Schemes owned by specialists PMS Tailor-made systems Applied to all staff Emphasis on corporate goals and values Inclusion of qualitative performance indicators Jobs divided into principal accountabilities Objectives set for each accountability Performance indicators Task and personal goals Annual appraisal including discussion of new goals Some schemes have complex paperwork Schemes owned by line management

Another plus point is that there is no one packaged performance management system. John Humble deserves enormous credit for inventing MBO, but the selling of a single system by Urwick Orr led many companies to buy an off-the-shelf package instead of evolving an approach which best fitted their particular circumstances and style. Although some consultants such as Hay are very active in the performance management field, most organisations (often with consultancy assistance) are evolving their own tailor-made systems.

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Finally, PMS initiatives tend to be led by chief executives and top management teams, not by personnel specialists. Middle managers may still react against the imposition of a performance management system but with less vigour and much more caution than when central personnel was seen as the prime mover of an MBO scheme. PMS is becoming owned by line management. It would be unwise, however, to think that, because of these beneficial differences, PMS will take root as a permanent best way of achieving a high standard of organisational performance. Several contra-indications can be seen in a number of current schemes. In particular, within the appraisal process of PMS, some schemes are placing almost total emphasis on statistically measured task performance (the extent to which the manager achieves present goals) to the exclusion of broader, people-type issues of personal competence and development. It is curious that this trend is particularly apparent in a number of local government schemes where, in the past, the argument has been that many public service functions are not susceptible to quantifiable assessment. Some local authorities seem to feel a need to demonstrate that they can be just as macho as the private sector, and consequently consider it a weakness to pay any attention to behavioural or personal factors. Too much reliance is still being placed on objective-setting and review as an annual event. In todays fast moving world, any idea that effective performance management can be tied neatly to a single annual date is patently absurd. Far more effort is needed to build the fundamental principles of goal-setting, appraisal and supportive action into the ongoing and informal management activity. In short, what is needed is an attitudinal or cultural change not just the adoption of a largely administrative process. This potential cause of failure is exacerbated by another unwelcome tendency for schemes to become administratively complex. One public sector scheme now requires the completion of an eight-page appraisal form in accordance with the terms of a 48-page management manual a classic example of the process becoming an end in itself rather than being a practical aid to better performance. Schemes are being hastily introduced in some organisations, almost as a matter of fashion, without adequate thought being given to the practicalities of achieving the objectives which are being set. Both the process and the people aspects are being given too little attention. On the process side, managers are being encouraged to set collective and personal goals before procedures have been changed to aid implementation or adequate attention has been given to the resource implications. Managers go along with this initially, partly because there is a tendency in the first flush of enthusiasm for people to set themselves unrealistic targets. The chief executive in one scheme is known currently to be working towards eight broad objectives and 52 short-term goals, involving over 100 performance indicators. Some disappointment seems likely.

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Enthusiasm for total quality management has emerged separately from the development of PMS in some organisations. Two sets of processes then emerge, not wholly in mesh and potentially giving different signals to managers and employees about priorities and values. No confident prognosis is possible. Some schemes are likely to succeed and become, in effect, their organisations way of managing. The scheme a term which implies a discrete activity will become the company style. Others can be guaranteed to fail: their over-emphasis on the process, or incompatibility with the prevailing company culture, are the seeds of their own destruction. There is an opportunity here for personnel managers, provided they give up ownership of any particular system or approach and act instead as integrators and facilitators. (Fowler,1990)

QUESTIONS:
1. 2. 3. What does Fowler identify as the problems with MBO? What does he identify as the problems with PMS? What aspects does he think merit greater attention?

CASE STUDY FEEDBACK


1. Fowler (1990) identifies the following problems with MBOs (management by objectives):

- isolated objectives - lack of ownership - overly formal, once yearly event - not embedded in development - over-emphasis on quantifiable objectives.
2. He also identifies the problems with PMS as:

- over-reliance on quantifiable objectives

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- what can be measured is what is done - lack of responsiveness to formalised objective setting,
inflexibility. 3. He advocates greater attention to:

- the fit of PMS with organisational culture - more flexible systems to support ongoing learning,
participation and development

- avoidance of overly formal recording systems - development of line manager skills: feedback,
coaching/consultancy, and support

- staff commitment to an ongoing improvement culture - attitudes/value/style change in organisations supported by


well linked PMS.

Thus, Fowler advocates more integrated systems that flow from the work environment but critically reflect the style and interrelationships of employees. In other words, they are explicitly linked to fitting in with the desired organisational culture. You may recall the best fit model and the relationship of culture and structures, including job design. The SHRS principles rely heavily on attempting to manage and form effective corporate cultures. This in turn relies on attempts to align individual staff culture with organisational culture. The range of issues included within PMS, for example, reward, development and so on, and the style of delivery, such as involving or judging, will influence this culture. We shall resume these discussions later in the unit. Appreciating that people are strategic assets (intellectual capital assets), organisations are increasingly adopting the people approach. There is thus a shift for HR departments from ownership, management and control of people, to facilitating involvement and ownership of the scheme. PMS facilitates the strategic management of people by:

A proactive process of evaluating organisational


procedures and attitudes.

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Bottom line orientation and focus of staff in all that they


do; alignment of organisational and individual goals.

Management style changes for line managers. Balance of team and individual goals. Balancing bottom line operation with organisational
process/qualitative focus.

Examples of PMS Approaches


It should be noted that no one system will fit all organisations. In other words, for PMS to be effective organisations will need to take note of several factors:

The history of the organisation. Its management style. Its industrial relations tradition. Its size, formality and market sensitivity. The emphasis on reward and performance links. Performance versus development orientation/culture.
Some contrasting examples may help to explain these variables and their influence on performance management approaches. Example 1: Public authorities and governments Typically such organisations employ large numbers of people. The emphasis is on strong trade union representation and influence on performance of staff. Performance levels are shared with management and are often the subject of formal de-personalised negotiation and agreement. The development of highly formalised relationships, which are largely indirect, between managers and unions in terms of performance, tends to mean that these relationships are transactional and negotiable. This does not allow a flexible, dynamic interplay of ongoing objectives and review between managers and staff; that is, a performance and development culture. A regulatory environment tends to reduce the scope for this and sometimes it is a matter of mutual distrust. Consistency and transparency of treatment often lead to highly formalised systems of PM. Pay is often excluded, as this is a matter for separate collective negotiations. A PM system often amounts to a system of identification of training on limited objectives, except where management is seeking to use PMS, introduced with or without formal

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approval by staff and unions, as a means of securing greater corporate control. Example 2: Private sector IT company In this example, staff are paid individual salaries and unions are not recognised. Staff members are used to individual contracts and objectives being set by managers and being given feedback on those objectives. Formal review of performance is well established and staff members are used to personal and team objective setting in a fast moving business. Example 3: A small research and development dot.com company This will have a small number of staff with very flexible job boundaries. There is little time for formal planning, and day to day staff interaction, communication, and feedback from decision making are all very open.

ACTIVITY
Use these three examples to reflect on the following issues. Note down a brief description of each in the table below:
Example 1 How formal is the objective setting process? Are team-based objectives needed? Do objectives flow from the top down? How formal are the appraisal systems and related planning? What is the style of appraisal discussions and feedback? Are they linked to the pay system? What management skills and relationships are needed? Example 2 Example 3

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ACTIVITY FEEDBACK
Check your responses against ours below:
Example 1 How formal is the objective setting process? Are team-based objectives needed? Do objectives flow from the top down? How formal are the appraisal systems and related planning? What is the style of appraisal discussions and feedback? Are they linked to the pay system? What management skills and relationships are needed? Very No Yes Highly Probably formal No Line management skills formal situations Example 2 Fairly formal Yes Yes Fairly formal Fairly formal Yes Teamworking and team management skills needed Example 3 Informal Probably Not necessarily Informal Informal Yes Teamworking and team management skills needed

These examples should serve to illustrate the necessity of fitting appropriate PMS systems to the culture, history and organisational situations of companies. However, it is perhaps important to highlight at this stage how organisations are using PMS systems to act as catalysts for change. Two examples will illustrate the point and show the power of the SHRM system as an instrument of change management. (Recall from Unit 1 that one of the aims of a SHRM approach is about innovation and change.) A local government office was performance measured to improve efficiency and accountability for public resources under central government modernisation and efficiency drives. The office was moving from non-interaction on employee performance to individual objectives and accountability through the introduction of formal systems. A manufacturing company attempted to use a broader upward appraisal system and all-round feedback on performance (internal and external customer feedback; 360-degree appraisal) to improve flexibility and employee creativity. This company was moving from formal planned objectives to more flexible improvement orientation. These two illustrations show how organisations are attempting to use PMS strategically at two levels to achieve performance outcomes in explicit terms. For the local government it is the promotion of an efficiency orientation and accountability in the use of public funds. For the manufacturing company it is achieving both customer

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understanding and response. The first is to introduce a focus on performance, the second an emphasis on process relationships to improve flexibility. However, the second order of strategic thinking is to use PMS to change the culture. In the local government this means introducing an efficiency and cost mentality within staff perhaps more used to providing services on demand without much thought given to value for money. In the manufacturing example, where the cost and money focus is understood, staff are being encouraged to consider a wider agenda that differentiates a quality product. It is a more process-oriented view to encourage improvement and innovation rather than adherence to systems and procedure. It is encouraging greater awareness of the value of human interaction in product value rather than conforming to systems.

ACTIVITY
Using the two principal models of SHRM, best practice and best fit, identify the likely orientation of PMS in the light of the examples introduced above.

ACTIVITY FEEDBACK
Best practice models generally emphasise high investment in human resource development. Effective employee processes tend to be highly important. Therefore we might expect to see examples of the following:

More sophisticated appraisal processes 360-degree,


customer feedback to encourage wider interpersonal informational exchange.

Objectives and outcomes are likely to be the subject of wider


participative discussion and agreement. Whilst best fit might use the above, in harder operating environments tighter performance control and cost methods will lead to an emphasis on harsher task/target outcomes at the expense of human processes, such as quality of commitment inputs. Harsher performance systems tend to stress task achievements rather than the means of achieving them. We see the difference between a unitary view where employer and employee aspirations are more widely shared at appraisal and a pluralist perspective where the employers move from collaborative to negotiated solutions.

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Setting and Measuring Objectives within PMS


Central to the PM system cycle is the process of setting and measuring performance management objectives that flow from the business plan and are subsequently evaluated. The key questions to address here are as follows: What is the nature and scope of the performance management objectives and measurements? How well-defined and linked are performance management objectives to corporate objectives? How are they linked into individual and organisational capability resources, the supply side introduced in Unit 3? Organisations are constantly trying to motivate their staff and bring about commitment and alignment of staff values to those of the organisation. Objective setting fits into the expectancy theories of motivation. Specifically that individual behaviour is influenced by a persons assessment that performance brings a measurable (positive) result and with it is an expectation of a reward, and a level of satisfaction associated with the reward. Clearly there are various ways to consider results and rewards, and the association with money as a reward is only one possible way. Development, job and career satisfaction, and employment security may be equally potent drivers to encourage a response to performance objectives.

ACTIVITY
Take a few minutes to think about the basis of performance objectives. On what basis do you think they should be defined?

ACTIVITY FEEDBACK
You might have suggested some of the following:

Financial targets/improvements. Quality targets.


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Productivity/output targets. Achieving task objectives. Developing skills. Getting good customer feedback.

You should bear this feedback in mind as you now look at the nature and scope of objectives.

The nature and scope of objectives


The key point is that a broad range of objectives is needed to cover the need to:

Develop competence (skill formation). Meet targets (operational demands). Create an appropriate corporate culture.
Objectives can be defined at three levels: productivity and output related, job-related, and person-related.

Productivity/output related objectives


These are measurable and quantifiable output targets, for example:

Reducing costs. Achieving sales targets. Meeting pre-set manufacturing volumes. Achieving percentage customer satisfaction levels on
service delivery.

Maintaining time targets on responding to enquiries in


Service Centres.

Job related targets


These involve meeting the main job/functional objectives set down in the job description to the specified level of competence:

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Main responsibilities and accountability achieved. Job description tasks met. Obligations and service relationships to internal and
external customers met. An example for a manufacturing manager might be the responsibility for the timely provision of production plans.

ACTIVITY
Suggest similar examples for:

A sales manager. An HR manager. An industrial relations manager. A purchasing manager.

ACTIVITY FEEDBACK
Our suggestions are:

Sales manager: achievement of specified sales targets. HR manager: provision of a cost effective recruitment service. Industrial relations manager: provision of timely and reliable legal
advice.

Purchasing manager: achievement of price and quality targets on


all purchased supplies.

Learning and Development objectives should also be measured, as learning and development, contributes to better productivity, improved job performance and eventually a high-performance culture.

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Learning and Development objectives for the individual should be tailored to link directly with the skills and core competence requirements of the business, and to organisational development goals. Refer also to the section 'HRD in the context of Organisational development' in Unit 6.

Person-related objectives
These involve behavioural outcomes in terms of how the job is performed, for example, contributing to teamwork and quality activities, or communicating with customers. Differences in the way that organisations specify and emphasise targets often reflect the nature of the business and the culture of the organisation. Some organisations concentrate on the outcomes and deliverables, others on improving process capability, leaving relationships as the basis for achieving better performance. Hence, there are some common trends in the nature of the performance relationships:

Emphasis on qualitative, behavioural factors and the


differentiation of individual and organisational performance. (You may recall the resource-based view of the organisation.)

Increasing bottom line (profit/cost) prioritisation to be


fed down to each employee.

Importance of communicating organisational


requirements in ways that individuals can align their activities and behaviour. Increasingly organisations are seeing the business criticality of linking person-related objectives with corporate culture. Organisational culture can be reflected in person-related objectives and thus bring about cultural change or culture reinforcement. Thus, an organisation wishing to nurture a knowledge-working and collaboration culture might place objectives on individuals to measure the number of submissions of intellectual property on the knowledge base, or the number of instances of intellectual capital reuse. This encourages behavioural change towards team-working and collaboration. A young entrepreneurial or start-up company, on the other hand, may reflect corporate objectives such as innovation leadership by measuring an individual's patent applications or contributions to novel marketing concepts. A very large and established company (with many divisions and business units) may reinforce its teamwork culture by measuring an employee's work contributions across functional or business unit boundaries. This encourages an organisational culture based on teaming.

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The link to corporate objectives


We have concentrated so far on the setting of objectives for individuals. In the last section on person-related objectives we highlighted the importance of team-working in organisational cultures. Increasingly organisations are building work around team-based structures. Teams are seen to hold the key to achieving collaborative, knowledge-based working. Therefore, there is a trend away from the highly individualised PMS of the 1980s and early 1990s that emphasised performance-related pay and appraisal, and a move towards a more collaborative and co-operative approach to setting and meeting objectives. Many commentators felt that the individualised form of PMS created a narrow focus on competitive activity, possibly based upon self-interest rather than teamwork and the wider organisational objectives. Therefore, objectives are now more often expressed on behalf of teams and rewards linked to team-based outcomes, as we noted in the section above on person-related objectives.

READING ACTIVITY
The creation and exploitation of intellectual assets is now viewed as a strategic corporate objective in today's knowledge economy. Knowledge management is vital to competitive advantage and market leadership. However, the biggest challenge in effective knowledge management is not the IT challenge but rather the human challenge. How do organisations bring about changes in individual behaviour and promote team-working? Read the article 'A primer on Knowledge Management' that identifies the challenges for organisations, its people and the role HR can play in bringing about change. http://www.acca.org.uk/publications/studentaccountant/57627

Although the individual work of organisational members is important, organisations must be careful to integrate employee activities. This has led to a new view of performance goals. MBO schemes tended to focus on the achievement of financial goals: profit, returns on investment, turnover, cost reductions, shareholder values and so on. PMS that fit the SHRM requirement are more likely to require broader factors. Use the next activity to think about what other measures might achieve a more effective integration of people related factors.

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ACTIVITY
Note down what factors, other than individual or financial, we can use in order to define objectives and measures.

ACTIVITY FEEDBACK
You might have noted any of the following:

Stakeholder views. Environmental issues. Quality. Customer satisfaction, workforce/process flexibility. Business process effectiveness. Market penetration. Lead firms.

You might ask why these other measures are relevant. In SHRM terms we are seeking to understand both what people do and how people work to ensure that we maximise the potential and knowledge of the workforce through a commitment-oriented strategy. SHRM values include building employee commitment and generally integrating employees, resources and stakeholders such as suppliers, customers and interest groups such as government and the public, as well as stakeholders in the traditional sense. To achieve this wider concept of integration, commitment and value alignment towards organisational goals, organisations have increasingly sought ways to promote recognition of these wider needs and indeed to measure these outcomes. One way that has been introduced is the balance scorecard technique, balance referring to the balance of stakeholders interests with a view to building a wider base of commitment. Organisations now recognise that the employee/

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employer or employer/shareholder equation is too narrow a level of analysis to address environmental pressures. We shall look again at this approach of using a wide range of performance measures and internal business process measures, which includes employee interests, as a way of broadening the strategic integration of staff values and attitudes.

CASE STUDY
Read the following short article which gives an explanation of the balance scorecard technique. Balancing the scorecard at Sears As part of its transformation under the new chief executive officer (CEO), Arthur Martinez, Sears believes that Compelling Place to Work, Compelling Place to Shop, and Compelling Place to Invest are three critical success factors that will in the long run sustain the success of the company. The logic is simple: by creating a Compelling Place to Work, associates behaviours will be changed in ways which, in turn, create a Compelling Place to Shop. As a result, customers are more likely to visit Sears again and thus be retained as steady clientele. Through repeated shopping by loyal customers, Sears then becomes a Compelling Place to Invest, as productivity and financial results both attract and retain shareholders. In order to make this model work, however, Sears understands that all senior managers must be evaluated on the basis of their performance on all three critical success factors, not just on financial results. Their bonuses should also be significantly tied to the measures in these critical factors. To ensure that all senior managers buy into this model, Sears has undertaken an extensive and comprehensive study to assess whether the model is in fact working as it predicts. In the first and second quarters of 1995, a Sears task force collected hard data from 800 stores. It collected 300,000 data points and utilised vigorous statistical tools to assess the strength of relationship among the three critical success factors: Compelling Place to Work, Compelling Place to Shop, and Compelling Place to Invest. The results, though preliminary, are impressive. Sears reported that for every 5% improvement in associates behaviours, customer retention was increased by 1.3%, revenues by 1.04%, and profit by 0.4%. What does this mean to Sears? It means that if Sears succeeds in improving associates behaviours by 5% (e.g. from 50% to 55%), its revenue will be increased by $300 million (Searss current revenue is approximately $230 billion)! It is also important to note that this enormous increase in revenue does not require additional head count or payroll, but simply an improvement in employee work environment. Moreover, line managers (not HR) are critical to the creation of such a positive work environment. The Sears example is distinctive as it not only translates soft business issues (people) into hard (financial results), but also identifies people as the driver of

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business growth and success. Based on the above logic and findings, the bonuses of all senior managers at Sears are now tied to a measure called Total Performance Index, of which 25% of the Index is based on Compelling Place to Work, 25% based on Compelling Place to Shop, and 50% based on Compelling Place to Invest. By restructuring the bonus system, Searss senior managers are encouraged to focus not only on the financial outcomes, but also on the process and capability that contribute to such outcomes. (Source: Yeung and Berman, 1997: pp. 325-8)

QUESTIONS:
How would you interpret the SHRM being attempted? How would you feel about this type of management communication as an employee? Note your answers to these questions in the space below the article. (Note that the mathematics of the article could be viewed in a different way.)

CASE STUDY FEEDBACK


1. This is clearly an attempt to develop a best practice approach to SHRM. It assumes a high integration of value systems of employers and employees. Indeed, it is the intention to develop this strong managerial-led corporate culture. Your answer here will, of course, be unique to you. There can often be a difference between the management rhetoric and the reality of the working experience. These statements reflect a high emphasis of message. In cultures where this type of value alignment does not work, resentment and alienation, or conformity, can be the employee response. Organisations need to be sure that a wide range of HR systems adequately demonstrate management commitment to these values and support the public message as well as ensuring the possibility of integration.

2.

We can summarise the expectations of organisations by a series of needs to be achieved as a basis of building commitment and behaviour flexibility.

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Investors require return on their investment through


dividends.

Customers require quality and service related to price. Employees require a healthy and rewarding place to
work, with security of employment or employability. By identifying measures to address these three key stakeholders, appropriate expectations are communicated to and understood by staff and a basis for empowerment and integration of activities is created. A useful way of representing this equation has been developed by Lynch & Cross (1995). See Figure 4.1. This model demonstrates the importance of the principle of a cascade of objectives, identification of broad measures and the integration of objectives at each level of the organisation. At the top of Figure 4.1 we see the organisation setting:

Strategic goals; for example, enhance quality, improve


service, increase customer share/market presence, and so on.

Values; for example, relationship to suppliers, customers,


ethics, corporate governance and the way it wishes to work-emphasise performance improvement, develop long-term customer relations to meet needs in a flexible and responsive way. One side of the model reflects the outward market (share/segmentation) and the other the inward effectiveness of service/product delivery. How efficient is the organisation in meeting market needs?

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Goals and values

Market

Financial

Assistance User satisfaction

Flexibility

Efficiency and productivity

Quality

Delivery

Cycle time

Waste

Figure 4.1: The Performance Pyramid from Lynch RS and Cross (1995)

The remaining levels of the model relate to not only how effectively functional departments fulfil their roles in respect to the internal and external objectives but also how well the cross-functional business processes succeed in achieving appropriate delivery deadlines, waste reduction and co-ordinated services. This is a holistic and deep assessment of organisational effectiveness. It provides a broader basis to support a PM system beyond narrow departmental/functional objectives. We see the goals and values of the organisation driving the process at the top followed by a dual concentration of an external focus of the market and an internal focus of financial and cost performance. Such measures might include goals and values whose business definitions are the core values of the organisation:

Market: share or penetration. Financial: profit, turnover, cash flow, return on


investment, cost base, efficiency, staffing/output.

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The next level defines key result areas:

Customer satisfaction levels. Flexibility: workforce skills, specialist and business


processes, teams.

Productivity: outputs, cost of production, volumes,


staffing levels, resources used for output and so on. The remaining goals relate to specific aspects both within and between suppliers and customers for quality, service delivery, lead times, waste/rework and so on. The important aspect for people management is the requirement to feed these objectives from the organisation to the team, then from the team to the individual, interpreting them at each level of the organisation to ensure identification, communication and mutual ownership. These are key procedures to gain commitment, integrity and alignment with the objectives which we saw in Unit 1 as our primary HR outcome. Appraisal is central to PMS because it is the basis of setting a performance contract and the process by which the objectives are received.

ACTIVITY
Before we move on to look at some of the supporting HR processes to achieve these HR outcomes, take a few minutes to reflect. Using the ideas in Units 1 and 2, and perhaps your own experience, try to identify some of the considerations and conditions that might lead to a more effective PM system.

ACTIVITY FEEDBACK
Some of the points that occur to us are:

Organisations often dont anticipate their goals. There may be


conflicting goals that emerge from the actions of organisational members or from the intentions of the managers.

The whole process can become over-complex as Fowler (1990)


suggested earlier in the unit, and therefore not really achieve any of the intended outcomes as is often the case. It becomes a personnel exercise remote from the business.

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Change may invalidate or change objectives unless they are


particularly responsive during the cycle.

Skill and precision is needed in setting goals and giving


feedback, to avoid uncertain, ambiguous goals.

Consistency and fairness of implementing objectives across


employee groups is needed.

Short-term focus of objectives is a problem; they need


balancing with a longer-term perspective also beyond the cycle.

Integration and commitment to the reward factors is necessary:


pay, development and security of employment. This may be difficult when business is declining for both employee and employer.

Management control over employee activity breeds resistance. Employment security should be emphasised as a result of
efficiency and productivity improvements.

The link to capability and resources


It is vital that objectives link with organisational capability and resources, and hence must be tightly integrated with appraisal systems. This is the subject of the next section.

Employee appraisal schemes


In this part of the unit we look at the form, purpose, and design of appraisal systems.

Form and purpose


Appraisal systems take a variety of forms and can serve a number of purposes. They are central to the PMS. Appraisal is the process of agreeing and reviewing the objectives that we identified in the last part of this unit. Usually, appraisal takes place annually between the manager and employee. However, as we shall see below, there are a number of trends that are changing the style and relationship of the appraisal. One important trend is to hold periodic reviews on a more regular basis. This allows for a more dynamic process of discussion and

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adjustment to objectives to counter the criticism that objectives set and reviewed annually do not fulfil two important aspects of the process:

That objectives should remain relevant and achievable. That the process of dialogue allows for relationship
building and coaching to take place. Before we look at different approaches to appraisal we need to think about the range of purposes that appraisal can fulfil. Use the next activity to do this.

ACTIVITY
Summarise the main purposes that you consider an effective appraisal scheme might fulfil.

ACTIVITY FEEDBACK
You might have thought of the following : (This feedback is adapted from Randell (1984).)

Evaluating performance Auditing Constructing succession plans Discovering training needs Motivating staff Developing individuals

to enable a rewards formula to be put into operation to discover work potential, both present and future, of individuals and teams for corporate replacement planning identifying gaps to be filled by formal training to clarify and offer feedback on standards and objectives advising on, conducting and explaining work methods to enable individuals to take responsibility for their own performance, training and development, and working relationships through feedback, dialogue and information sharing

This is a challenging list. However, these purposes will provide the basis for the design of the appraisal scheme, which is important to ensure that the PMS objectives are fully integrated with day-to-day
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work performance. Perhaps more importantly, the design will reflect the culture, style and maturity of workplace relationships. However, it is worth noting at an early stage, as we did earlier in the unit, that the design can often be used alongside PMS to signal a change in culture. For example organisations that do not have systems of appraisal or perhaps have partial coverage of professional staff, excluding non-management and/or professional staff, may use these schemes to intervene and control performance for the first time. Alternatively, where schemes are based on hard objectives and measures and emphasise accountability of staff, appraisal schemes can be rebalanced to ensure that more participation and developmental goals take precedence, to start to build greater employee commitment. You may recall the debates we had earlier in Unit 1 about hard and soft strategic HRM and appreciate how the design of the PMS and associated appraisal schemes can be adjusted to integrate these broader objectives.

The design of appraisal schemes


What are some of the likely principles that underpin appraisal schemes? Two themes tend to emerge when considering the design of such schemes. The first is control orientation, and the second is a developmental orientation.

Control orientation
The starting point and assumption is often that somebody up there acting as a controlling authority is saying that we need to stimulate effective performance and develop targets, offering reward for above average achievement. This is often perceived by staff negatively. The message is construed as forcing staff out or creating insecurity through subjective judgements. Control over lives and careers will be eroded. The consequence of this monitoring and control through feedback, which is further enhanced by working measures, tends to elicit the following responses:

Negotiated modification to the scheme will ease


apprehensions, which in turn often make schemes ineffective. For example, real performance issues are not addressed or are avoided for fear of breaking employee commitment.

Them and us attitudes are formalised through power to


judge via paperwork, which seals a view of how well somebody is perceived to work.

Bureaucratic controls are installed, which value


consistency and apparent fairness or equality of treatment over flexible and adaptive behaviour.
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Bland, safe statements are elicited that do not damage the


employee relations between manager and staff but on the other hand do not address performance issues.

There is low impact on performance except for a narrow


band of already high achievers. The control approach works best where clear targets are available, which can be objectively judged, and people are used to this results orientation. There clearly is value in a consistent approach and, where skills on both sides of the relationship are less secure, it provides a standardised appraisal that is felt fair. However, the performance benefits are likely to be less obvious. Management control is emphasised, however, largely in a symbolic way rather than aimed at the substance of performance enhancement.

Developmental orientation
The starting point is different. It is the need to inform, to leverage higher performance from control. The development appraisal does not start from the manager in control but the need to deal with the uncertainty in the mind of the employee. This is an employee who genuinely wants to know how they are performing and what the organisation thinks of their contribution and would, as a result, want to clarify their job role and enhance their career. The employee is addressing the matter for themselves. The situation moves from the employee as the starting point, not wanting to be told but helped through problems and limitations, whatever the source. The employee needs support to enhance contribution and the matching of their skills with organisational needs. This is the bottom-up, empowered view that, on the surface at least, is attractive, as the demand to develop and a learning climate are likely to evolve from such an attitude. The intended outcomes could be as follows:

Development of co-operative behaviour rather than


resistance between appraisee and appraiser.

Easier to confront issues and resolve problems in an open


way.

Can deal impersonally and objectively with performance


issues without damaging relationships.

High trust and integrity required if the identification of


poor performance leads to penalties rather than assistance and support. The problem with this orientation is that it might also lead to few visible performance outcomes, although proponents might argue that implicit commitment generates improvement. Also, critics argue that with

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systematic reporting, information on performance and capability lies out of reach of lay decision makers, as it resides in the one-to-one relationship between manager and employee. It is also a highly skilled counselling approach that not all managers are well-equipped attitudinally to adopt.

CASE STUDY
Organisations are looking to introduce appraisal systems that reduce bias and scope for employee complaints about fairness, whilst encouraging challenging self-appraisal and openness to objective feedback that leads to individual and organisational development. Three examples of appraisal systems from Hewlett Packard/Shell, Nuclear Electric and BA are given in the article below: 360-Degree Feedback Under a 360-degree appraisal system, staff receive feedback from a variety of sources, such as other managers, team members, customers and subordinates. Benefits of wider feedback Advocates of 360-degree appraisal have reported a number of benefits over traditional appraisals. They believe that:

It lessens the role of the line manager as a critic and so enables


him or her to play more of a coaching role.

It provides a wider picture of performance, giving information


on areas of performance about which the line manager may have limited knowledge.

It is a powerful tool because it is more difficult to ignore


comprehensive feedback than the view of one individual. It may be particularly useful in an organisation that has moved to cross-functional working where the direct line manager/employee relationship may be less obvious. Development or assessment? 360-degree appraisal may be used as part of the performance evaluation process or as a separate developmental tool. Many organisations find it particularly useful in employee development. This is because it is easier for colleagues to comment on an employees behaviours and competences than about his or her performance against objectives with which they may not be familiar. In addition, many people are more comfortable giving constructive feedback to be used for future guidance than in acting as a judge of past performance.

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For either developmental or assessment feedback to be effective, however, the company needs to ensure that it is constructive and is properly communicated to the employee. Two different approaches At Hewlett-Packard, employees have the option of including feedback obtained on a 360-degree basis as part of their performance evaluation. In this case, both the employee and the appraiser will gather feedback from managers, peers and customers before the appraisal. This information is used to provide a wider picture of performance. At Shell, 360 degree appraisals are used as an optional development tool that can be adapted to the needs of each business unit. In the case of corporate HR staff, eight people (four colleagues and four customers) were asked for feedback on an anonymous multiple-choice questionnaire. An external consultant was used to ensure confidentiality for the respondents and to facilitate the subsequent discussions with staff. The feedback was non-judgemental and provided topic for both personal and team development. Organisational culture Several companies [in this IDS study] commented that they did not feel their culture was currently suitable for 360-degree appraisal. This is because one of the key ingredients of success appears to be organisational culture. It works best in a system that is open and participative, otherwise individuals may be unwilling to provide honest feedback. (Source: Incomes Data Services, 1997:5) PERFORMANCE APPRAISAL AT NUCLEAR ELECTRIC Staff appraisal is for everyone in the company. Its about how we can jointly improve your performance. This guide will help you understand how the scheme works and how to get the most out of it. More detailed information and advice is provided on videos and in a self-help pack. These are available in the Studybase. The flow charts will take you through the main steps and may be useful as a checklist to your preparation. Your appraiser should be able to answer most of your immediate questions. Whats involved? Staff Appraisal is an annual discussion with your immediate supervisor. It provides an opportunity for you to review and assess your performance over the last year and receive feedback from your supervisor. It looks forward to agree standards, targets and training that will help improve your performance and achieve our business objectives.

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It also includes feedback to your appraiser on how you see their performance as a supervisor. Before your appraisal You will be given time to prepare so use it wisely. Think about what you want to talk about and how best to explain your views. When fixing the time and date for the discussion your appraiser will explain what you need to do and hand over the three forms. This is an opportunity for you to ask any questions you may have about the process. A description of the key areas of your job will appear on the main form. You are asked to comment on these, your performance over the past year and any ideas for improvement. You are also asked to write about your career aspirations and development needs. Think about the technical skill and knowledge needed for your type of work. Do you need specific training to help you do a quality job? On a separate form, to help with these thoughts, you are asked to consider your performance against a set of non-technical competences. These are common to all jobs and are considered important to achieving business success. Different jobs will require different levels for each competence and the form will be marked with the required level for your job as a reminder. The upward appraisal form will help you prepare to give feedback to your appraiser. Keep this form with you until the appraisal. The other two forms should be returned to your appraiser before the meeting. At your appraisal It should be a two way discussion so please consider the following points:

Be constructive in your discussion. Clarify what has been said and summarise in your own words. Agree competence levels and future actions. Agree the targets to be achieved. Record them on your action plan.
After your appraisal You get a copy of all the paperwork after your appraisers manager has commented, It is important for you both so keep a working copy of the Action Plan, so you both do what youve agreed to do. This will help you review progress during the year and be the starting point of next year's discussion.

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PERFORMANCE MANAGEMENT IN BRITISH AIRWAYS Introduction This file of guidelines and working papers is for your use as either manager or subordinate to help you manage performance throughout the year. WHAT IS PERFORMANCE MANAGEMENT? Performance Management in British Airways is about getting the important things done well. It is the way you keep track of:

What is expected of you the results you are to achieve, the


priorities and the link with the companys business goals.

How you are doing you regularly discuss progress and feedback
with your manager.

Your development needs you develop an understanding of your


strengths and how to build on them, you discover areas where you need to develop existing or new skills and plan accordingly. The Performance Management System also forms the basis of recommendations for the distribution of performance-related pay to managers. Clearly these aims can only be effectively achieved when there are regular meetings between you and your manager, and thus Performance Management is a continuous process not just an annual event. You share a joint interest and responsibility with your manager in making reviews happen on a regular basis, that is at least quarterly. BRITISH AIRWAYS The evolution of appraisal at British Airways illustrates both the use of appraisal to support changing performance objectives and the emphasis on developmental and control orientations. During the early 1990s the scheme designed for management focused on key result areas, or KRAs. The KRA appraisal developed from the MBO tradition and has the following characteristics:

Results achieved by an individual manager over the preceding 12


months.

KRAs were agreed in line with the business plan and were reviewed
quarterly with the primary focus on BA performance enhancement.

KRAs and information related to feedback on performance is


cascaded down through regular and special briefings. Performance levels are measured and objectives amended regularly.

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Records are written up and measures independently


monitored. All records are agreed and signed off.

Ratings are computed and fed into an overall rating linked to


pay. The process of agreeing KRAs is based around seven competence practices:

Planning and organisation. Judgement and decision making. Commitment and urgency. Flexibility and innovation. Strategic and business awareness. Communicating and influencing. Leading and motivating people. Application of specialist job knowledge.
Performance discussions are monitored externally to ensure consistency. Staff are introduced to a series of mutual benefits. For the individual it stresses clarity of expectations, strengths, feedback on results and the improvement in motivation and ability to independently gain recognition. For the organisation it stresses performance, team spirit, accountability, reduced errors and flexibility.

QUESTIONS:
Having read the descriptions of the Hewlett Packard/Shell, Nuclear Electric and BA appraisal systems, use the table below to rank as high, medium or low, the emphasis placed by each scheme on the purposes of appraisal.

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Purpose Evaluation of performance

HP/Shell

Nuclear Electric

BA

Assessing performance

Checking work effectiveness

Top-down directed objectives

Linking business-led objectives

Pay related

Training and succession planning

Communicating expectations

Board level feedback

Motivating staff

Developing staff

Enabling learning style of goal setting

CASE STUDY FEEDBACK


Schemes that prioritise aims 1 to 6 as high to medium would suggest an orientation towards judging and controlling staff. Schemes prioritising aims 5 and 7 to 12 as high to medium show operating sensitivity to learning and development processes and the developmental framework. Aim 5 is pivotal and neutral.

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Now try the next activity, also based on the three examples of appraisal systems.

ACTIVITY
Compare and contrast the benefits of the case examples provided in the previous activity. From your study so far answer the following questions in the space below: 1. Which of the appraisal systems adopts (a) a best fit and (b) a best practice approach to SHRM? How does culture and business strategy seem to influence these appraisal systems? Which of the systems emphasise control and which development? Do you consider that the variation in approach to appraisal addresses the underlying philosophy of SHRM towards interpreting HR systems and processes to achieve alignment with business strategic need?

2.

3. 4.

ACTIVITY FEEDBACK
1. You might have concluded that the Hewlett Packard/Shell and Nuclear Electric schemes were emphasising change of attitude and culture, and the concentration on employee satisfaction and process. The BA scheme is results- and task-driven reflecting the strategic perspective at the time.

2.

We can see that Hewlett Packard/Shell and Nuclear Electric have dual objectives in their appraisals: to engender performance enhancement but to do so through change of attitudes, commitment to improvement, experiential change and focus towards working with the organisation for success. BA has a shorter-term focus, performance driven and shaped by results. However, we should see these as contingent upon circumstances. BA indeed went through an earlier culture change progression. We can see the divide. There is a difference between Hewlett Packard and Shell, in terms of their schemes being more developmental, and BT being control oriented, reflecting the urgency of the immediate business environment.

3.

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4.

In all cases the appraisal is being used to shape attitudes towards strategic imperatives prevailing at the time. HR systems are the levers of change and at the same time reinforce the need and requirement to change through reward.

Let us now look at the specific design options that arise from these orientations.

Types of appraisal
Corbridge & Pilbeam (1998) offer a useful overview of the main types of appraisal, which include:

Top-down schemes. Self-appraisal. Upward appraisal. Peer appraisal. Multi-directional appraisal.

Top-down schemes
The most traditional form of appraisal, this emphasises both subordinate feedback and the lead on objective setting coming from the top. The problems often cited with this form are:

It stresses traditional organisational hierarchies. There may be a lack of impartiality, and favouritism. There can be a lack of full knowledge of the employee in
flatter structures, where the managers span of control may be wide. To counter these criticisms an independent reviewer is often asked to review the outcomes of top-down appraisal to help remove potential bias.

Self-appraisal
Self-appraisal is rarely used, as are independent forms of appraisal. It encourages greater ownership and participation in the appraisal scheme through self-reflection and helps ensure full preparation for the
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appraisal discussion. In an open environment it allows managers to shift from a directive, informing style to a counselling style, thereby assisting staff to form objectives and plans, moving from telling to selling to facilitating, which is seen as a creative and more effective level of satisfaction and ownership. We shall look at the core interview process below and the related skill clusters required to fulfil the objectives of the scheme.

Upward appraisal
Upward appraisal has been increasingly used to reflect the growing trend for organisations to recognise that they have a duty to provide effective working systems for employees. It is also predicated on a number of things, notably the internal customer relationship, and a shift in the hierarchical shape of organisations to more collegiate arrangements. Perhaps one way to represent this trend graphically is as follows. The first two models show the top down and self appraisal systems.

Management

Employee

Figure 4.2: Model 1 Top down management hierarchy

Figure 4.2 illustrates model 1 consisting of top-down hierarchy with control of:

Information. Objectives. Feedback on performance.

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Employee

Management

Figure 4.3: Model 2 Modified top-down control

Figure 4.3 illustrates modified top-down control incorporating self-appraisal and upward appraisal of management practice and effective work systems. The arrows relate to the flow of communication and decision making and mark the levels of involvement in the objective setting and review process.

ACTIVITY
Imagine that you are designing an appraisal system and want to incorporate upward appraisal. Sketch a diagram of how the system might look, using a similar format to the figures above.

ACTIVITY FEEDBACK
Our diagram is shown on Figure 4.4. The triangle is now inverted, with management in a new relationship with their employees. Employees are seen as the lead deliverers of customer services. Management's role is to facilitate effective work systems in a new working relationship.

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Employee

Management

Figure 4.4: Model 3

In upward appraisal, in a modest way, employees are invited to provide managers with a rating on such dimensions as effective communication, involvement in decision-making, clarity of objectives and goals, and so on. Often this rating is completed anonymously although more recent trends show managers conducting this process in staff focus groups as a basis for getting feedback on a range of management issues that impact upon staff.

Peer appraisal
Peer appraisal involves members of teams evaluating each other. One of the arguments for this type of system is the pressure to treat internal working relationships as internal customer relationships using similar feedback systems to external customer feedback techniques. As we saw when we reviewed the Personnel function, this method of feedback can often be further developed into full service level agreements. It is however complex to run in order to get the multiple channels working and assimilated. There are also sensitivities involved and careful development of staff is required in using such schemes. However, with the increasing uptake of team working, peer appraisal is a notional form of appraisal to use to expand non-hierarchical integrated HR systems.

Multi-directional appraisal
Also called 360-degree appraisal, there are key similarities here with peer appraisal. However, the key difference is that multi-directional appraisal deliberately sets out to collect data from outside the immediate team and often from external customer feedback. Its key advantage is to overcome the criticisms of impracticalities and lack of knowledge of a single appraiser. As we have seen, it can be complex
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and, of course, it does expose staff to potentially hostile views, which may be outside of their total control.

READING ACTIVITY
An illuminating example of how the scheme can be set up comes from the financial institution, JP Morgan. Read the article below: INCORPORATING PEER REVIEW IN APPRAISAL Performance management at the investment bank JP Morgan has at its head an unusual appraisal system. Each employee of the rank of officer (a term which covers the majority of employees) is required to ask up to five colleagues who have worked with him during the past year to submit confidential appraisals of his performance. In addition, anyone else in the company is entitled to submit an unsolicited appraisal on any other individual they have worked with and it may be positive, negative or a mixture of both. Such unsolicited appraisals cannot be given anonymously: the person co-ordinating the assessment has the right to discuss their views further with them, but the identity of the unsolicited appraiser is not revealed to the subject of the appraisal. The manager of the appraisees department collates the feedback, and summarises it in a document which also contributes his own assessment. This document is discussed with the employee, and forms the basis of a performance ranking on which promotions, pay rises and bonuses will be made. (Mabey et al,1998)

You may recall that 360-degree appraisal design schemes offer us the maximum availability of performance information from various stakeholders. Transparency of information and feedback aligns itself with parallel customer surveys that are now being applied to the internal integration of stakeholders.

CASE STUDY
Read the article below about 360-degree schemes: Circular Argument by Clive Fletcher, (People Management 1998) Multi-source feedback systems, usually called 360-degree feedback, have been adopted with such enthusiasm that they are now commonplace. They normally involve target managers being rated by subordinates, peers, bosses and

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sometimes customers, and examining how these assessments match up with their own self-ratings. The history of these systems is still a relatively short one, especially outside North America. Surveys on both sides of the Atlantic in the mid-1980s showed that about 10 per cent of US firms were using these techniques, compared with none at all over here. But since the early 1990s, 360-degree feedback has spread quickly across a range of public- and private-sector organisations in the UK. In what might be called phase one of 360-degree feedback, the emphasis was on its use as a development tool. It was usually applied in the context of career development workshops or as a one-off exercise for a group of managers. But there is no doubt that we are now into phase two, as more firms seek to use it as part of the ongoing evaluation of employees. In some cases, they are contemplating linking it with pay. This shift in emphasis from development to assessment is causing alarm among a number of professionals working in the management development field. So is it really something we should be concerned about? Before trying to answer that question, it is important to realise why organisations want to make 360-degree feedback part of appraisal. Mainly, this reflects the failings of conventional, top-down appraisals. They are often seen to be limited, because they reflect the perspective of only one person, and ratings have been shown to be prone to bias. Also, top-down appraisals too often seem to achieve little behavioural change. Including 360-degree feedback in appraisals seems to offer a solution to some of these problems. In theory, multiple levels and sources of data should lead to a more objective picture of an individuals contribution, strengths and development needs. It should consequently promote higher levels of trust in the fairness of the process. This, in turn, makes it more likely that some changes in behaviour will ensue. Quite apart from that, making the feedback part of appraisal gives it some teeth it sends a message to people that this is something that the organisation takes seriously: But things can go badly wrong. In the US, one study showed that half of the firms it surveyed that had implemented 360-degree feedback for appraisal had later dropped it. The potential problems are not hard to grasp. The first is that incorporating 360-degree feedback into appraisals may affect trust, which is necessary for the whole thing to work. People giving the ratings may fear some adverse consequences if they give negative feedback, or that the feedback may be misinterpreted by the individuals manager. The result would be lower-quality information, particularly from subordinates. Associated with this, target managers may become less ready to accept feedback if it has potentially damaging consequences. This scenario could lead to political game-playing. You might have subordinates asking for, say, a pay rise just before they give their assessments. And managers might be tempted to court popularity.
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The second concern is whether the ratings given in 360-degree feedback really are more objective than those of a traditional appraisal. The system undeniably gives more perspectives on an individuals performance, but are assessments by subordinates and peers any less prone to bias? There is evidence to support its use in appraisal. For example, data from a variety of organisations has indicated that appraisees are more satisfied with ratings from multiple sources rather than from one alone. But the research mostly tends to highlight the potential pitfalls. Shell lacking When the purpose of ratings becomes evaluative rather than developmental, up to 35 per cent of those giving the ratings change their assessments and the changes can be in either direction. This seems to support the notion that trust may be affected. The research findings are not reassuring in relation to accuracy, either. A study of a pilot 360-degree feedback system run at Shell showed that it was not measuring the competencies it was supposed to, and that it had other shortcomings in terms of its psychometric qualities. Fortunately, the same study showed that Shells newly redesigned system did work much more effectively. There is broad acceptance that 360-degree feedback can be a valuable developmental tool. Feedback of this sort has a potentially powerful impact, and the general view is that it is better to expose people to it as part of a development exercise before attempting to use it in appraisals. But the research findings should make people wary of grafting it on to appraisal systems. This is not to say that it cant be used successfully, but it does need to be handled with care. There are several issues that have to be addressed if 360-degree feedback is to be switched from a primarily developmental tool to a primarily appraisal tool:

Is it to be mandatory or optional? If the system is an aspect of


the appraisal process, it has to be mandatory. Organisations cannot have people opting out of part of the appraisal.

Will it be carried out annually? This is usually the case if it is part


of the appraisal process, which has implications for the resources required to administer it. As a developmental event, it is usually done intermittently or as a one-off.

Who decides on who is to contribute to the assessment


process? In a developmental system, the subjects generally choose their own assessors a practice that is less likely to be acceptable in appraisals. Letting people choose who makes an input can give an opportunity for the more Machiavellian appraisee to influence the process by arranging some reciprocal back-slapping.

Who is responsible for follow-up action? In development, the


target manager usually discusses this with an HR manager. In appraisal, the individuals manager is more likely to be involved.

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Is it to be linked to reward? In a few UK companies, such as


parts of BAe, this link already exists. It has also been related to pay in a number of US firms Federal Express, for example and their operations in this country for some years. So a 360-degree feedback system that forms part of the appraisal process is unlikely to resemble one intended to be purely developmental. Even more importantly, the attitudes of the participants may well be different and it is this aspect that requires most sensitivity. Establishing trust is the crucial first step in moving 360-degree feedback from developmental to appraisal tool. This entails genuine consultation with those receiving feedback and those giving it about how the process is to work, what the content of the feedback form is to be and how the output will be used. Although some of this may have been done earlier when the system was used for development, the shift to appraisal puts an even greater onus on consultation. Everyone should feel comfortable with the relevance and fairness of the process. Relevance is not only about the importance of the competencies assessed for the individuals job, but also about those giving feedback being in a position to make informed judgements. The latter also has a bearing on fairness, as does the use made of the feedback. How much weight is it to be given in the overall appraisal? That question raises another necessary step: the training of appraisers in evaluating feedback. Interpreting data of this kind is not at all straightforward. Does a very favourable response from subordinates automatically mean that their manager is an effective supervisor? Perhaps not, if it chiefly reflects the fact that the manager deflects pressure away from his department on to other units and produces only modest results. In appraisal, 360-degree feedback has to be considered alongside all the other performance information available, and the appraiser has to piece together a coherent picture. It might make the appraisal a better process, but it certainly does not make it an easier one. From my own experience, I would say that the demands of running 360-degree feedback annually are considerable, and far greater than some firms seem to think. A manager who has four subordinates, four peers and who has links with two superiors ends up with 10 feedback forms plus a self-rating to complete every year. Ratings fatigue" can set in quickly. It is all the more important, then, to ensure that the system is as economical as possible. Among other things, this means keeping the feedback forms reasonably short and focused. Using a computer-based system is undoubtedly the least cumbersome approach to generating feedback on a regular basis. It also allows for the data to be stored effectively, which leads on to my last point. The fact that 360-degree feedback systems do not always measure what they appear to has already been mentioned: If such data is contributing to appraisals,
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the dangers are clear to see. Developing and running such systems is not rocket science, but there is no excuse for not making some simple checks to see that they are working in the way intended, as opposed to merely finding out whether participants feel good, bad or indifferent about them (important as that might be). Examining the distribution of ratings by, say, checking whether the individual items on the form line up with the competencies they are supposed to, will reveal a great deal about the quality of the system. There are various other evaluation measures that can be taken, but they are more long term in nature. Many organisations are intent on making multi-source feedback part of the appraisal process. Many individuals who have been using feedback for development purposes have voiced alarm about this trend. This is perhaps justifiable, considering that some firms try to apply 360-degree feedback in this way without considering the implications. But while it can all go wrong, it does not necessarily have to. Given a professional approach (only some aspects of which I have mentioned), it is possible to make this kind of feedback a valuable input to performance appraisal.

QUESTION:
Summarise the key problems of the scheme. What does Fletcher advocate to ensure that the 360-degree schemes offer greater success?

CASE STUDY FEEDBACK


Fletcher stresses the importance of the following:

Investment in decision time to address the completion. Keep feedback short and formal to avoid ratings fatigue. Balance 360-degree feedback with other traditional appraisal
techniques.

Developing the skill of the co-ordinator. Evaluate the distribution of ratings and ensure careful matches to
objectives and competencies set for staff.

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Watch out for the stress factor of such ratings and balance the
appraisal with other forms of appraisal.

The term 360-degree appraisal refers to the various sources of data: boss, peers, customers and reporting staff, in order to achieve a more comprehensive understanding of the performance relationships. Several features of the JP Morgan scheme are of particular interest, for example, it gives the appraisee scope for choice of information balanced by independent views. However, to emphasise constructive commentary, anonymity is not permitted. This is a careful balancing process that is necessary to provide an element of fairness to all parties and to encourage open and constructive dialogues. After all, appraisal should be formative and developmental, rather than destructive, to retain positive employee relations. Commitment, trust and involvement are desirable features of such schemes. A checklist of success factors for 360-degree appraisal is provided by Goodge (2000):

Link the appraisal to business strategy. Carry out a feasibility study to ensure this is the right
system for improving performance and that organisational conditions are favourable. Ask whether:

- There are significant differences between strong and


weak performers.

- Each individual has at least six customers who can


report on their work.

- Development for those receiving feedback can be


supported.

Check that competency definitions and behavioural


indicators exactly specify the performance to be measured.

Pilot the scheme and use the results to adjust the process. Start where there is least resistance or where the process
can be introduced in a controlled way.

Ensure that managers of those being assessed understand


the process.

Agree action plans based on the reports and follow these


up with reviews and development.

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Problems with appraisals


We now move on to review some of the problems that appraisers frequently encounter. These include:

Overtime to complete the paperwork. Vague objectives and inconsistent standards of objective
setting.

Emphasis on getting the review over rather than on the


quality of the interview process.

Dependence culture: manager judges and informs, staff


await outcome rather than be proactive in its development.

Narrow individual orientation that ignores wider


feedback and operating context.

Failure to really integrate appraisal issues within the


wider organisational and operational reality.

Trends in performance appraisal


So far, we have offered a generally very positive view of the importance of appraisal as a central HR procedure within the PMS system. Fletcher (1993) identifies a number of trends in performance appraisal within the broad PMS:

Reduction of paperwork. Many schemes develop


extensive forms and categories of questions for staff to prepare as part of the appraisal preparation and for managers to complete after the interview. Too much time is spent of form filling at the expense of quality of discussion.

Clarity of objective setting. It is increasingly important to


have precise, meaningful and auditable goals related to the business and not general or unaccountable objectives.

Emphasis on the quality of the review discussion. The


review interview is critical in terms of manager feedback, the quality of employee commitment to preparing for and contributing to a self-evaluation and discussion of organisational factors of performance.

Greater involvement of staff in the process. Organisations


are increasingly assessing levels of staff involvement, and encouragement to be involved by the manager. Staff attitudes are now being assessed in terms of their

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satisfaction with their involvement in the process and the fulfilment of the outcomes, for example, developmental assistance. This is a form of operational evaluation discussed in Unit 2.

Employment and performance being about teams not just


traditional employer/employee relations. Broader schemes such as 360-degree appraisal and group-based performance increases the possibility of wider organisational team structures and feedback that can run in parallel with other stakeholder-maintained processes such as customer and public opinion.

Summary
In this unit we have looked at the design of Performance Management Systems (PMS) and specifically at appraisal systems. The distinguishing features of a PMS include: the communication of a vision of the organisations objectives to all employees; setting of departmental and individual performance targets; formal review of progress toward these targets; review of outcomes leading to defined training, development, learning and reward outcomes; and evaluation in terms of improving organisational effectiveness and endorsing the use and value of human capability. We saw that it was necessary to fit appropriate PMS to the culture, history and organisation of the company. Central to the PMS is the process of setting and measuring performance management objectives. Key issues here are the nature and scope of the objectives, their link to corporate objectives and to individual and organisational capability resources. We looked in detail at employee appraisal schemes. There is a challenging array of possible purposes for such schemes and they may be designed with either a control or developmental orientation. We looked at various types of appraisal: top down, self-appraisal, upward, peer and multi-directional appraisal. Finally, we looked at some of the problems associated with appraisal schemes. There may be an absence of clear targets and performance assessment, a system not linked to reward, inconsistent or inequitable discussion. Appraisal schemes can be simplified when in skilled hands and they can evolve, once an effective interpersonal culture of appraisal has been established. You should now try the self-assessment questions before going on to the next unit.

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REVIEW ACTIVITY
Question 1 What are the key assumptions supporting PMS that enable it to support the achievement of SHRM? Question 2 How does organisational culture affect the design of PMS? Give two examples of how this would affect practice. Question 3 What is the key PMS principle that ensures the integration of individual and organisational objectives? Question 4 How would you adapt the design of your appraisal scheme to fit an organisation:

- enhancing service/product levels and - undergoing cost minimisation?


Question 5 What are the advantages and disadvantages of PMS schemes? Question 6 Summarise the key roles of managers, employees and HR practitioners in the implementation of effective PMS.

REVIEW ACTIVITY FEEDBACK


Answer 1 The key assumptions of PMS that enable it to support the achievement of SHRM are:

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Control of the input and output of staff against objectives


predetermined by the organisational system.

Development of staff to achieve performance enhancement


and in support of performance objectives.

To align the attitude, values and policies of employees with the


organisational needs and objectives. Answer 2 Organisational culture will influence the decisions taken on such matters as:

The degree of formality of PMS schemes. The degree of management control exerted and employee
autonomy over performance objectives and measures.

The relationship and style of management, for example,


counselling and support or commanding and directing.

The need for consistency and standardisation of processes of


measurement and flexibility to meet individual and team needs.

Individual versus collective or team focus in PMS and related


outcomes.

The relationship of dependence or interdependence formed by


managers and employee,s and how this influences change, through the design and delivery of the scheme. In practice, there might be differences in the levels of ownership of employees in the review process or in the style of thinking and measurement of the achievement of performance objectives. Answer 3 The key PMS principle that ensures integration of individual and organisational objectives is the cascade of objectives: clear communication and matching of objectives at the organisational, team and individual level. Answer 4 Examples of adaptation might include:

Upward 360-degree appraisal; the opportunity for bottom up


self-development and learning objectives, blank sheet of paper methodologies to encourage relevant and flexible development to be achieved, the absence of ranking and absolute measures, personal competence goals as well as outputs.

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Top-down approaches: the inclusion of specific output measures and


targets, standardised controls across employee groups. Answer 5 The advantages of PMS schemes include:

Systematic process of performance control. Clear articulation of performance strategy. Integration of performance throughout the organisation. Focus on results and people competence. Encourages learning and development. Helps the formation of a performance and unitary culture. Promotes a vision and an organisational response. Enhances objectivity and value added to related policy areas such as
reward and development. The disadvantages of PMS schemes could include:

The problems of clear measures and equitable objectives. The time and effort in operating the scheme. Emphasis on control at the expense of development. Managerialism and the effectiveness of unitary schemes. They can be more systems rather than people based. The ability to track and effectively measure aggregate performance
enhancement.

The effect of pay and reward levels can be divisive and a defence
mechanism. Answer 6 The key roles are as follows: Managers

Coaching and counselling.

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Communication of objectives. Formulating team goals. Consultative. Encourage development. Take and give feedback. Follow up development action. Co-ordinate service users feedback using the 360-degree
approach. Employees

Formulate personal objectives. Evaluate performance. Form self-development objectives. Give and receive feedback to/from managers. Contribute ideas to performance and enhancement of self and
team. HR practitioners

Consult and formulate PMS schemes in consultation with line


managers and staff.

Monitor and evaluate PMS based on stakeholder use. Evaluate outcomes and process effectiveness. Review organisational capability as a result of PMS and design
policy action in HRD and recruitment.

References
The Strategic Managing of Human Resources, edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, 2004 (Key text for this module)

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Bevan, S. and Thompson, M. (1992) Performance Management in the UK: analysis of the issues. London: IPD. Corbridge, M. and Pilbeam, S. (1998) Employee Resourcing, Financial Times, Pitman Publishing. Fletcher, C. (1993) Appraisal: an idea where time has gone?, Personnel Management. Fowler, A. (1990) Performance Management: the MBO of the 90s, Personnel Management, July. Goodge, P. (2000) How to manage 360-degree feedback , People Management, 17 Feb, pp. 50-52. Lynch, R. S. and Cross, (1995) Measure Up! How to Measure Corporate Performance. Oxford: Blackwell. Mabey, C., Salaman, G. Storey, J. (1998) Human Resource Management: A Strategic Introduction, 2nd Ed. Oxford: Blackwell Business. Neale, F. (1991) The Handbook of Performance Management. London: IPM. Randell, G. A. (1984) The Basic Principles in Randell, G.A., Packard, P.M.A, Shaw, R.L.and Slater, A.J., Staff Appraisal, 3rd ed. London: IPM, pp. 11-60.

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LEARNING OUTCOMES
Following the completion of this unit you should be able to:

Explain the role of reward systems in the achievement of


organisational strategic objectives.

Devise a reward strategy for an organisation. Explain and evaluate how the reward systems can contribute to HR
led change strategies.

Identify and evaluate different approaches to achieving performance


related reward policies.

Evaluate the impact of and outcomes achieved by different reward


strategies.

Evaluate different components and procedures of the reward policy


framework: salary, incentives, benefits and job evaluation.

Assess the impact of external market factors and internal change,


and the relationship between these and reward strategy.

Introduction
Thinking about reward entirely within the performance management framework can be problematic, as reward in its broadest sense serves several purposes. For example, it has non-pay and intangible aspects that relate to motivation and recognition. This involves other areas of HR such as job design, structuring and development. These are dealt with elsewhere in the module. However, given our assertion about the meaning of strategy for HR, we must follow the central principle of integration. In this respect, reward system choices sit firmly within the performance relationship and it is under this heading that we shall address the reward choices available to HR strategists.

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READING ACTIVITY
Please read Chapter 8 of your key text, The Strategic Managing of Human Resources, Edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, which covers some of the subjects of this unit.

The Role of Reward systems: An Analytical Framework


In his review of the strategic role of reward and organisational development, Lawler (1984) laid down a nine-point framework for taking strategic decisions. These nine points will be used as a basis for analysing past decisions and laying out future policy. We shall briefly summarise these below. They are divided into structural and process aspects, which confirms the point we have been making throughout this module. This is that effective HR strategy is more than policy choices; it involves a style and approach to implementation as a basis for building commitment, ownership and learning in the process. It is likely to create longer-term HR benefits.

Strategic issues in the design of reward systems


According to Lawlers (1984: p131 to 146 adapted) model the strategic issues in a reward system are as follows: Base of rewards

Job based, person based, skill based.


Performance and incentivisation scope for progression

Individual, group or organisational criteria.


Market position

Position in sector: upper/mid/lower quartile.


Internal versus external comparison

Internal v external equity.

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Centralised versus de-centralised reward

Decision making localisation.


Degree of pay hierarchy

Number of structures. Integration of job structures.


Reward mix

Balance of pay and benefits. Degree of choice. Harmonisation.


Process issues

Communication policy: transparency. Decision making: extent of vision, individual


involvement in job, pay evaluation and pricing. Reward systems consequences/integration

Link to prevailing business. Flexibility. Consistency with other HR systems.


In the first part of the unit we will look at these key issues in turn.

Base of Rewards
The main choices upon which to base pay are:

The job a person does. The personal contribution they make within a job. The level of skill and knowledge that people have within
the job. In this respect it is about how people grow and develop within any given job. Traditionally, organisations have used externally acquired qualifications and have opted to place greater emphasis on either

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external market comparisons or internal comparisons through job evaluation of task performance. Increasingly, the emphasis on performance-related pay is based upon individual contribution within a job. Person-centred pay has been one of the central developments in pay policy in recent years, in order to achieve a better balance between the job demands and individual contribution. As organisations are required to respond to market forces, services and products, they require new skills and knowledge. Hence, several organisations have used skill based pay to encourage and support wider investment in training and development. So organisations have to balance the reward base between the following:

Job; the impersonal determination of generic


skills/knowledge derived from the job definition.

Person; the contribution an individual makes to the job


performance, reflecting the potential and growth of the jobholder.

Skills; the level of training and skill enhancement to meet


organisational objectives. Given the dynamics of HR to support organisational development, we would expect to see variations in organisational reward strategy.

ACTIVITY
In the table below we have described some features of each of these reward bases. Take a few minutes now to note down examples of organisations that you may know or have read about in the business press that primarily rely upon each of the three dimensions. Try to give at least three examples of each.

Base Job based reward Often typified by larger organisations where internal equity between job grades is of particular importance and where large job families exist with multiple job holders.

Example organisation

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Person based reward Often associated with smaller organisations, where a small number of jobs exist or where each job has a distinctive job description and pay has to be individual. Alternatively, this can be found in larger organisations that are allowing part of the reward to be individual, to balance job and person to incentivise staff toward enhanced output or improvement to business processes as they respond to market forces. Skill based reward Organisations attempting to re-skill or introduce a major revision to products and services to serve the standard. Often used as a short-term increase based around defined modules and units of training that can be assessed and directly implemented into workplace practice.

ACTIVITY FEEDBACK
Our examples are as follows:

Job based reward Often typified by larger organisations where internal equity between job grades is of particular importance and where large job families exist with multiple job holders Person based reward Often associated with smaller organisations, where a small number of jobs exist or where each job has a distinctive job description and pay has to be individual. Alternatively, this can be found in larger organisations that are allowing part of the reward to be individual, to balance job and person to incentivise staff toward enhanced output or improvement to business processes as they respond to market forces. Skill based reward Organisations attempting to re-skill or introduce a major revision to products and services to serve the standard. Often used as a short-term increase based around defined modules and units of training that can be assessed and directly implemented into workplace practice.

hospitals local government departments public agencies

manufacturing organisations privatised service utilities; gas, electricity and water SMEs IT and media industry financial institutions

manufacturing and engineering organisations based upon new products or production processes. organisations addressing multi-skilling and the establishment of functional flexibility strategies

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Performance and Incentivisation Scope for Progression


This is a key agenda item for all organisations. Should they offer additional incentives over and above the base reward? What form should this take? How do they link incentives to the achievement of specific strategic business outcomes as part of aligning reward to business strategy? In some cases incentives are seen less as add-ons but are being included as a specific management strategy to reduce fixed pay and replace it with a higher element of variable pay that reflects organisational performance. The question we have to ask is what are the best incentives for organisations and individuals? We need to complete the picture. It is important that both employees and the organisation mutually gain from incentives to achieve commitment.

ACTIVITY
In the table below we have described briefly a number of forms of incentive. Some may be familiar to you, some not. Alongside each one note down briefly how you think each of these might impact upon (a) an individual employee and (b) management. You will find that the feedback to this activity is substantial; you are not expected to achieve all of its content in your brief notes.

Incentive Individual bonuses: additional pay for achievement of above average work. Non-specific criteria set.

Impact on employee Positive

Impact on management Positive

Negative

Negative

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Profit related pay: normally based on achievement of pre-set after tax profit figure, a proportion of profit is allocated back to staff.

Positive

Positive

Negative

Negative

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Incentive Performance related pay (PRP) schemes: based upon the achievement of preset objectives normally linked to individual and functional objectives.

Impact on employee Positive

Impact on management Positive

Negative

Negative

Share option schemes: award of options to buy shares at a future date, based on a preferential rate, or the award of shares in the company.

Positive

Positive

Negative

Negative

Piece work measured day output and time related pay systems: based on purchasing additional products or services (e.g. processing efficiency and accuracy in insurance organisations) in volume, cost or time-related performance criteria.

Positive

Positive

Negative

Negative

Added value-organisation wide incentives: based upon an equation involving the cost of producing goods and services and the sales income. A ratio is formed which can be the basis for improving the internal efficiency of working and thereby the ratio of costs. A set proportion of saving is paid back to employees.

Positive

Positive

Negative

Negative

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ACTIVITY FEEDBACK
Our thoughts are as follows:
Incentive Individual bonuses: additional pay for achievement of above average work. Non-specific criteria set. Impact on employee Positive This is essentially a gift from management on an ad hoc basis. The short-term effect is positive. Impact on management Positive Often seen as one off benefit, a good will gesture, a thank you for good service. Relatively cost-effective and non-recurring in the salary bill. Negative There is little long-term effect, as employees do not know how they can improve performance. Could be divisive if applied too narrowly between you and colleagues. Profit related pay: normally based on achievement of preset after tax profit figure, a proportion of profit is allocated back to staff. Positive New sense of ownership and alignment of your and organisational interest in performance. Negative Profit outcomes are some way from your own personal effect/reward activity. Negative Little long-term performance link.

Positive Clearly promotes awareness of organisational performance and stakeholder interest.

Negative Does not focus on individual contribution to these targets; objectives/outcomes not sufficiently clear.

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Incentive Performance related pay (PRP) schemes: based upon the achievement of preset objectives normally linked to individual and functional objectives.

Impact on employee Positive Clearer sense of your personal objectives can be made, and better schemes promote links to wider organisational objectives, linked to pay outcomes. You might feel you can make a difference.

Impact on management Positive Often seen as a form of control over the amount and quality of work performed and offers scope to introduce standards of work. Targeting pay to defined and measurable outcomes is clearly strategically important. More successful in organisations that have developed a well-specified PMS and who are geared more to market forces and competition. Negative Impact or weight attributed to performance pay is often small and thus dilutes the motivational outcomes, although this is changing in many professional and senior management environments, where performance payments can often equate to 20-50% of earnings. The impact on organisational performance is also important as PRP is often seen as inflationary. Used controversially in organisations seeking to change culture and shift employee attitudes toward improved customer service and product quality, e.g. local government, health trusts and privatised services. Generally it is seen in those sectors as a form of control and the basis of unfair distribution of pay resources.

Negative You might be unclear about or prevented from meeting those objectives. You may feel that other peoples objectives are inconsistent or easier to achieve.

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Share option schemes: award of options to buy shares at a future date, based on a preferential rate, or the award of shares in the company.

Positive Creates a medium to longer-term engagement to the organisation. Often seen as supporting retention strategies within organisations with volatile and competitive labour markets. Promotes commitment and alignment to organisational goals. You may be more attuned to how well the organisation is doing. You might feel more inclined to stay with the organisation. Negative Share prices are risky and values change. You may not value non-cash awards and awards that are deferred and risky in transactional relationships. Difficult to see how your performance affects share value.

Positive Promotes longer-term view of organisations success and promoting share value and commitment. Good retention strategy.

Negative Less effective where the future involves downsizing and restructuring.

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Incentive Piece work measured day output and time related pay systems: based on purchasing additional products or services (e.g. processing efficiency and accuracy in insurance organisations) in volume, cost or time-related performance criteria.

Impact on employee Positive Clear effort/reward link, which assists motivation. You can see how your effort leads to additional reward. Negative Tends to promote individualistic ethic, which may benefit wider performance goals such as improving business processes. Runs contrary to teamwork and wider Total Quality Management (TQM) philosophies requirement. Difficult to disentangle your contribution in many forms of work especially professional services. Positive Enables you to focus on improving not only what you do, but also how wider organisational processes for completing tasks can be improved. It enables you to work in a team. It supports the TQM and Business Process re-engineering (BPR) culture. You focus on wider organisational objectives and costs. Negative However, the equation of input costs and sales is a complex accountancy exercise and includes factors outside your control, e.g. design changes or external pressures may have a disproportionate impact which reduces your commitment and confidence in the scheme. Generally, the performance period is lengthy, therefore the immediacy of employee efforts is small, e.g. 1-2 years effort. Base rates period and six months reviews to ensure representation performance data.

Impact on management Positive Pay is orientated for real measurable improvement and can create an outcomes culture.

Negative Wider focus of relating individual to organisation-wide goals are not easily met. Staff concentrate solely on what they are measured upon.

Added value-organisation wide incentives: based upon an equation involving the cost of producing goods and services and the sales income. A ratio is formed which can be the basis for improving the internal efficiency of working and thereby the ratio of costs. A set proportion of saving is paid back to employees.

Positive Can bring about improvement in business process costs providing effective support systems are in place that allow staff to participate in this improvement orientation, e.g. TQM, BPR, etc.

Negative A great many resources can be tied up in measuring the ratios, communication and explaining the results. Such schemes promote transparency of information about the business for staff, but the historical basing of costs may not be relevant for all businesses undergoing major product or service change.

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This review of the options available to build incentives into reward has revealed a number of important issues. We can summarise some of these as follows:

The amount and level of pay fluctuation and employee


confidence. For incentives to motivate, they must be significant. The level of pay fluctuation needs to be controlled into predictable periods so that staff can reasonably plan their lives.

Individual versus collective incentives and the impact


upon real performance. It is important to have a balance of individual and collective incentives to emphasise mutual goals and alignment of interests throughout the HR systems. As we saw in Unit 4, a PMS must fully integrate incentives with tangible performance outcomes.

Motivation and the clarity of the effort/reward equation.


From your studies of organisational behaviour you learnt of the need to pay attention to making clear the level of effort required and the reward outcome. In HRM terms we are integrating this relationship to ensure a good fit.

Short-run incentive and cash versus longer-term


retention strategy. This demonstrates the range of strategic choices to shape behaviour towards particular goals, for example, cost minimisation and performance output in strategic conditions of start-up, leading to maturity. The alternative leads to growth and enhancement of product quality in a high added value niche, where staff skills growth and retention are key.

Alignment of individual values and culture with the


organisation versus promoting transaction cash/work relationships. If the preceding issue is all about external fit of HR to business strategy and the environment, this is the mutual need to internally integrate employees with the prevailing organisational culture through reward.

Management control through the establishment of


performance standards. This is a point emphasised in Unit 4, demonstrating how control is shifting through direct hierarchical control through supervision, but devolved more to employees via the standards to allow more self-organisation.

Equity and distributive justice between individuals and


groups. Equity is about equality of opportunity and fairness in differentiating relative pay levels. Distributive justice is the process by which rewards are allocated.

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Justification of differential reward based upon personal


contribution versus equity of reward based upon common job decisions. There are two levels to consider. First, recognition of contribution develops growth and professional competence. Second, equity and fairness built around the sense of justice is the level of demand geared to the education, qualifications and skill needed to do a job. In this area staff commitment is achieved. These are important issues with respect to the outcomes from our strategic HR model.

ACTIVITY
Now consider your own views on the following statements. Indicate whether you agree or disagree with them.

I would expect to see any reward as differential based upon


achieving results. Agree/disagree

I would expect to see my reward progress over time as my


contribution and knowledge increases. Agree/disagree

I would expect to have my pay comparable to others doing jobs


of like value within the organisation. Agree/disagree

I dont need additional performance payments to motivate me


towards doing my best to develop the organisation. Agree/disagree

My pay needs to be linked effectively to the market rate to


keep me motivated whatever the organisational performance. Agree/disagree

I believe employees should share in the success of the


organisation to retain our commitment. Agree/disagree

The organisation should pay me for what I do. There is no


long-term commitment. The organisation looks after the wider performance, which may mean redundancy. I must focus on doing the work provided and being paid competitively. Agree/disagree

I would feel uncomfortable being paid significantly more or less


than work colleagues on the same level. We are a team and depend on each other. Agree/disagree

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I feel it is inevitable that individuals bring different skills and


experience levels to jobs and this must be recognised. Agree/disagree

As long as objectives and targets are clear and


well communicated then differences in pay are acceptable and fair. Agree/disagree

We all stand or fall by the organisations


success. Agree/disagree

ACTIVITY FEEDBACK
This exercise has been about identifying your own attitude and values to reward against the following features of reward strategies:

Equity and group justice, which is internal. Market relatedness; external. Expectations of personal recognition. Expectations of results. Degree to which you see your own goals and values aligned with
those of the organisation.

The extent to which you see the employment relationship as


transactional and short-term with a clear distinction of organisation and individual interaction.

Extent to which you see common levels or individual levels of pay


desirable. There are several potential contentious areas here that need to be balanced carefully. Reward affects the actual culture of the organisation. So organisations have to consider carefully whether they want to fit pay strategies more to support the culture or use it as lever for change.

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ACTIVITY
Organisations have to deal with these expectations and sometimes need to re-shape them as they see organisational and labour market priorities changing. This re-configuration takes place in the nine divisional areas that we have identified. Before we move on to look at the market aspects of reward, let us now look at the link between variable pay and different human resource outcomes. At this point we have attempted to demonstrate the potential links between forms of pay incentive to shape organisational behaviour and culture in HR outcomes that will benefit organisational performance. Using a scale of high (), moderate (), neutral (=) and negative () impact, note your views (in the table that follows) on the impact of each type on motivation, commitment, cultural change, quality, teamwork, competence and flexibility. (You may experience the dilemma that a feature is potentially both negative and moderately to highly positive. This is to be expected and is part of the careful decisions that HR managers must weigh as we saw in the concluding comment made in the feedback to the last activity. If this occurs, note down an organisation that illustrates this point and reflect on why this might be the case.)

Effect of different types of variable pay


IMPACT
TYPE DEFINITION Motivation Individual Incentive Payments related to achievement of targets added to basic pay Rewards for success paid as a lump sum Payments for sales people based on a percentage of the sales they generate Commitment Cultural change Quality Teamwork Competence /skill Flexibility

Bonus

Commission

Performance- Payment related pay based on ratings of performance

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Competence/ skill-related pay

Pay progression linked with the competences or skills people develop and use

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IMPACT
TYPE DEFINITION Motivation Commitment Team Group bonus Shopfloor payments related to output or time taken Payments to staff teams related to achievement of targets Cultural change Quality Teamwork Competence /skill Flexibility

Team pay

Organisational Profit- sharing Payments of cash or shares related to company profits Gain-sharing Payments of cash bonuses to employees related to added value increases Government -sponsored scheme in which pay is linked to profit with tax advantages Allocation of shares with opportunity to sell in future at higher price

Profit-related Pay

Share option

ACTIVITY FEEDBACK
Our responses are given in the table that follows:

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IMPACT
TYPE Individual Incentive DEFINITION Payments related to achievement of targets added to basic pay Rewards for success paid as a lump sum Payments for sales people based on a percentage of the sales they generate Motivation Commitment Cultural change Quality Teamwork Competence /skill Flexibility

Bonus

Commission

Performance- Payment related pay based on ratings of performance Competence/ Pay skill-related progression pay linked with the competences or skills people develop and use Team Group bonus Shopfloor payments related to Output or time taken Payments to staff teams related to achievement of targets Payments of cash or shares related to company profits Payments of cash bonuses to employees related to added value increases

Team pay

Organisational Profitsharing

Gain-sharing

Profit-related GovernmentPay sponsored scheme in which pay is linked to profit with tax advantages Share option Allocation of shares with opportunity to sell in future at higher price

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Market Position
Rewards are usually aligned with supply and demand in the labour market. Job categories with a shortage of resources will command a higher pay structure. Some large organisations have very complex pay structures based upon internal relationships of salary grading systems and pay rate. These can often be seen as important to sustain an internal sense of fairness in terms of job demands placed upon different job categories. From an internal job evaluation perspective, these relationships provide equity and the basis for what is called distributive justice. However, organisations are often faced with significant external turbulence within labour markets. For example recent trends include IT specialists, accountants, specialist insurance activities, electronics engineers and so on. Organisations often have to face paying what the market demands and to ignore internal fairness and relationships. Therefore, reward strategy needs to determine the following questions:

How responsive is pay to external change? How far do


we have separate policies for different staff categories?

How flexible are internal structures to allow for pay


progression?

How do we collect external pay information and how


does that inform decision-making? The answers to these questions will be acknowledged as we go through the unit. We will look at the collection of external pay information in the next section.

Internal versus External Comparison


Clearly organisations need to demonstrate the ability to attract and retain as well as grow or progress employees through the reward strategy. As we have seen, person-based pay or personal contribution requires a matching against internal and external benchmarks. To make informed decisions on reward, organisations need to conduct pay and benefit surveys. The objectives of such surveys are as follows:

Maintaining competitive and cost-effective pay and


benefit rates.

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Providing guidance for internal differentials between jobs


by reference to national and regional labour markets.

Gaining information required to make adjustments to


levels of pay and benefits. HR strategists, therefore, need to understand and be informed about the following:

Concept of market rate. Sources and methods of collecting data. Methods of presenting data to achieve appropriate levels
of analysis.

Developing ongoing strategic relations to support reward


decisions through pay association.

ACTIVITY
Before reading further, consider the following questions and note down your responses: 1. If you were trying to establish a market rate for a range of jobs, what factors would you need to take into account to achieve effective attraction and retention strategies in the labour market? What type of data would you need to collect? Where might you get the information from?

2. 3.

ACTIVITY FEEDBACK
1. Job matching factors include:

- the effectiveness of the comparison of job demand matched


against job titles

- timing of the information to ensure (i) accuracy and (ii) content


concerning periodic reviews and incentives and variable aspects to pay

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- range between highest, lowest and medium levels of


salaries differences can be as much as 25-50%. 2. The information you might need includes:

- basic and variable (e.g. bonuses) elements of pay - total earnings including incentives, bonuses and valuation
of shares, stock and benefits

- inclusion of information to achieve a balance between


benefit orientated strategies and so-called cash based approaches. The information would need to be made of such aspects as pensions, bonuses, mortgage assistance, health insurance and screening, holidays, sick pay and financial and other allowances such as petrol and clothing

- pay movements; increases since last survey - pay increases, general increases and average increases on
merit or bonus elements 3. You might like to note some of the readily accessible sources of pay information:

- Management Consultancy Databases: Hay Management


Consultants and data from job evaluation

- Occupational Surveys: Inbucan Purchasing Staff and


William Mercer publish data on securities and legal staff.

- job advertisements and professional journals - published data in journals such as Incomes Data Services
and IRS Employment Review in the UK

- pay associations where organisations in certain


geographical regions or in some industries seek to minimise competition or fluctuation in salaries for certain job categories. In Sunderland, UK, a pay association has been established in the fast growing Call or Service Centres where employers have found it hard to attract and retain trained telephone service staff on the Doxford International Business Park.

But how do organisations collect and present what can be quite complex information? Normally organisations establish spreadsheets for
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internal job categories such as administrative staff, technicians, managers and so on. They select benchmarking jobs that can be tracked over time, and around which other jobs are slotted in terms of job demand hierarchies.

Presentation of data
HR professionals have been criticised for not being sufficiently analytical in their methods. The collection and presentation of data to improve decision-making is an area where HR needs to ensure that it can perform well. You will recall, from your earlier studies in statistics, the set of techniques you might apply to pay data to improve the legitimacy of HR decision-making.

Pay surveys and associations


We have seen an example above of how and when organisations might form associations to understand market rates and pay schemes. But how would we go about establishing a Pay Club in response to unstable market rates for key staff where the cost of the investment in recruitment and training is substantial?

CASE STUDY
First read the article below on salary surveys: How to design and run Salary Surveys People Management, September 1996. There are several reasons why information about other employers salary levels could be valuable. An adverse trend in staff turnover may be related to pay falling behind market trends; it could help to identify appropriate pay rates when recruiting staff to new types of job; or a trade union may be pressing for pay rises by quoting higher salaries allegedly offered by other employers. More generally, organisations need to be aware of comparative salary levels, particularly if they have a policy of maintaining pay at a set relationship to the market. There is a range of proprietary sources of salary data. Some are available only to subscribing organisations participating in surveys run by specialist consultancies. Others, such as the DfEEs annual New Earnings Survey, are published. Such sources can help to monitor salary levels and trends, but their wide coverage often makes it difficult to match jobs precisely. More focused salary data may be obtained through membership of a salary survey club a group of companies that have agreed to exchange information

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on a regular basis. If no such club exists, it might be worth approaching relevant organisations and suggesting one, although the initiating party is likely to be expected to handle all the administration of such a scheme. The format of this kind of clubs salary survey may have to be a compromise to meet the different needs of its members, and it may therefore not meet the full requirements of any one organisation. If suitable data cannot be obtained from any published, subscribed or club surveys, a tailor-made approach is necessary. This applies particularly when very specific information is needed, such as sales commission formulae and levels in a defined commercial sector. The first step is to decide precisely what information is required, bearing in mind that the response to an inquiry on one or two topics is likely to be far better than if respondents are asked to complete a long and complex questionnaire. It is tempting to add questions to a survey on the grounds that the resultant information might be interesting. For example, when researching the starting salary of newly qualified accountants, a finance director may suggest asking about the pay of accountancy technicians or the numbers of accountants holding different qualifications. The risk of a more complicated survey inducing a poor response to the key question must then be set against the possible benefits of a wider range of information. One of the principal issues in any survey is to decide how to ensure an acceptable level of data comparability. Both the organisations and the jobs must be matched carefully. When selecting participants, it is important to be aware that variations in company size and sector could make a significant difference to pay levels and practices. Senior management salaries, for instance, tend to be influenced by company size. So a survey in this field should either be restricted to organisations of a similar size or should also ask for basic data about, say, annual financial turnover or the size of the workforce, so that the scale can be identified. Salary levels or related issues, such as the use of bonus or commission payments, may also differ between industries or sectors. If your aim is to study the pay of directly comparable jobs in directly comparable organisations, participation will need to be restricted to companies known to be of similar size in the same sector, perhaps even in the same region. If there is a concern about losing staff to different types of organisation or different sectors, or if information is needed in order to recruit from new sources, the survey will need to cast its net more widely. Ensuring an acceptable match of jobs usually requires a compromise between complete accuracy and generalisations. There are very few jobs that are precisely the same in different organisations. A variety of work systems and supervisory arrangements may exist, even in jobs that appear, superficially, to be identical. Job titles can be particularly misleading. If the survey asks for salary data against its own detailed job descriptions, it may well be told that no such jobs exist
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elsewhere. A normal and more satisfactory approach is to prepare simple profiles that are based on real jobs but allow some flexibility (see panel). Participants should be able to match this profile with their own specific jobs, and they can then be asked to give salary details. It may help to add two boxes to the questionnaire. In one, respondents can indicate if the job they are matching is the same, or whether it is at a slightly higher or lower level of responsibility than that of the profile. In the other, they can show whether they are giving details of an actual job, or quoting the salary they would pay if they had a job of this kind. The next step is to decide what information to request, and in what form. Terminology is important, as a question asking simply for current salary may be interpreted in different ways by different respondents. Some may restrict their replies to basic salary and omit bonuses or individual performance payments. Others may quote pay ranges or grades, rather than actual salaries. If a picture of the complete remuneration package is needed, the survey must ask for data about each job under headings such as basic salary; additional payments included in monthly salary (performance pay, sales commission); and any additional periodic payments (annual profit or merit bonuses). A simpler approach is to ask for basic pay and total cash remuneration. Where pay varies, the questionnaire should ask for averages over a set period. The survey also needs to be clear about whether it is asking for details of actual salaries, as paid to current jobholders, or details of the salary grades or scales appropriate to each job. Each approach has its disadvantages. If a respondent organisation has a number of employees in one of the surveyed jobs, but has no formal pay scales or uses broad pay bands, a request for actual salaries may be answered with an average of actual salaries, the midpoint of the scale, or even a comment that there are too many employees on too many different salaries to provide data. A request simply for pay-scale data (minimum and maximum pay for each job) may be easier for a respondent to answer, but may not give a true picture. This is particularly the case if the pay scales are wide. The current trend towards broadbanding is resulting in pay scales with maxima as much as 60 per cent above their minima. So, a reply that the scale for a particular job is, say, 20,000-32,000 is unlikely to contribute much to a comparison of actual pay levels. It may be that most of the companys employees are paid the maximum for their grade but, equally, it may be only the top performers who ever progress to the upper part of the scale. For these reasons, some surveys ask for both actual salaries (averages if several employees earn different amounts for similar jobs) and salary scales although this can make the questionnaire too complex. The more specific the request for information, the more likely it is to obtain a useful response To encourage replies, it is advisable to guarantee confidentiality. It can also be helpful to telephone potential survey targets in advance, partly to discover whether they are likely to participate, and partly to check what type of salary inquiry they would respond to most easily and find most useful. Data collection
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should always be by questionnaire in, as far as possible, a multiple-choice, rather than a narrative format. It is common courtesy to supply prepaid envelopes for replies.

Example of profile job description Job: training officer, or equivalent title. Organisational context: an organisation with a service bias, private or public sector, with a workforce of between 500 and 2,500. Reports to: head of personnel, or head of training, if this is a separate function. Supervises: has no subordinate training specialists, but may have support of one or two administrative or clerical staff. Duties: prepares and delivers training material within topic areas and policies specified by, or agreed with, his/her manager. Discusses training needs with users and undertakes training needs analyses. Topic areas generally related to personal, people management and organisational skills. Tutoring mainly at supervisory and lower management levels. Experience: likely to be a graduate with at least three years personnel or line management experience.

QUESTIONS:
1. 2. 3. Why is a club better than other proprietary sources? What do we mean by data compatibility? How would you build confidence and support for the exercise?

CASE STUDY FEEDBACK


1. A job club allows data to be collected regularly over a lengthy period using consistent benchmarks. The information can be focused to well-matched jobs. The club can allow additional factors to be evaluated and adjusted according to member needs such as training and retention strategies. In some cases such clubs can lead to agreements on wage levels to control recruitment and retention competition to stabilise the labour market for employers.

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2.

Data compatibility means that organisations can carefully match job descriptions and responsibilities to ensure that effective job demands and salary levels are made for pricing jobs.

3.

Confidentiality is normally the main criteria to build club commitment. Protecting the anonymity of the parties in published data is important, particularly where the clubs do not meet regularly and data is collected on an occasional basis. Control, use and distribution of information cannot be so easily assured in this case. Integrity in data disclosure and clear and unambiguous comparative criteria will encourage value-added surveys and continued use by the parties. Flexible objectives and wide coverage of jobs and salary and benefit variables all add to the validity of this work.

The first steps in establishing an effective pay survey would be as follows:

Draw up a representative list of organisations based


upon criteria such as location, size, industry, job families and so on.

Invite organisations to participate. Maintain confidentiality of data and widely circulate all
data for the benefit of those contributors. This is a central benefit for participants. Anonymity of organisations can be helpful in some cases where the participants are in a similar industry. This would be represented as for example: Company A, large

retailer Superstore; Company B, medium retailer


General and so on.

Prepare job/data requirements and circulate for


agreement; agree frequency and timing.

Collect data, analyse and distribute a summary including


means of location and dispersal. A second aspect of the market positions and establishment of pay data for reward strategy is the internal enquiry into job relativities, normally referred to as job evaluation or JE. This is a complex process and increasingly schemes are determined by professional organisations such as the Hay Management Consultancy in the UK and Wyatt Consultancy. The detailed formation and operation of such schemes is beyond the scope and purpose of this unit. However, it is important to establish why and how such schemes are used. We also need to evaluate the effectiveness of such schemes.

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Job evaluation (JE) defined


JE is a systematic process for establishing the relative worth of jobs within the organisation. Depending upon how JE is used, the process may ensure the following:

Rational basis for the set up and maintenance of an


equitable and defensible salary structure.

Enables consistent decisions on job grading within salary


structures used.

Ensures comparable worth between jobs so that equal


value pay can be provided for work of equal value, an important legal consideration. Under this definition, we see JE as important in promoting objectives and the use of quantitative data in job information to bring about rational decision making in pay. This is a neat and reasonable objective but paints a rather simplistic view. We shall critically examine some of these issues at the end of this section. The key features of JE are:

A comparative process, of relationships between jobs


based upon demand placed on people.

A judgmental process based upon information about jobs,


such as job descriptions and role analysis of how the job is performed.

An analytical process based on converting judgements


into points factors to enable ranking to take place.

A structural process based upon a series of steps;


formulating job descriptions, establishing key factors used as job knowledge, problem solving, accountability and so on, establishing benchmark jobs for comparison purposes, formulation of scores to determine ranking, the building of job grading and salary structures from the same. Most schemes today are normally points factor schemes. The key decisions to take are as follows:

Selection of factors. Selection of levels of factors. Determining the value of the factors points are usually
awarded in an arithmetic progression.

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Armstrong (1996, p.108) uses the following example showing points awarded to each of five factors at each of six levels:

Levels Factors 1. 2. 3. 4. 5. Knowledge & Skills Responsibilities Decision Making Complexity Content 1 50 50 40 25 25 2 100 100 80 50 50 3 150 150 120 75 75 4 200 200 140 100 100 5 250 250 180 125 125 6 300 300 200 150 150

Clearly from this example, each job or job family can be scored. In more complex schemes the main factors will be subdivided. Each of the five factors would need to have set criteria to enable a judgement to be made by the evaluators. Organisations can develop their own statements but there are a number of internationally respected and applied schemes that have a long history of successful use.

Effectiveness of JE
Before we leave this section, let us review some of the advantages and disadvantages of job evaluation more generally.

ACTIVITY
How would you react to having a job you were performing included within a job evaluation exercise? How would you have to be managed in order to gain your support?

ACTIVITY FEEDBACK
Your responses here are, of course, unique to you but you might have included some of the following points:

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- the importance of consistent, clearly written and updated job


descriptions

- your involvement in the writing and agreeing to the job


description

- clearly published criteria for evaluation - transparent links between evaluation and salary level - opportunity to ask for a review or appeal where you
considered the job you were expected to do had changed or new responsibilities and skills emerge; for example, technological enhancement, greater responsibility for customer interface, more empowerment to make decisions and so on

- clear recognition of the grading of your fellow employees.

The case for job evaluation would include the following points:

A logical, definable and equitable basis for making pay


decisions bearing in mind the EU Equal Value Legislation. Employers need to ensure that men and women doing jobs of equal value are paid the same. Where doubts exist, employment tribunals will assign independent experts to evaluate work under the equality test.

A reduced risk of pay discrimination. It should promote the SHRM values of commitment of
staff through confidence in decision making on pay.

It should assist with the adaptation and tracking of


flexibility in jobs and the pay related outcomes.

It can ensure that job change is effectively integrated in


pay decisions.

It should be a systematic, consistent and objective form of


job measurement.

It helps to communicate expectations to employees to


underpin the wider PMS objectives with respect to input/output job processes and competence in the wider SHRM framework. The case against JE might include the following points:

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The bureaucratic nature of forming job descriptions and


establishing schemes at a time when flexibility, responsiveness and speed of change/learning is being demanded of organisations.

The need for staff to go beyond contract and adapt job


boundaries such that JE constrains rather than empowers staff.

In restraining change and encouraging negotiation of


change it slows change.

It can create a culture of working to job description. It measures the job rather than the personal contribution
contrary to wider aims of reward strategy.

It is generally individual rather than team focused which


runs contrary to wider organisational messages and structural principle.

The process is costly to install, perhaps 2-3% of payroll


and expensive to maintain via consultants or internal evaluation panels.

Management responsibility is relinquished to the


predetermined system at a time when leadership is paramount.

The illusion is given of objectivity and effective


measurement where judgement is a central feature of complex data.

Decisions made by internal panels can often encompass


the wider political environment and trade-offs that organisations face which reduces the confidence in the objectives.

Either management controls the scheme or it opens up


wider roles for employee and unions in the decision making process, which may on the one hand enhance organisational confidence, but at the same time enhance the risk of running contrary to the market and organisational performance it is inwardly focused.

Centralised versus Decentralised Reward


One of the options available to organisations is whether to keep a tight central control of reward decisions whereby all salaries rise by the same amount so that control can be exercised in circumstances where cost minimisation strategies are predominant. In circumstances where an

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organisation has a number of product or service divisions, which may be performing in different trading conditions, local managers may be given discretion over the movement of pay for their staff or division. This same discretion may be applied to individuals on a performance-related basis. Whilst centralised determination offers the prospect of creating internal equity and the ethos of a strong corporate culture, it has the disadvantage that it is normally associated with standardisation of pay grades based on job evaluation. As we have seen, these can limit innovative and flexible responses to employee contribution within job performance. On the other hand more localised responses are normally associated with a more responsive business focus and the market. It also allows scope to reward creative behaviour and assist with retention of key skills and talents in a way that centralised or systems-based approaches can fail to achieve.

Degree of Pay Hierarchy


All reward systems depend upon a certain degree of pay hierarchy. Managers receive higher pay than professional staff, who in turn receive higher pay than administrative staff. The basis of this is job demand described earlier. In certain cases organisations have distinctive salary structures for each job category:

Management: a minimum-maximum scale, with


progression based on individual performance.

Skilled or professionally qualified staff: a


minimum-maximum scale, with progression based upon organisation results and individual performance.

Administrators: job rates, with progression based upon


company performance. This type of structure, often with more levels than this example, reinforces traditional power relationships and organisational structures related to promotional steps. It is rarely used in organisations operating in the new economy sectors, and, generally, organisations are moving away from hierarchical power relationships and are reducing visible status differences both in pay and non-pay benefits. In pay terms the trend has been to reduce the degree of hierarchy in pay systems by enhancing overlap and progression opportunities.

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ACTIVITY
From your experience and reading to date, what might be the key features of organisations that facilitate the reduction of hierarchy in pay structures?

ACTIVITY FEEDBACK
You could have suggested any of the following:

Flattened organisational structures. Enhanced team working. Flexibility between jobs. Multi-skilling. Vertical loading/empowerment of job holder skills and service
developments, and new job competence.

Performance imperative to achieve results.

Trends in salary structures


Reward and compensation schemes must, in order to achieve equity, attempt to include a reference to:

Individual contribution based upon performance. The market. An evaluation of job complexity.
There are a number of ways of creating a salary structure. The most typical for the purposes of illustrating trends in the strategic management of this element of the reward mix is a graded scale. The main features of a graded structure are as follows:

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1. 2.

Jobs are allocated a salary grade based upon an assessment of the three criteria above; contribution, market and job complexity. A salary grade or band. Jobs within a grade are broadly similar in demand. A band will contain important control features: a maximum salary, a minimum entry point, a target or market-point at the mid-range and a percentage range between the top and the bottom. Employees would need to obtain promotion to move from one grade to another. Each grade will have a relationship with other associated grades within the structure. For example, a salary structure comprising four grade or bands may choose to make each exclusive, where the top of the first grade is at or below the bottom of the second band and so on. More typically, however, bands overlap by a defined percentage in recognition of the added contribution of high performance in a lower category compared to a newer employee in a higher grade. The rate of salary progression within a band has been a subject of critical review in recent years. Traditionally staff would be allocated to fixed incremental steps, and would progress at annual reviews by defined points based largely upon service or seniority criteria. Today, salary progression is generally driven by performance (and is not automatic at annual reviews). Organisations have also adopted flexibility to accelerate increments to reflect higher performance or market pressures. Similarly, there have been trends towards taking out defined incremental points and allowing more managerial discretion over the level of progress through a band. This is not popular with trade unions who press for transparency and equity but is favoured by organisations wishing to develop a higher emphasis of individual accountability and more managerial control over pay distribution.

3.

4.

ACTIVITY
What would you assess the advantages and disadvantages of graded structures to be?

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ACTIVITY FEEDBACK
The advantages of graded structures include:

Job levels can be readily assessed and recognised in common job


families. This delivers a felt fair or equity for jobholders.

Consistent methods of grading and assimilation model issues and


internal relations between jobholders.

Transparent systems, which can combine equity with the need to


provide progression in pay as experience and contribution gains within an understandable framework.

Effective control of salary budgets and the relationship of new


starters, and more experienced staff.

Reflects legal pressures to have an accountable system of equal value


between men and women doing work of comparable demand. Less open to bias in decision making. The disadvantages are:

Often seen as inflexible to individual contribution. Emphasises job


versus person.

Considered by some to be unreceptive to market pressures for


certain jobs, e.g. IT, accountancy and research and development specialisation.

Emphasises collective approach to staff in grades rather than the


individualisation of employee relations.

Barriers in salary structures and organisational structures are often


linked to non SHRM themes of flexibility and getting staff to break down barriers which impede growth orientation.

Implications for SHRM


The above is a very brief synopsis of the range of issues facing a compensation specialist but it does illustrate and reinforce several important points concerning how reward, and in particular salary structure, can support SHRM thinking. The old and new paradigms can be compared as follows:

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Old Paradigm cost control job centred view collective orientation clear boundaries for decision-making clear pay relativity standardised/transparent system culture of standards and system

New Paradigm development/innovation decision centred view individual orientation flexibility of boundaries dynamic, changing relativities fluid/less transparent system culture of going beyond contract

Reward Mix
Pay is normally seen as the most central feature of the Reward Strategy. However, increasingly, employees in western economies are paying greater attention to certain deferred benefits such as pensions. As the cost of running occupational schemes grows with an ageing population, employers are beginning to shift away from providing lucrative and comprehensive coverage. How do we determine the level of investment between salary and benefits? What do we mean by benefits? How can organisations use benefits strategically? First let us try an activity to define what we mean by benefits.

ACTIVITY
Spend a few minutes listing as many reward-based benefits as you can think of.

ACTIVITY FEEDBACK
Compare your list with these. Armstrong & Murliss (1989, p.257-8) have identified six categories of benefits addressing different employee and employer needs:

Pensions or deferred salary to employee (and family, in the


case of bereavement) based on employee and employer contributions to the fund, built over a lengthy period of employment.

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Personal security: sick pay, accident and life assurance, health


screening and private medical insurance.

Work life balance which is currently much in the public eye in


western economies; holidays, child care benefits, maternity and paternity leave, career breaks, flexible working hours, variable contracted flexible and home working.

Financial assistance to support recruitment and retention; relocation


costs, subsidised home mortgage loans, payment of fees, discounted staff uniform, company products, low interest loans, telephone allowance.

Benefits related to status and job performance such as company


cars, subsidised catering and sports and leisure facilities, travel and petrol allowances.

Intangible benefits such as the nature of the job and organisational


culture supportive to employee development.

This list illustrates a number of useful points. In organisations, benefits are normally associated with promoting retention over a longer term. Pensions are a good illustration of this as the accrued build up over years of service rewards longevity of stay. Others are shorter term in focus and are deliberately aimed at younger staff and helping them adjust: financial assistance and work life balance questions. We also see the notion of the caring employer whereby the exchange for high performance and intensive work is recognition of the home interface. These debates are key to the rebuilding of the so-called psychological contracts that we discussed earlier in the module. Emerging from this we can see the basis of organisational decisions based upon benefit policies. For example:

Do we want to promote retention which benefits do we


emphasise?

Do we want to recognise work life balance which


benefit will help us?

How do we use benefits to encourage and recognise


performance and achievement?

How do we equate non-financial benefits, such as job


interest, in the equation?

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The choice made in terms of which benefits are included in the package and whether they are in terms of availability or value, helps give strategic orientation to benefit policies. One of the critical issues that particularly large organisations face can be expressed as two questions:

How do we balance pay and benefits around the cost of


provision and the expectations and needs of employees?

Is a static one size fits all approach to benefits valid to


stimulate positive employee responses and, therefore, cost effectiveness? The first question partly relates to national tax regimes. Many western governments tax benefits heavily, making them less attractive for employees. Historically, they have been a cost-effective way of providing extra reward cheaply. A more subtle point is the expectation and attitude of staff. Use the next activity to explore your attitude to benefits.

ACTIVITY
Indicate how far you agree with these statements by scoring them as follows:

Strongly disagree 1 I would be prepared to accept a lower basic income to achieve higher overall pay gained from performance incentives. I believe in making personal choices as to how I spend my income and therefore would prefer the company to maximise cash payments and keep benefits down to a minimum. I prefer to work for a company that provides protection for myself and family, and would be prepared to accept reduced overall cash to allow the organisation to provide these. 2

Neither agree nor disagree 3 4

Strongly agree 5

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ACTIVITY FEEDBACK
There is no overall right and wrong answer to these questions. They reflect personality and cultural issues of preference. They do illustrate different perceptions and questions of the one size fits all approach to securing employee commitment. Organisations have to decide on a so-called clean cash (rather than a complex mix of benefits) approach to a more paternalistic approach. Organisations that prefer a harder performance orientation where careers are becoming less secure and more transactional, are tending towards clean cash and employee mobility. However, commitment and strong corporate cultures do not always emerge from this type of approach. Strong cultures, as we see later in the module, are associated with closely integrated values between the individual and the organisation and high performance. There is an ongoing reappraisal of work/life balance in Europe. This is partly brought on by a platform of legislation rights, but also partly led by an employer reappraisal of retention and psychological contracting. Broader based benefits policies do offer some advantages in this respect.

We can summarise the strategic intent of benefits as follows:

Purpose Tax advantage to employee Improve quality of work Attract staff Encourage loyalty and paternalism Assist termination and separation

Strategic intent: options/outcome Cost driven rationale, for example, clean cash Enhance quality and productivity incentives Employee centred commitment and securing long-term relations Psychological contract Employer and employee centred flexibility; redundancy and early retirement benefits

One further area of reward mix to consider is benefit flexibility. To what extent is it feasible to administer choice? How attractive is employee choice? At face value, giving staff choices and influences over their reward is attractive under the heading of involvement and motivation. From an employees point of view it does enable the cost of providing benefits to be fully recognised. However, there is an administrative cost to providing such flexibility. For example, there are administrative complexities in changing an employees pension contribution for 23 years to allow them to take extra cash. One overarching trend in reward and benefit is to harmonise benefits across all staff groups. Organisations that developed high status divides

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have generally rethought the divisiveness of this approach in situations where cultural alignment of values and commitment are the HR objectives. Japanese organisations first introduced cultural harmonisation to UK manufacturing in the 1980s with common car parking, catering and even the introduction of uniforms for office and shop floor staff. Today there are legal requirements to provide equal pay and benefits. A combination of management choice, societal values and legal imperative has brought about a major thrust toward harmonising benefits and reward amongst employees. The final differential is level of job performance and achievement. The general aim is to reduce attitudinal and role differences between employees and the organisational mission, and build an effective corporate culture.

Process Issues
There are two strategic issues here:

Communication and transparency. Involvement in pay decisions.

Communication and transparency


It is not only the content of reward strategies that can determine whether certain human resource outcomes are achieved. How organisations communicate their pay objectives and the degree of openness will vary. Much will depend upon the organisational culture. Some organisations will consider pay matters are very much closed systems, a matter for management decision making and personal, individual contracts. Under these conditions personal salary ranges and the distribution across structures remain unknown as is often the case for decisions on pay review. Where organisations create what are called open systems, pay structures are publicised, as are decisions about overall increases in pay. This applies to performance systems where organisations may choose to recognise performance and allocate merit pay. This can be done in more or less open circumstances. Transparency of decision making and the criteria used to adjudge pay reviews contributes significantly to the debate on distributive justice and building a sense of commitment from a feeling of confidence and fairness in the allocation processes. Culture plays its part in terms of such matters as clarity of performance objectives.

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Involvement in pay decisions


As we saw with the issues affecting decisions on the introduction of job evaluation schemes, differing responses can be seen from employees where communications are open and they have opportunities to be involved in pay related issues.

ACTIVITY
Take a few minutes to write down your thoughts as to how staff might be involved in pay decision making. Try to suggest at least three ways.

ACTIVITY FEEDBACK
You might have come up with some of the following:

Membership of Trade Unions who negotiate pay. Consulted on job evaluation issues arising from job description. Mutuality in determining performance objective. Agreed training and development objectives leading to enhanced skill
based pay.

Influence over achievement of performance levels. Choice on pay and benefits.

Organisations that offer greater involvement of employees in pay determination tend to do so where they are seeking to develop a high involvement culture in all aspects of human resource management. Examples are team based structures, high involvement appraisal schemes and related ownership of self-development, team based pay where peers contribute to the distribution decisions and so on. Closed systems tend to emphasise more hierarchical forms of management and control orientation. The parallels can be drawn with the style of approach and the sense of whether HRM is done to employees or whether the policies are aimed at leveraging high commitment, trust,
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flexibility and capability. Reward process is a key lever to support this development of results and behavioural outcomes.

Reward Systems: Consequences Integration


The final point raised by Lawler (1984) is the importance of integrating reward with the other HR systems. We have given several illustrations throughout this module with respect to reward, recruitment, retention, appraisal, development and employee relations. Consistency of style, approach and strategic intent is the key. Reward objectives need to match changing HR objectives over time. Furthermore, the style of implementation is likely to have an impact on employee behaviour and the performance culture of the organisation.

Reward Strategy in Practice


Let us now review some of the practical consequences of these reward decisions, by examining two case studies.

CASE STUDY
This case study takes a controversial look at Reward Strategy. Read the article below, then in no more than 300 words offer your own view of trends in reward strategy, evaluating the proposition that Reward Management interventions do more harm than good. Pay per view, proposing the motion: by John Purcell, (People Management, 3 Feb. 2000) Research into individual performance-related pay (IPRP) in the UK over the past decade has failed to show that such systems have an effect on performance. Instead, the growing conviction is that a pay system can at best have no effect on performance, but, at worst, it will damage competitiveness. In other words, a bad pay system has the potential to do more damage than a good one has to bring benefit. The reality revealed by such research contrasts starkly with the claims made in conference brochures and popular books about the efficacy of new pay systems. This is an important issue. Why, for example, despite the evidence, does the government force IPRP into schools and other parts of the public sector? How can we explain the frequent failure of IPRP to lead to better individual performance, and what are the consequences?

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Most people in receipt of IPRP are in the middle range of performance. We can expect 10 per cent of staff to be in the top-performing bracket and 5 per cent to be in the poor-performer category. The rest, all 85 per cent of them, will get average awards that are similar to the going rate. Most of them have no prospect of getting into the top bracket next year, so the incentive is minimal. We could live with this if the outcome of the pay system were neutral, but often it is negative, costing more than any benefit achieved. In fact, few organisations know how much the pay system costs to run. Not only are there the direct costs of the pay clerk or specialist pay manager; there are also the indirect costs of time spent by line managers in day-to-day management of the system not to mention the amount of time employees spend talking about the inequities of the system. The more complex the pay system, the more it costs to administer and the less likely it is that pay objectives will be met. Take a skills-based pay system studied by my colleague, Annette Cox, in a small engineering company. Here there were eight attributes to be judged by the supervisor, ranging from skills to punctuality and willingness. These eight factors were weighted to produce a pay outcome. Nobody understood it. The fashion is to link pay systems to business objectives, cascaded down. This sounds good until you realise that, according to recent studies, well over half of employees, including some managers, dont know what these objectives are. All control systems distort behaviour that is what they are there for. Unfortunately, if a particular target is chosen, the tendency is to take your eye off other equally important aspects of performance. Line managers are frequently unclear about what targets to set for the coming year for IPRP, and some invent things or focus on pet topics. At a deeper level, the whole idea of linking pay to performance is based on two questionable assumptions. First, it perpetuates the illusion that companies are rational, top-down, directed organisations and that managers have the foresight to know what to do in the forthcoming year. This is the myth of the all-seeing boss. In reality, change is quicker and messier than that. Second, and even more worrying, is the belief that people need incentives to get them to behave in an acceptable way. Employees cannot be trusted, it seems. Economists have a lot to answer for with their assumptions that people will be lazy and self-seeking with guile unless there is a reward carrot (or the stick of unemployment) available. This is the foundation for most economic theories of reward. They never change, despite all the evidence that employees place much more value on non-financial satisfaction and the rewards of a job well done. Complex targets and poor line management administration cause problems with pay systems. Most of these centre on the lack of justice, both procedural and distributive. Once this is challenged, the first casualty is the employees trust in management and the system.

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The problem is that trust is at the heart of high-commitment management. So the damaging effect of a poor pay system spreads throughout the organisation and is likely to reduce commitment. In recent years, emphasis has been placed on the bundle of HR practices that help to drive organisational performance. These typically include job enlargement, greater employee discretion, involvement, relative autonomy and training and development. Combined, these factors are linked to improved performance. Where is pay in this? The Americans believe that at-risk pay" is central, but in the UK the picture is unclear. Stephen Wood, in his study of the ingredients of high-commitment management, found little connection with pay. This type of analysis of HR practices and performance is relatively sophisticated, and not heard of much in smaller firms, or even, it seems, in the Treasury. In these places there is a simple belief in the efficacy of variable pay. The real problem is that managers continue to introduce pay systems as a single-issue initiative, expecting the new pay system to alter behaviour and bring about cultural change. It doesnt, unless supportive behaviour is already in place. By themselves, pay systems do not change organisational culture. They never have. The old adage was that pay systems should be designed to fit organisational contingency. The modern idea, that pay systems can change organisations, is an unfounded, optimistic aspiration. None of this is an argument for never changing pay systems. They all deteriorate over time. Dan Gowler, a famous pay expert of the 1960s and 1970s, told me that no pay system can be effective for more than five years. So there is a need to constantly review pay systems. Just dont expect the change to build trust, commitment and motivation. I am not even against variable pay. But I do worry about the claims made for IPRP, particularly in the light of the time-consuming administration it requires, its complexity and the need to involve line managers. As another pay expert, Michael Armstrong, put it: There is immense scope for getting it wrong. Pay systems, like cameras and computer software, should be designed to be idiot-proof, easily understood, robust and easy and cheap to administer. Opposing the motion: Duncan Brown I agree that reward management interventions often havent had a positive effect on employee trust, motivation and commitment. Reward changes are difficult to implement, are often bad news for staff and are especially dangerous when based on simplistic assumptions about HR strategy and strategic fit. But there are very good reasons why a large proportion of companies are finding they have to change their reward schemes and I strongly believe it is better to intervene than do nothing. In my experience, the problem often lies not in the interventions themselves, but in how these interventions are made. So we should not be throwing the

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baby out with the bath water but rather, be taking steps to make these interventions more motivating and effective. When I started out as a consultant in the mid-1980s we used to do a lot of diagnostic reviews for clients. They produced thick reports with lots of analysis and change options, but often little change resulted. Today, we are in a different climate. The pace of change in economic and product cycles, social and technological developments is ever faster, and pay and reward practices are not isolated from these shifts. Towers Perrins latest study, in the summer, of reward management in 460 organisations across Europe found that 94 per cent had made significant changes in the past three years, and 98 per cent planned further interventions. They are using rewards to reinforce the achievement of business goals, and aligning pay systems with the needs of their changing organisations. This means being less hierarchical and more customer-orientated, team-based and focused on contributions. New ideas are being tried be it sharing all your takings in a day with employees, as Ikea did recently or introducing broad-based share options for employees, like Asda. Companies are looking for competitive advantage through their people. In an economy that is increasingly based on knowledge and service, and in which pay costs can often represent three-quarters of total operating expenditure, companies that do not invest that resource in the most effective way to reinforce their strategy will be overtaken by competitors that do. Take some examples from my work. There was the insurance company that paid its direct sales force through commission on product margins: difficult to change, I agree, when commission is an ingrained and long-standing part of the industry culture and ensures very high payments for high performers. But what about customer service? A disastrous year in the 1990s culminated in it being fined for mis-selling pensions, with commission-based pay schemes being identified as an important contributor. The new chief executive subsequently made it a top priority to reform this pay system, to focus on service and quality. Then there was the water company with 2,000 staff, 98 grades and over 100 separate pay allowances, which meant that water inspectors and technicians were earning over 50,000. It was difficult to change, but would you want to justify it to customers and regulators? So whats the answer? In the Towers Perrin study, 68 per cent of companies that restructured base pay and 84 per cent of those that linked pay and performance reported operating difficulties. These included ineffective employee communications, poor performance management and lack of support from senior management. I believe the solution lies in adopting a much more inclusive and evolutionary approach. As well as considering business strategy, organisational capabilities and long-term goals when we plan and execute our strategic reward
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interventions, we need to place at least as much weight on employees needs and values and the realities of organisational life in the short term. Support from employees and line managers, as research data shows, correlates more strongly with successful changes to reward than technical design variables. There are no quick fixes in reward, no perfect solutions, but there are improvements and genuine gains to be had. So my advice is to keep making the changes where you have to, but think them through carefully, and involve all levels of staff and management in that review process. Thats the route to trust, motivation and commitment in reward. Once changes are made, focus on their operating effectiveness and continue to monitor and improve them against their original goals. Think about how the skills and needs of line managers can be addressed and how the buy-in and genuine sense of involvement of all employees can be enhanced. Compensation and benefits managers might do well to remember Shakespeares advice in Troilus and Cressida: And all for love, and nothing for reward. St John Sandringham sums up the response from the floor The participants, HR specialists from household-name companies, found it difficult to disagree with either of the arguments presented by the researchers. They didnt press the motion to a vote, but there was a unanimous agreement that reward management interventions often are necessary. The consensus was that they need to be appropriate for the goals and culture of each organisation and its staff, rather than being based on simplistic and generalised notions of best practice and human motivation. Don Mackinlay of Cadbury Schweppes summed up the mood, saying: I agree with 98 per cent of what both of you said. Execution is the key. Reward is not the only lever, but you create problems if you dont get it right. You have to work on the whole HR bundle if you want to retain trust and motivate people." The results of John Purcells research and the negative effects of many performance pay systems were widely recognised by the practitioners, but no one could accept that the alternative was to do nothing. If you do nothing you lose the underpaid good performers, said Clive Wright of BOC. Others saw a constant need to re-design their reward systems. For example, Unilever was on a five-year cycle. We have to be seen by employees as responding to the real world and changes in the environment; Brian Dive said. Neil Foulger of Citibank saw the pace of change quickening and the range of attitudes widening. A laissez-faire approach was unacceptable, he said. Performance-related pay systems were being proposed in education and the next step for some firms would be to make even base pay variable. The participants were aware of their own perspective: Asking compensation managers to vote against intervention on pay is like asking turkeys to vote for
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Christmas, said Mark Chamberlain of Reuters. But they were full of ideas for making new reward systems work and explanations of why they often went wrong. No one suggested it was easy. Professor Chris Hendry of City University led the attack on factors that undermined the process: bureaucratic organisations that saw pay as a lever of control, chief executives for whom reward provided a handle, HR managers wanting to draw attention to themselves and consultants that needed a new product Their experience could be summed up as follows.

Do it for the right reasons: cost containment is not one of them. Align your system with the culture of the organisation: bonus
payments to sales people for achieving targets do work, but at other levels they might not be so successful.

Be careful about generalisations: segmenting staff in the way you


segment customers may allow you to target your reward system better.

Look at the whole bundle of rewards not just pay: people leave
because the job is not satisfying or interesting, or because they feel their boss is treating them badly.

Keep it simple.
Many agreed that involvement and communication were the keys to success. Rick Henson described how BOC was using a reward system designed by people from the shopfloor: It may not be very elegant, but there is pressure from the staff to make it work. Stephen Perkins, who is director of the Strategic Remuneration Research Centre and chaired the debate, concluded: There seems to be incredible naivety about reward. We need to think about reward in its broadest sense, and direct engagement with staff creates the right environment. The answer is not as black and white as it might seem.

CASE STUDY FEEDBACK


So what might you have spotted as factors bringing harming effects on staff commitment and support? You might have noted:

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Limited effects on performance; bad design and


implementation will always harm SHRM outcomes.

Low incentivisation for average performers. Organisations need


to think creatively around a range of incentives to avoid this effect.

Poor appreciation of cost effectiveness of incentive schemes; as


we have discussed throughout the module, Personnel needs to be able to evaluate/demonstrate the business case for incentives.

Objectives poorly defined and poorly linked to business


objectives; again Unit 4 stressed the need for a thorough and comprehensive approach to defining and maintaining effective objectives. The article talks about distortion of targets and this is exactly the case made in Unit 4 under the performance pyramid and balanced scorecard discussion, and earlier in this unit in evaluating individual incentive plans.

Rationality and top-down control and trust have been at the


heart of our discussion throughout the module, in relation to the effectiveness of SHRM.

Pay and culture most SHRM practitioners would accept that


viewing pay in isolation is unlikely to change behaviour. In contrast, the more positive arguments are as follows:

The argument that to intervene is better than leaving pay out of


the SHRM equation, may seem a rather limited one unless we accept that to leave pay out is to omit a very wide area of HRM from the challenge of changing employee practices to support business change, where performance is at the heart of the business challenge. This seems defeatist.

The key is to involve staff and align with the culture. This would
appear attractive but not always possible, as we have seen in the case of the best-fit and best practice divide. Clearly reward goes to the heart of the central tension within SHRM, and that is more of a reason to include it within the decision-making framework of SHRM. The conclusion would seem to be that more sophistication is required in reward planning rather than less.

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CASE STUDY
The next case study examines incentives and Employee Value Alignment Now read the article below. Developing interest and commitment to a share option plan incentive was a big step within an international environment unused to such arrangements. How was the success of the scheme explained by the author of the article? The Big Issue. By Arkin Anat, (People Management, 3 February 2000) A 98 per cent take-up for an employee share scheme is remarkable by any standards. In a developing country with no tradition of employee share ownership, this level of participation is extraordinary. Yet Eze Onyenro, head of HR for Reckitt Benckiser in Nigeria, was recently able to tell head office that all but nine of the 450-strong local workforce had signed up to the companys global stock profit plan. There has been a groundswell of interest in the plan in other countries where employee share ownership is virtually unknown. Around 45 per cent of the companys workers in Greece, for example, have signed up almost as many as in the UK, where support for employee share ownership forms a key part of the governments strategy for a stakeholder society. If take-up is a measure of success, weve been phenomenally successful, says Stephen Turley, director, group compensation and benefits, for Reckitt Benckiser, the company formed from the merger of Reckitt & Colman and the German company Benckiser last year. If another measure of success is pressure on us to bring in the plan where we havent yet introduced it, then again its been very successful. That being the case, you might expect Turley to advise other international businesses to roll out employee share schemes of their own. But he urges caution, arguing that no company contemplating a major restructuring should launch what is by definition a long-term benefit. The last thing you want to do is introduce a benefit that says to people we value you and wed like you to save for a three-year period, and then a year later find that the business needs restructuring and employees have to go, he says. Even without the threat of restructuring, an employee share scheme may not be appropriate. A company that wants to keep its administrative burden to a minimum or does not have a clear reason for promoting employee, share ownership should steer well clear, according to Turley. You have to think about what you are trying to achieve and what resources you are prepared to throw at it, he says. Senior managers at Reckitt & Colman knew exactly what they were trying to achieve when, two years before the merger, they decided to extend a long-established UK stock profit plan to the companys operations in the rest of
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the world. The company had historically operated as a collection of largely autonomous national businesses. But success in world markets now calls for a different approach. So, like many of its international competitors, the group began turning itself into a more cohesive global organisation. The stock profit plan provided both a tool for communicating this objective to employees, and one of the means of achieving it. The chief executive asked HR to create something that would facilitate more of a one-company vision, a global glue among all our employees across the world so that we would all move in the same direction and have our eyes on the same global objectives, explains Nigel Williams, global reward manager. Based on the save-as-you-earn model the commonest form of employee share ownership in the UK the plan allows people to save the equivalent of 5 to 250 a month for three years. At the end of that time, they have the choice of either taking their cash or buying stock at a 20 per cent discount of its market price at the launch of the plan. Those who buy stock will have the same voting rights as other shareholders although with the total employee share-holding capped at 2 per cent, there is no possibility of a worker takeover. While the firms employees in the UK save an average of 50 a month, in countries such as Nigeria even the equivalent of 5 represents a huge chunk of the typical employees monthly pay. But this does not seem to have dampened enthusiasm for the scheme. In India, for example, some of those who could not afford the 5 a month have clubbed together with members of their extended families in order to find the money. As Turley points out, this puts a huge onus on senior managers to ensure that the business prospers. Running an employee share scheme that could eventually cover operations in more than 40 countries calls for a level of technical knowledge that few organisations possess in-house. So Reckitt & Colman brought in specialists from Lloyds Bank Registrars to look after the administrative aspects of the scheme, including the processing of application forms. Another external supplier, Bacon & Woodrow, liaises with the relevant authorities in each country to gain clearance for the scheme and ensure that it complies with local regulations. Of course, these regulations vary, which means that the plan has to be modified in some countries. In France, for example, the savings period had to be extended from three to five years to ensure that employees would not have to pay tax on profits from any increase in the share price. Elsewhere, there are laws preventing employees from using the money they have saved through the plan to buy shares in a company listed on a foreign stock exchange. Where such a restriction exists, an alternative known as a stock appreciation right has been developed. This enables the company to gift to its staff shares of equivalent value to the profits they have made during the savings period. Explaining the intricacies of the plan and its local variations has not been an easy task. Turley admits that he and his team underestimated the amount of communication that would be needed. A video and a booklet distributed to every employee in each operation had to be translated into around 20 languages. Team briefings were also used to tell
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people how the plan would work. But the companys head office in Windsor was still inundated with queries from around the world. At times, Williams was receiving around 50 e-mails and faxes a day from local managers who had already been briefed. Other than this investment in communication, the plan has not proved expensive to run. While the centre bears the administrative costs, national businesses foot the bill for legal and tax advice and other costs linked to introducing the scheme. These local costs typically come to around 10,000 a negligible amount for a national subsidiary employing hundreds of people, but an astronomical sum for smaller operations. Since the aim of the scheme was to give every employee the chance to join up, the centre gives financial support to businesses that cannot afford the introductory costs. This happened in Austria, where the company has only four employees all of whom signed up to the plan. Participating employees cannot lose, since even if the companys share price drops, they can still take their cash tax-free at the end of the savings period. But will their employer also benefit? It is early days, as the plan has yet to be introduced in South America and several other parts of the world. But Williams is convinced that, where it is operational, the business is already benefiting, with feedback from Eze Onyenro and other HR managers suggesting that it is a useful recruitment and retention tool. Its harder to say whether the plan is also creating a one-company vision, but Williams hopes that an audit will eventually establish whether it has changed the way participants think about the business. Turley believes that the plan probably has made a difference. I wouldnt go so far as to say that it aligns employees interests with shareholders interests, he says. But it does reinforce the link between what they do in the business and what is happening to it at a global level" Business background: Reckitt Benckiser: Number of employees: 21,500 worldwide (16,500 of whom were formerly Reckitt & Colman employees). History: Formed in December 1999 from the merger of Reckitt & Colman and Benckiser, a largely German-owned business with headquarters in Amsterdam. Main business activities: Manufacture and sale of household cleaning and pharmaceutical products. Brands include Finish, Vanish, Dettol, Disprin and Lemsip. Value: Before the merger, Reckitt & Colman and Benckiser had a combined market capitalisation of 5,360 million. Management: In what has become a reverse takeover, all the top jobs in the new group have gone to people from Benckiser, the smaller partner. The new directors plans for the global stock profit scheme have yet to be announced.

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CASE STUDY FEEDBACK


The success was attributed to an inclusive and evolutionary approach (Process Issues). Business goals and employee needs were at the centre of the partnership. One Company vision was the business objective based around achieving control and cultural alignment. Integration is a key objective.

Conclusions
In concluding this unit let us examine a final case study which draws together some of the issues discussed.

CASE STUDY
Case study MPL Ltd by Angela Bowey, Alan Fowler and Paul Iles (Unit 10 Reward Management B884 Human Resource Strategies, 1992) (For reasons of confidentiality, a pseudonym is used for the company involved, and some inconsequential details have been changed to avoid identification.) MPL Ltd is a UK company involved in publishing and related services with 230 staff and a turnover in 1990 of about 30 million. There are three divisions:

Magazine publishing: MPL publishes two weeklies, a monthly


and a quarterly all broadly in the same specialist field and with a total professional and managerial readership of about 40,000. This is the core of the business, accounting for about 75 per cent of its turnover and 85 per cent of its profits.

Exhibition organising: The company specialises in events in the


same field.

Seminars and conferences: These are also in the same field


sometimes under contract to professional societies, sometimes as direct commercial ventures.

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The exhibition and seminar divisions are roughly equal in scale and together account for the rest of the turnover and profit. The companys business plan anticipates that the magazine division will remain at about its present size, but that the exhibitions and seminar divisions will expand (and improve their profits) until together they account for at least 40 per cent of the turnover. Each of the three divisions can contribute to the others business. The magazines have given the company a good general reputation for quality and expertise in its specialist field. The journals can publicise the other divisions activities, but also draw on the seminars for editorial and news items. Exhibitions can be linked to many of the seminars and conferences. Some professional societies engage MPL for the production of conference reports and papers, the administration of their conferences and the running of exhibitions. MPLs organisational policy is to maintain as flat a structure as possible by keeping the number of managerial or hierarchical levels to four, and to facilitate the interchange of staff between divisions in order to develop a multi-skilled and flexible work force. The structure of the organisation is shown in Figure 5.1.

chief executive

managing editor A

finance director

exhibitions manager

conference manager

marketing director

managing editor B

(2) senior sub-editors

news editor

features editor

art editor

production editor

personal assistant (PA)

sub-editors

reporters

journalists

graphic designers

production assistants

personal assistants to PA

Figure 5.1: Organisational structure at MPL

The company has a mission statement to become the market leader for quality in its field and a defined set of core values. These include:

Technical and professional excellence. A scrupulous regard for the truth in its journalism.

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Closeness to its customers and the cultivation of contacts with


the sectors opinion formers.

The encouragement and development of the employees


talents.

Doing things in style. An efficient but friendly working environment.


There is a system in which the objectives for individual performance are derived from, or are related to, the aims and targets of the company and its divisions. The annual staff appraisal is designed to serve two purposes: 1. setting new objectives and standards, and discussing and assessing performance against previous objectives identifying needs for individual training and career development, and agreeing what supportive action is required.

2.

To meet the organisational objective of building a flexible work force, there is a programme to ensure an interchange of staff between divisions and functions. For example, journalists move between news, features and production: other staff move between marketing, exhibitions and conferences. There are no salary grades staff are on fixed-point salaries, which are reviewed annually against three factors: 1. 2. 3. the retail price index and average earnings index the trends of competitors salaries individual performance.

Salaries for all below the Chief Executive are set, however, within three broad salary bands, which in January 1991 were: 1. 2. 3. operational staff: 8,500 18,500 senior professional/supervisory staff: 17,000 25,000 senior managerial staff: 22,500 38,000.

New staff are recruited into the bands appropriate to their jobs at an individual salary that has regard to:

Their experience and level of knowledge or skill. The external going rate for the type of job. The salaries of existing staff.
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In most cases, recruitment is to some point in the lower half of the relevant salary band. Each year, the company decides on a percentage for a general pay increase. This is based on:

The current and projected rate of inflation. Pay trends among competitors. To a limited extent, the companys financial position.
The policy is to keep pay levels in general about halfway between the median and upper quartile for comparable jobs in the publishing sector. MPL subscribes to a specialist survey service on salaries in order to monitor its pay in comparison with that of other companies. If the company is under financial pressure, cost reductions including redundancies will be effected before pay is held down. Similarly, if the company is doing well, this is reflected in profit bonuses and not by inflating salary levels. Having decided on an average percentage pay increase, this is applied differentially to staff, depending on the annual assessments of performance. These assessments take into account the extent to which specific objectives have been met, and factors such as the quality of relationships with colleagues and customers, effort and initiative. In 1990, the percentage increases for individual staff ranged from 4 per cent (for not wholly satisfactory performance) to 12 per cent (for outstanding performance). MPL believes in stimulating employees interest and commitment to the company. It does this partly by a very thorough information and communication strategy (newsletters, briefing groups) and partly by paying annual profit bonuses. A set percentage of its net profit is committed to these bonus payments. This lump sum is distributed to staff in proportion to their salaries. In 1990 the value of these bonuses ranged from about 750 to over 3000. Should the company make little or no profit (as it did in 1991 because of the recession), bonuses, too, will be much reduced or may disappear. All staff from the most junior to the most senior have exactly the same entitlements to such benefits as holidays and paid leave for sickness. Company cars (provided through a leasing company) are offered to all senior managers and senior professional and supervisory staff at two levels of leasing allowance. Staff wanting a more expensive car than can be provided by the appropriate allowance may choose to top up the company allowance. Operational staff receive cars only when they are needed for their jobs. MPL has recently decided to try offering a degree of individual choice in the provision of four benefits: cars, private medical insurance, life insurance and pensions. The principle is that, relative to an employees salary, the company is prepared to spend x in total on these four benefits. The employee can then choose, within this financial limit. The emphasis each benefit is given is his/her personal choice. In practice, the company is having to limit the degree of choice. For example, it is not possible to switch the whole cost of car leasing to

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additional pension benefit there are complex Inland Revenue and National Insurance issues involved. It has also become evident that limiting choice to these four benefits will not meet every employees needs or expectations. One senior manager has said she needs neither life insurance nor private medical insurance as her husband has excellent family cover from his employer. Also, she does not want a larger car or enhanced pension rights, so can she take the value of the benefits she does not require as an addition to her salary? Issues of this kind had not been resolved by mid 1991.

QUESTIONS:
1. 2. What are the major components of the reward system at MPL? To what extent does the reward strategy reflect the organisational structure? To what extent does the reward strategy integrate with the culture of the organisation? Critically evaluate the reward strategy at MPL

3.

4.

CASE STUDY FEEDBACK


1. Rewards at MPL reflect a mixture of factors from the external market the retail price index and average earnings index, competitors salary trends (as systematically monitored) and individual performance. Salaries are set within three broad salary bands with reference to experience, the going rate, and internal relativities, and within a general percentage pay increase based on inflation rates, competitors trends and the companys financial position. This general increase is applied differentially according to assessments of individual performance against both quantitative and qualitative criteria. The three salary bands selected relate directly to the three organisational levels, and the adoption of one pay structure and equal benefits for all staff facilitates the interchange of staff. The companys aims and core values excellence, contact with customers, and the encouragement and development of individual talent are built into the appraisal criteria, and the encouragement of individual salary rewards strengthens the focus on the individual employee, as does the experimentation with flexible benefits. However, the payment of profit bonuses to all, not just the high performers, helps moderate a purely individual approach and fosters a purposeful, but also friendly and informal working environment. The
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3.

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general approach to the benefits package, which does not for example award longer holidays to managers, may help minimise status differences and reinforce a group feeling. 4. There is, however, a potential weaknesses in the reward system. The salary bands are very wide, and staff doing broadly similar jobs may be paid significantly different salaries. Some of these differences might prove very difficult to justify against a legal claim for equal pay for work of equal value. Only the use of a bias-free, factor-based job evaluation scheme would eliminate that risk. As the company grows, and the number of sensitive salary comparisons increases, a more systematic and demonstrably objective method of setting individual salaries may prove a necessity.

This concludes our review of how reward strategy feeds into the performance management framework, offering us choices and flexibility in the strategic management of people. Figure 5.2 of the reward system illustrates the relationship of the different aspects and objectives of managing reward. The shaded section illustrates the areas necessary to form decisions that will make up a reward strategy and how this integrates with other aspects of the SHRM equation, in particular organisational performance.

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Business strategy

Personnel strategy

Reward strategy

Financial reward process

Performance management processes

Non-financial reward process

Base pay

Employee benefits

Variable pay

Recognition, responsibility, achievement, development, growth

Job evaluation

Pay surveys

Pay structure

Total remuneration Reward system management Improved individual/ team performance Improved organisational effectiveness

Figure 5.2: Reward system.

The diagram in Figure 5.2 is a variant on the SHRM model introduced in Unit 1. It demonstrates the importance of linking and integration at the strategic level and, importantly, horizontally across the HR system: financial reward, performance and non-pay processes. The model demonstrates the links between individuals and groups. It also shows the relationship of reward processes (evaluative surveys) and a holistic strategy built around the varied components: total remuneration, base pay, pay structure benefits and variable pay.

Summary
In this unit we have looked at the strategic issues in the design of reward systems. We have noted the importance that reward systems play in achieving organisational strategic objectives. We have identified different approaches to achieving performance related reward policies, and have examined the different components of the reward policy framework. We have also assessed the impact of external market factors and internal change, and have noted how these influence reward strategy. We have considered several practical applications of these issues through a series of case studies.

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REVIEW ACTIVITY
Question 1 Explain how reward strategies and systems can support the achievement of organisational objectives. Question 2 What would you include within a reward strategy for an organisation? Question 3 Give three examples of how reward strategies can contribute to HR-led change in organisations. Question 4 Explain what we mean by benefit strategy. Give three examples of how benefits can be used strategically. Question 5 Identify how external market forces and internal change may influence reward strategy options.

REVIEW ACTIVITY FEEDBACK


Answer 1 Reward strategies can assist by focusing employee behaviour toward the following goals:

Performance orientated behaviour. Assist recruitment and retention. Support an improvement culture. Assist with merging of organisations. Build commitment to organisations and loyalty. Support structural change delayering/broad banding.
Answer 2

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You could include in your answer Lawlers nine points and the three strategic phases of evaluation/ranking, determining structure and pricing. Answer 3 You should have noted the following:

Performance culture. Commitment culture. Improving organisational flexibility. Supporting improvement/quality enhancement. Supporting organisational assimilation/management.
Answer 4 A benefits strategy explains how benefits can be used to secure commitment, loyalty or assist with engendering commitment through giving greater employee control and choice over their remuneration. The strategic variables are identified by Armstrong & Murliss (1989) and reflect a bundle of benefits that can be used to achieve organisational results and enable appropriate employee behaviour. The examples you may have come up with are as follows:

Enhance recruitment in tight labour markets. Assist retention of key staff. Influence culture change. Support organisational flexibility.
Answer 5 Market forces normally require a review of the internal versus external orientation of person comparison, stimulating a move to performance and incentivisation. However, we have seen certain pressures to improve work life balance as a recruitment and retention strategy. Internal changes have tended to support a shift towards a results orientation, although there is evidence of reward being used to support team based structures and processes.

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References
The Strategic Managing of Human Resources, edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, 2004 (Key text for this module) Armstrong M (1996) Employee Reward People in Organisations, London Institute of Personnel Management Armstrong M. and Murliss H. (1989) Reward Management: a Handbook of Salary Administration, 2nd ed London Institute of Personnel Management. Bowey A, Fowler A and Iles P (1992) Unit 10 Reward Management B884 Human Resource Strategies, Open University Committee on the Financial Aspects of Corporate Governance and Cadbury Committee (1992) Report of the Committee on the Financial Aspects of Corporate Governance: The Code of Best Practice London, Gee Study Group on Directors Remuneration (1995) Directors Remuneration: Report of the Study Group Chaired by Sir Richard Greenbury London, Gee ISBN 1860890121 Income Data Services in the UK (1995) Lawler, EE (1984) Pay and Organisational Development Addison Wesley, quoted in page 174 Employee Research Michael Armstrong IPP 1996. Lawler EE (1984) Strategic Human Resource Management, New York, J. Wiley, 1984 The National Institute of Economics and Social Research (1994)

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LEARNING OUTCOMES
Following the completion of this unit you should be able to:

Evaluate the factors that contribute to establishing learning and


development as a strategic activity.

Recognise the problems of establishing a HRD culture. Explain the role of learning as a strategic process for change within
organisations.

Identify and implement steps to facilitate the creation of learning


organisations and overcome barriers to such creation.

Develop effective learning processes within the overall design of


learning and development activity.

Design effective learning and development strategies. Assess the recent trend towards e-learning in organisations.

Introduction
Learning and development, in the context of organisational development, is probably the area of highest strategic focus in HRM today. The purpose of this unit is to develop a strategic model of learning, development and educational activities within organisations. In today's knowledge economy the attraction, retention and growth of talent is fundamental to achieving competitive advantage and high performance. Organisations pursuing a high-performance culture recognise the criticality of Learning and Development in the context of the development of human capital and organisational capability more generally. It is widely recognised that an organisation's competitive edge and ability to succeed in the future is derived from its intellectual

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assets, and less so from its portfolio of products, services and offerings at any particular time.

READING ACTIVITY
As an excellent introduction to this unit and to appreciate the critical importance of Learning & Development in today's high-performance culture, read the following Accenture research report 'High Performance Workforce Study 2004' at: http://www.accenture.com/NR/rdonlyres/D55AA2A6-850F-4589-AADB-553 C10A7109D/0/Accenture_High_Performance_Workforce_Study_2006_v2.p df

In this unit we shall examine the key processes associated with the learning cycle and the basic ideas of how adults learn in organisations through education, learning and development. We will explore the broader purpose of development processes within organisations. We shall show how individual and collective developmental efforts at all levels can have a positive impact upon business performance and thus demonstrate the value of the investment in human resource development (HRD). This unit will focus upon mapping the inter-related factors that can define strategic HRD. These include:

Developmental activity and its clear relationship with


work activity as organisations recognise that improved performance has a distinct relationship to learning, innovation and creativity.

Embedding learning within the organisations culture The processes and attributes of the learning organisation
as a strategic framework, not only to enhance the skill and expertise of the organisation, but also to support organisational culture change.

The steps that organisations can take to promote learning


and development capability.

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READING ACTIVITY
Please read Chapters 12 and 13 of your key text, The Strategic Managing of Human Resources, Edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, which covers some of the subjects of this unit.

Defining the Purpose of Learning and Development


We need to look first at the purpose of learning and development. Learning and development have been implicit in all the preceding units. Note the contemporary use of the word 'learning' as opposed to 'training' (used a few years ago). The two terms are generally interchangeable, and there may be references to training in some of the older articles contained in this unit. Employees require both formal learning and a self-development orientation to engage in flexible, high performance organisations. This unit will seek to review all the processes of learning and how they integrate together to contribute to developing organisational capabilities. These processes include:

Learning as the formally designed process of staff


development.

Development as the wide range of individual and


collective activities that develop skills and personal abilities.

Vocational and educational training (VET) that continues


the development of knowledge and skill for current and future work. Holistically, these processes make up what we know as human resource development (HRD) defined as any activity contributing to the development of people working for an organisation. The strategic purpose of learning has been defined in four ways: 1. Addressing skills gaps for individuals and organisations. This involves the development of skills for new forms of work organisation, for example, multi-skilling or managerial competence.

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2. 3.

Using HRD as a catalyst for change. This broadens the narrower, vocational perspective of HRD. Using HRD as a basis for competitive advantage in terms of the HRD content and the way it is delivered. This sees HRD as a means of integrating business planning with human capability, from recruitment activity and learning through to longer term career planning, as we saw in Unit 3. Creation of a learning environment as a way of focusing individual learning needs towards organisational learning objectives on a continuous basis. This involves the creation of the so-called learning organisation, where a range of self-development, team-based activities are utilised with the specific intention of enabling the organisation to challenge and improve work processes and outputs.

4.

The next activity helps you to explore and understand these purposes.

ACTIVITY
1. Take some time to define what you understand as the differences between learning, development and education. What examples can you identify under the four strategic purposes of HRM given above? Try to think of at least one for each. For example, addressing skills gaps might mean multi-skilling and training to achieve workforce flexibility.

2.

ACTIVITY FEEDBACK
1. You might have defined the terms in the following ways: Learning (or Training) refers to the methods of acquiring knowledge and skills determined by the employer in order to carry out current and future work. Development is a broader interpretation of any activity that contributes to the development of the person currently working within the organisation. This might include organisational development and cultural change processes brought about by experiential change. Education reflects a broader content and view of employee development over the working environment typified by MBA and

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related business and managerial programmes such as your BA Business Management. This is not work or person specific but environment specific. 2. The second part of this activity might have led you to start developing the learning, development and education equation against the four strategic purposes: Skills gaps: multi-skilling and learning to achieve workforce flexibility; management development to meet skill/attitude changes. Catalyst for change: cultural change programmes (see Unit 8) where organisations seek to change the ways employees think about their organisation; that is, commitment. Achieving competitive advantage: progressive training to cultivate high calibre applicants; advanced career development schemes, including job or career changes, to enhance retention and attraction. Creating learning environments: move away from formal courses to more person-specific development according to need; strategic secondment and projects for self-development; Total Quality Management (TQM) schemes to untap employee knowledge and knowledge dissemination; on-job structured development via coaching, counselling and mentoring schemes to develop the individual.

All these combined activities are aimed at releasing the potential (intangible) assets of the organisation and creating knowledge as a strategic asset. These processes need to be managed if we are to consider HRD strategically, but how do we recognise a strategic approach? Burgoyne (1977) provides a long-standing set of principles for evaluation. An approach to HRD is strategic if it follows these principles:

1. 2. 3.

Investment in VET and HRD contributes to the achievement of organisational objectives. Line managers are actively involved in the diagnosis of training needs and the monitoring of development activities of staff. VET/HRD is linked with other SHRM policies and procedures to achieve horizontal integration, discussed in Units 1 and 3.

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4. 5. 6. 7.

Learning and development is matched to organisational learning objectives and the learner groups. Employees are involved in, and own, the outcomes of the HRD needs analysis. Activities are relevant to their work. Senior managers participate in, and promote, learning activities to establish a learning climate. HRD becomes part of the organisational culture rather than being imposed upon it.

Looking at these principles graphically, Shepherd (1991) offers us a view of the relationship in Figure 6.1.

B U S I N E S S S T R AT E GY
SENIOR MANAGEMENT SUPPORT Principle 6: senior managers promote learning culture Principle 7:VET/HRD align with culture

INVOLVEMENT OF LINE MANAGERS Principle 2: active involvement in diagnosis, planning and monitoring

ALIGNMENT W ITH ORGANISATIONAL OBJECTIVES Principle 1: business impact of VET/HRD demonstrated

V E T and H R D A CT I V I T I E S ( cour ses, event s, assignment s)

MOTIVATION OF TRAINEES Principle 5: shared diagnosis of training need and relevance of programme(s) chosen

QUALITY OF DESIGN AND DELIVERY Principle 4: programmes and processes match learning objectives INTEGRATION W ITH HRM POLICT Principle 3:VET/HRD have continuity with and mutually reinforced by other HRM policies

H U MA N R E S OU R CE S T R AT E GY
recruitment and selection appraisal and assessment reward and recognition career development

Figure 6.1: Shepherds strategic approach to HRD.

Earlier we noted four broad-based HRD purposes of strategic learning and development. Proponents of a strategic approach to HRD suggest that HRD processes are the cement that links SHRM policies and the achievement of business objectives. Strategic HRD (VET vocational and education and training that is applied development to the workforce experience) integrates employee attitudes to support organisational objectives via appropriately designed development

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relevant to employee needs, supported by effective managerial commitment. The target in Figure 6.1 is improved business performance. Through the alignment of development objectives with organisational needs (across four strategic purposes), behavioural skills and knowledge gaps are diagnosed and addressed in an integrated way. Courses, events, and work assignments are regarded as opportunities for development. Development is recognised as being more than courses. Managers and employees recognise the need for investment in qualifying courses (education) and broader developmental activity to address employer and employee needs. One might regard this as a mutuality of learning goals. Involvement, ownership and mutuality of the development equation reflect the wider engagement and integration of employee and employer values. HRD is a central process and the related system to support this includes appraisal, training needs analysis and feedback and transference of learning into the work situation. The wider SHRM processes are central in supporting an environment for learning.

ACTIVITY
What SHRM practices do you think might support a learning environment? Note down at least two.

ACTIVITY FEEDBACK
You might have mentioned:

Induction with recruitment and selection processes this creates a


culture of development.

Appraisal and assessment; appraisal, feedback on performance,


coaching, work targets for job development; feedback for career assessment decisions and development needs, for example, assessment centres for management development.

Reward, focusing on skill development and contribution to


workforce, team and performance enhancement .

Career development, project and secondment experience to


enhance managerial experience.

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Employee relations, participation and involvement; enhance


accountability and scope for experiment in performance improvement.

An alternative model of the strategic approach is the standard provided by the Investors in People (IiP) organisation. The IiP is a government-supported initiative to encourage the voluntary commitment of organisations to an enhanced level of learning and development activity in order to support business objectives. The IiP standard provides a basis for HRD development strategy that has been taken up by many organisations. Organisations that apply for the standard have to be assessed and regularly reviewed to ensure that they continue to meet this standard. The IiP standard has 12 indicators covering principles, planning, action and evaluation. Table 6.1 identifies the indicators and gives examples of evidence from an organisation that it is achieving the particular indicators.

Table 6.1 The IiP Standard Principles Commitment An Investor in People is fully committed to developing its people in order to achieve its aims and objectives. Indicators 1. The organisation is committed to supporting the development of its people. Evidence Top management can describe strategies that they have put in place to support the development of people in order to improve the organisations performance. Managers can describe specific actions that they have taken and are currently taking to support the development of people. People can confirm that the specific strategies and actions described by top management and managers take place. People believe the organisation is genuinely committed to supporting their development.

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Principles

Indicators 2. People are encouraged to improve their own and other peoples performance. 3. People believe their contribution to the organisation is recognised.

Evidence People can give examples of how they have been encouraged to improve their own performance. People can give examples of how they have been encouraged to improve other peoples performance. People can describe how their contribution to the organisation is recognised. People believe that their contribution to the organisation is recognised. People receive appropriate and constructive feedback on a timely and regular basis. Top management can describe strategies that they have put in place to ensure equality of opportunity in the development of people. Managers can describe specific actions that they have taken and are currently taking to ensure equality of opportunity in the development of people. People confirm that the specific strategies and actions described by top management and managers take place and recognise the needs of different groups. People believe the organisation is genuinely committed to ensuring equality of opportunity in the development of people.

4. The organisation is committed to ensuring equality of opportunity in the development of its people.

Planning An Investor in People is clear about its aims and its objectives and what its people need to do to achieve them.

5. The organisation has a plan with clear aims and objectives which are understood by everyone.

The organisation has a plan with clear aims and objectives. People can consistently explain the aims and objectives of the organisation at a level appropriate to their role. Representative groups are consulted about the organisations aims and objectives.

6. The development of people is in line with the organisations aims and objectives.

The organisation has clear priorities that link the development of people to its aims and objectives at organisation, team and individual level. People clearly understand what their development activities should achieve, both for them and the organisation.

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7. People understand how they contribute to achieving the organisations aims and objectives.

People can explain how they contribute to achieving the organisations aims and objectives.

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Principles Action An Investor in People develops its people effectively in order to improve its performance.

Indicators 8. Managers are effective in supporting the development of people.

Evidence The organisation makes sure that managers have the knowledge and skills they need to develop their people. Managers at all levels understand what they need to do to support the development of people. People understand what their manager should be doing to support their development. Managers at all levels can give examples of actions that they have taken and are currently taking to support the development of people. People can describe how their managers are effective in supporting their development.

9. People learn and develop effectively.

People who are new to the organisation, and those new to a job, can confirm that they have received an effective induction. The organisation can show that people learn and develop effectively. People understand why they have undertaken development activities and what they are expected to do as a result. People can give examples of what they have learnt (knowledge, skills and attitude) from development activities. Development is linked to relevant external qualifications or standards (or both), where appropriate.

Evaluation An Investor in People understands the impact of its investment in people on its performance.

10.The development of people improves the performance of the organisation, teams and individuals.

The organisation can show that the development of people has improved the performance of the organisation, teams and individuals.

11.People understand the impact of the development of people on the performance of the organisation, teams and individuals.

Top management understands the overall costs and benefits of the development of people and its impact on performance. People can explain the impact of their development on their performance, and the performance of their team and the organisation as a whole.

12.The organisation gets better at developing its people.

People can give examples of relevant and timely improvements that have been made to development activities.

A U.K. Strategic Model for Staff Development The IiP Standard (April 2000).

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The model is concerned with integrating and embedding training and education policies and processes within organisational life. It emphasises commitment from the top. We would now like you to use these models of the principles behind strategic HRD to review a working example.

CASE STUDY
The next case study concerns a building society. (Note: A building society considers that it performs the function of a bank. One of the key changes discussed is the process of demutualisation, that is, opening up the companys ownership to investors, making the companys performance acceptable to shareholders.) Read the case study question (below the case study) before you proceed to read the article. You may wish to keep the question in mind as you read the article. Hat Trick by Mark Whitehead. (People Management, 29th July 1999, p38 40) Remember the men from the Bradford & Bingley building society? Sturdy bowler-hatted City chaps oozing old-fashioned reliability, Mr Bradford and Mr Bingley were the kind of gentlemen to whom you would be happy to hand over your hard-earned cash. It would be as safe as houses. But the besuited partners were pensioned off not long ago when the society decided it was time to update its image. A combination of circumstances, triggered by the arrival of new chief executive, Christopher Rodrigues in 1996, led to a major upheaval with far-reaching implications for management and staff. At its Bingley head office, in the picturesque Airedale Valley of West Yorkshire, only a few miles from Bradford, and at more than 500 branches and estate agents scattered in towns and cities across the country, change was in the air. Of the UKs building societies most of which date back to the days when industrial workers needed a cheap way to house themselves the Bradford & Bingley is the second largest. And, as its 150th anniversary approaches, things are changing. The bowler hats, for so long the organisations trademark, remain. But now, in a newly-designed logo, they appear as a set of brightly coloured motifs with a somewhat surreal air. The new design says much about how the society now sees itself. In a radical programme of change, middle and top managers have gone through a rigorous development programme aimed at transforming the way the society operates.

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Many of the old core values remain, but new ones are being grafted on to make the whole operation more flexible, dynamic and customer-focused. We needed to do something quite radical, says Margaret Johnson, training design and development manager. Many of our customers treasured our traditional values of reliability and dependability. We knew that they trusted us more than the banks and other financial institutions. But with all sorts of new players arriving on the market we knew we couldnt survive as a traditional building society. We had to develop and modernise our management thinking and the way we operated. The roots of the revolution at the Bradford & Bingley go back to the great liberalising period of the 1980s, when the order of the day was to free up markets and offer consumers more choice. Mortgages, once the virtual monopoly of building societies, started to become available from banks and other financial organisations. As well as buying their baked beans and washing powder, shoppers in supermarkets could access savings and banking facilities. The telephone came into its own, with bank accounts and various other financial services becoming available down the line. Customers wanted quick, easy access to their money and mortgages. But change was some time coming at the Bradford & Bingley. Mr Bradford and Mr Bingleys pride of place in the societys advertising, and their images in its logo, continued until the early 1990s. More recently, the pressure mounted when diversification brought new challenges. The society decided to buy the Black Horse chain of estate agents from Lloyds Bank, and Mortgage Express, a specialist business-to-business operation. The number of Bradford & Bingley high street outlets doubled overnight to more than 500 and a completely new area of work albeit one closely linked to the societys traditional mortgage lending business opened up. Facilitating the smooth merger of the three organisations, so that managers and staff work together to maximum effectiveness, has been a central objective in the development programme. A third major challenge came earlier this year when the societys members voted by a substantial margin to demutualise and re-establish as a commercial company. As was the case at several other building societies before them, the move came in the face of advice to the contrary from the societys board, but the members were seemingly determined to take advantage of the potential windfalls. The final vote will be held next April and managers have accepted that demutualisation is likely to go ahead in about 18 months. All of these events confirmed the wisdom of the decision to call in experts to help managers and staff to deal with the changes ahead. In the first phase of the change process, a brief programme called People First was put into effect three years ago, using a mix of outside consultants and internal HR professionals, to challenge some of the old ways of thinking and prepare the ground for new ideas.
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More recently, two further programmes have pushed the process forward. About 260 middle managers underwent a three-day programme at Henley Management College aimed at developing their leadership skills within a changing organisation. Cranfield Business School was appointed to take responsibility for 76 senior managers in a five-day programme with similar objectives. In devising a seamless programme, consultants from the two institutions worked in partnership with Christopher Rodrigues; John Melo, Bradford & Bingleys HR director; Dawn Beadle, head of organisation development; and Margaret Johnson. Both courses started by examining, in ruthless detail, the context in which the society currently operates. These sessions, entitled Winning in a New World", aimed to reveal what was needed to be successful in todays competitive market place. The workshop sessions then examined the Bradford & Bingley and the way it worked. These sessions included, for example, senior managers explaining some of the societys financial facts and figures that most staff had previously been unaware of. The third and final phase of the programme involved intense scrutiny by individuals of their own strengths and weaknesses and those of their colleagues. This activity was based largely on a process of 360-degree appraisal and the results of Myers-Briggs Type Indicator questionnaires that were filled in by course participants in advance. Rob Davies, a visiting faculty member of Henley Management College and a director of Henley-based Interactive Skills, who helped to devise the courses, says the key to success was to involve people fully in the process. It was clear that it wouldnt work if you waited for the people to decide what needed to change, he says. The key message of the programme was that everyone needed to take responsibility for their own role in dealing with all the new challenges out there. The changes put in train were dramatic and it was to be expected that not everyone would welcome them. Some of our managers who are now in their fifties had been with us since leaving school and had always worked in the same way, Beadle says. It was the biggest change they had ever experienced in their working lives. They were being asked to completely change their orientation. There were three main reactions to the change taking place. Some people pretended that it was not really happening and that it would go away if they ignored it. Others went along with the new ways of thinking, but assumed that they could return to the old ways of working once the courses had finished and the fuss had died down. A third group embraced the change programme enthusiastically. Brian Wilkinson, senior audit manager responsible for the Bradford & Bingleys branches, has seen his role transformed. He had been thinking for some time about his departments function and decided it could do more to support the societys business objectives. Traditionally, the audit team was seen as a group
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of people who descended on a branch once a year, inspected the books and then disappeared. But it now spends about half its time in a consultancy role helping branches to achieve best practice. Wilkinson reasoned that the less time branch staff spend on dealing with errors and discrepancies, the more time they could spend dealing with customers, attracting and retaining new business and improving results. The new strategy quickly won full backing from senior management but, at the time, it was a big step to take. The timing of the Henley course couldnt have been better for me, Wilkinson says. I had been doing a lot of thinking about the role of internal auditing and I wanted to change things. We were seen as the financial police who held back the organisation with constant red tape, but I thought we were there to promote better practice which would in turn benefit the business. Henley helped me with my personal development, he adds. I had to come out of the comfort zone and bring my team with me. It gave me the confidence to do it. I thought I was taking a really big risk, but the more I talked to the organisational development team here and the people at Henley, the more I realised it wasnt such a big gamble. It was simply taking the first step that was difficult. Management structures have also changed. There had been a traditional hierarchy in which every member of staff worked to their line manager and up through a chain of command to the top. But now matrix management in which someone can work for different bosses at different times is more prevalent, particularly in the HR and IT departments. The whole project has been aimed at improving customer service, in line with modern research which shows that attracting and retaining customers has as much to do with the way they are treated as with the quality of the product on offer. Counter productive I went into a branch a couple of years ago with a question about my mortgage, Beadle says. The woman behind the counter went away with it and came back saying she couldnt do anything and that them at head office would sort it out. I nearly died I couldnt believe this was the kind of thing being said to customers. That sort of response would be much less likely now. One of the concrete results of the change programme is that the old divisions have been broken down. Now, head office staff apparently think nothing of contacting colleagues in the offices to discuss ideas, which at one time would have been virtually taboo. The new approach is crystallised in the customer value proposition adopted by the Bradford & Bingley and used as a central motif in the Henley and Cranfield courses. Far more concrete than many vision statements, it says simply: We help and advise our customers to find the right home and the right loan, to save for tomorrow and invest for the future, and to protect their families and possessions
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John Barker, head of the product management and general insurance department, sees the aim of the project as being to get the three newly-merged organisations working together. We had to decide how we were going to start working with these two very different organisations and get the projects to the customer, he says. We had to free ourselves from the straitjacket of saying: Were a building society because thats what weve always been. We had to say: Were a large organisation with a range of products and we have to provide the customers with what they want: It was a case of standing back and seeing ourselves as part of a team Barker found the last couple of days at Cranfield the most useful. We had to look at ourselves as individuals, he says. It was about realising what we were good at and not so good at, and how we could bridge that gap. Some came out as strong thinkers and planners, while others were better at the operational side. It wasnt about everyone being good at everything, but about all working together. It gave me some direction and options about how I could develop my career. One of the positive outcomes, Barker says, is that managers across the three merged businesses have continuing contact, meeting informally and regularly to discuss important issues and working out how best to further the business. This, he believes, is crucial to continuing success. Its not something we would expect to happen naturally, but if we dont, there are competitors out there who will. We now have a fantastic distribution footprint and weve got to make it work. Thats the challenge:

QUESTION:
See if you can identify the principles of strategic HRD at work and the extent to which a range of HRD development processes have been utilised in an integrated way to support the change process. Note these and link them to the Shepherd and IiP models by noting alongside each one the relevant principle number(s) (Shepherd) and IiP indicator(s). We have done one for you as a guide.
HRD Principle Skills gaps are addressed. Shepherd principle 5 IiP 1-3, 5-7

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CASE STUDY FEEDBACK


The case clearly reveals the relationship of HRD to the achievement of strategic change. HRD is used in the following ways:

HRD Principle Skills gaps are addressed. HRD assists with the merger and the alignment of organisational style and culture. The people first programme is an HRD programme to change attitudes and culture and to promote a learning climate. There is formal development of new leadership skills. Winning in the New World is an organisational development programme aimed at performance and attitude change. The 360-degree approach is critical to rich performance feedback and to the evaluation of whether training objectives are met. Individuals take responsibility for own learning and self development. HRD is at the centre of an integrated change effort, which goes beyond formal training activity. There is senior management drive from the top. There is line manager involvement. HRD supports organisational competence development customer value proposition. There is integration with other HR processes: appraisal, organisational structure, audit team, project team, career development.

Shepherd principle 5 7

IiP 1-3, 5-7 8-10, 12

6 and 7

2, 6-9

6 1

1, 9 6-7, 9-12

1, 3, 5-7

2 and 5 Model itself

2, 7, 9 1, 4-5, 8-12

6 6 1 and 3 3

1, 4, 8 8 10,11 6-7, 10-11

We have, thus far, established a broader strategic purpose for HRD that covers formal and more informal continuous processes. We have seen how it requires mutual commitment of resources and personal commitment from both senior management and individual staff. We have also seen how a broad-based planned approach is fundamental to organisational development processes.

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HRD in the context of Organisational Development


To understand the criticality of HRD in a highly competitive global marketplace, it must be set in the context of organisational development. Today there is an increased focus on organisational development in the quest for a high-performance culture. Learning and development is central in this equation. Organisational Development is undertaken to achieve a flexible and creative organisation that constantly seeks to improve and reinvent the way it carries out its business, and serves its customers. As we have noted, a high-performance culture is its goal. Flexibility not only enables an organisation to embrace change, but exploit change in the external environment to organisational advantage. Central to organisational development is integrated working; integrated working through inter-disciplinary teamwork and cross-functional collaboration enabled by new technologies (e.g. IT technologies such as knowledge bases, information and contextual search engines). Such integrated working practices require culture change, and learning is vital in bringing about change. Organisational development has been described by French & Bell (1999) as a long-term effort to improve the organisation's visioning, empowerment, learning and problem-solving processes through the collaborative management of organisational culture. Thus learning is at the very heart of organisational development. To be successful, its people at all levels of the organisation need to understand the criticality of life-long learning, not least, because of the rapidly changing global business environment that we operate in. Furthermore, the adoption of integrated working and knowledge-based practices requires organisation-wide learning; unless the organisation as a whole embraces it, such efforts will fail. If HRD is strategic, it needs to be promoted and embraced at the top and be cascaded to every part of the organisation. In particular, the role and example of management is pivotal. Developing a learning organisation that recognises knowledge as a strategic asset, as we have noted earlier, is no easy task. It often necessitates culture change. To successfully implement a learning culture, it is vital to align performance evaluation and reward processes with organisational learning goals. This is the most successful means of fostering the diffusion of a common corporate learning culture. Refer also to Unit 4 on PMS. To promote learning and development many large corporations have their own learning organisations, corporate universities or corporate business schools. The success of these organisations is highly dependent on how well learning initiatives are aligned to business objectives.

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Leadership and Management Development


We have already highlighted the fact that the role of management is critical in promoting a learning culture. Effective business leadership recognises that it is necessary to be highly focused on capturing the attention of its followers on factors that will change performance. In the learning context, effective communication and role modelling are vital. Role modelling is itself a means of communication. It is a case of actions speaking louder than words. The leader must demonstrate the importance of learning by demonstrating this through his or her own actions and behaviour. Coaching and mentoring are also recognised as critical tools in enhancing performance, learning or facilitating change initiatives. Coaching and mentoring skills are now seen by successful organisations as necessary skills for managers to be truly effective. The business benefits of a "coaching and mentoring culture" include attraction and retention of talent, and the encouragement of employees to think and work better together. Noting the important role of management in organisational learning and development, HRD must also focus on leadership and management development.

READING ACTIVITY
Please read Chapter 13 of your key text, The Strategic Managing of Human Resources, Edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, which covers the subject of developing management capability.

A Problematic View of Strategic HRD


Before moving on we need to take a brief look at the problems that may surround the establishment of a HRD culture. These are:

The wider environment. The evaluation of learning and development. The value placed on HRD by staff.

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The wider environment


As with our previous discussions about SHRM, HRD cannot be entirely divorced from the environmental context. Organisations sit within a national and international context. This external context will be shaped by factors such as the wider value placed upon educational and training by the state, employers and individuals. There will be a need to address deficiencies in each area, and pressures to cut costs. For example, in Britain the voluntary approach to training and development adopted by the state since the 1980s, and largely endorsed by employers, continues to produce relative under-investment when compared with other EU countries. Germany has a partnership model between state, unions and employers, and France imposes a national training levy (tax) on employers to support training. Britains example has placed great emphasis on providing basic support for the unemployed and on selected national shortages such as IT. This places great pressure on employers to provide training, and their priority is often an organisations specific skills rather than broader labour market skills, or to recruit fully trained personnel only, which detracts from the labour market potential. An example of this working out in practice is perhaps the UK rail dispute of 2002, which was in part about a shortage of driver skills. Thus the implications can spill over into labour relations problems. Individual employees have a part to play in taking responsibility for their own learning and not waiting to be trained by their employers. Their priority will often be in core transferable skills or accredited training, which may not be as attractive to their employers. However, over the last ten years we do see evidence of changing priorities in training. Most countries have been attempting to achieve benchmarks of investment in training relating to targets of 2-4% of labour costs or turnover. In the UK and the wider EU, it is becoming increasingly recognised that organisations need, and employees have rights to expect, a minimum of 30 hours or a weeks development per year, to stay updated or to address change in the organisation or the labour market.

The evaluation of learning and development


The cost of learning and development programmes and the ability to evaluate its success has often led organisations to take a short-term view and to see learning and development as a luxury or reward, when the business is generating profits, rather than a strategic process in itself. Strategically-thinking organisations will realise that learning and development is vital to organisational development, competitiveness, growth, market leadership and, in some cases, survival. It is also a key
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factor in employee motivation. However, the evaluation of the effectiveness of the learning and development can be hard to quantify. Generally the business case and effectiveness analysis will be undertaken prior to learning and development initiatives. Strategic organisations will also periodically compare the actual benefits vs. forecast benefits. The key measurements may be improvements in productivity, improvements in quality, increased sales wins, etc. However, a word of caution. Traditionally productivity has been measured at the individual level. But the shift in emphasis to a learning organisation and the promotion of team-based learning and knowledge collaboration, will not necessarily render benefits at the individual level but at a higher business level. Paradigm shifts in profitability can be achieved by the adoption of new business processes, knowledge-based collaboration and re-use of intellectual assets, which have only been made possible by embracing a learning culture by the organisation as a whole. Other quantifiable benefits may include new market sectors or reduced cycle times in sales and other business activities. It should, however, be noted that learning and development is only effective when the curriculum and learning initiative are appropriate and focused to business objectives and current culture. Often the volume of education days, the traditional basic measure of HRD success, does not address individual needs and many of the organisational prescriptions for training and development do not match workforce expectations. The Lucas case study below illustrates this point well.

CASE STUDY
Read the short case study below: The role of training in turnaround In the period 1985-8, Lucas has spent around 40 million per annum on training which was equivalent to about 2.5-3 per cent of its total sales revenue. This expenditure was viewed as an investment in that learning and development was being called on to act as a major agent of change. The in-company consciousness of the key role of training was high. It was not seen as a poor-relation, peripheral activity, but as a potent source of change. The highlights of the contribution made by training in this company are:

Its link with the total strategy comprising marketing, product


engineering, manufacturing systems engineering and business systems.

The highly evident top management commitment to it. Its role in developing and executing the competitive achievement
plans (CAPs) which every business unit is required to have.

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The installation of business and engineering systems into the


SBUs.

The underpinning of business task forces through training on an


essentially project-requirement basis. The Lucas case provides an excellent example of a traditional mainstream company which, in seeking to turn itself around from a loss-making situation, has sought a radical strategic response-part of which has clearly involved a drive to enhance the capabilities and commitment of its human resources through the use of training. And yet the Lucas case is, at the same time, instructive for another reason. Its training provision especially its coherent, business-led analysis of the role of that provision is distinctive for its singularity. Few companies and this includes the rest of the cases involved in this project could claim to match the emphasis upon human resource development, which has been shown by Lucas. But despite this lead position, it has to be said that only a little digging around is required to reveal that the impact, when viewed from the stance of the intended recipients of such provision, is, even in this lead case, often minimal. The approach looks coherent, sophisticated and integrated when presented by senior exponents, but it is often experienced rather differently by shop floor workers and indeed by many middle-level managers. Both groups relate how their own recent training experiences have been few and how the investment in people theme is countermanded by more visible messages of cost cutting and pressure. (Storey 1992: 114, 155)

Question:
Why do you think the approach was not seen as successful by the shop floor staff.

CASE STUDY FEEDBACK


You probably found from the case study that shop floor staff reported that their experiences of training were few. The company also emphasised cost-cutting, thus undermining the message on investment in learning and development. The Lucas case highlights an apparent difference between organisational intentions and practice, and the value placed by staff upon different forms of development, and the consequent reaction to developmental activity. At Lucas,

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training was owned by the company and did not necessarily meet the needs of each individual. We will return to this point later in the unit.

A further consideration is that whilst some state schemes for technician training work well (for example, in Germany) and there is increasing evidence of wider access to management development, professional training and training to support change (for example, in the UK), the pattern is not uniform. Deeks (2001) reports that the CIPD survey of workplace training suggested that three-quarters of all manual staff received little or no structural job related training, despite critical changes to manual work reported widely in public organisations and service industries. The HRD 2001 survey also, more positively, showed that where organisations had chosen to adapt the UK Investors in People (IiP) Standard to support integrated strategic HRD, 90% of survey respondents concluded that:

- ...both the organisational culture and climate for learning


had improved

- a positive correlation could be established between a


learning climate and enhanced organisational performance... The evaluation of training involves asking first whether training is useful to the employees experience or whether it is carried out to satisfy the employers need to demonstrate that training has been carried out and second, whether it meets the employees wider labour market needs. Accredited training has a value outside the organisation.

The value placed on HRD by staff


HRD is not seen neutrally by staff and often it is accepted rather than embraced enthusiastically. Sometimes managers create barriers, as we shall see later, by a failure to motivate trainees with effective and inclusive diagnosis. At other times the failure to allow learning to be transferred into workplace practice leads to low motivation and dilution of the up-skilling and developmental outcomes. There is still a lack of clear evidence of strategic linkage in HRD terms with that of the business. Therefore, strategic outcomes and further long-term commitment to development are hard to achieve. At the end of this unit we will address these issues again when examining steps to promote HRD within organisations.

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Despite these concerns can we find evidence of increased HRD activity? A few indicators in the UK may show positive results. For example, there is evidence that many (over 30,000) organisations have achieved the IiP standard. There is also evidence of increased investment in management development, in particular. Despite such increases in activity, doubts remain as to whether they are strategic in intention. Having looked at some of the problems that surround the establishment of a HRD culture, we now turn to a consideration of how organisations are seeking to embed training, development and education through learning.

The Role of Learning, Strategic HRD and the Learning Organisation Concept
In this part of the unit we explore how organisations learn and the benefits of becoming a learning organisation. We consider the interplay between the structures, cultures and organisational systems that can support learning.

The role of learning


Learning is a central process in achieving an SHRM approach. We have already made the close association between SHRM and change. The process of introducing SHRM results in adaptation of organisational structures and systems, which results in learning about the organisation and its environmental forces and directions. So we can say that through learning, changes will result. The inter-relationship between learning, performance and change can be illustrated as shown in Figure 6.2:

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Learning

SHRM

Performance

Change

Figure 6.2: Inter-relationship between learning, performance and change.

If organisations want to improve performance they need to develop the capacity to change, and learning is essential to this capacity. This diagram revises the central goals of strategic HRM that you saw in Units 1 and 2: the enhancement of performance in turbulent conditions, where change is central and learning is central to the process that facilitates change. SHRM is at the centre of the diagram because it is concerned with delivering the conditions under which learning can take place. Some commentators argue that the management of learning and of performance are closely associated. To explore this we shall look at the following important points:

The concept of the learning organisation. How such a model can be used in the practice of
managing learning and overcoming barriers.

The process of learning, and how it can be designed to


meet the requirements of the integrated approach to learning and change.

The Learning Organisation (LO) concept


One of the most widely used definitions of the LO is provided by Pedler et al (1988). A LO is: an organisation which facilitates the learning of all its members and continuously transforms itself. The key terms that perhaps define LOs are as follows:

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Adaptive learning developing skills in coping,


reflecting and improving, typified by TQM models of continuous improvement. Sometimes this is called single loop learning as described by Argyris and Schon (1978).

Generative Learning perhaps the defining quality of


the LO where organisations develop a capacity to think radically and differently about themselves and their market. They question what they do and attempt to re-define their mission. Argyris and Schon (1978) describe this as double loop learning.

Creative Tension a concept describing how the process


of understanding and diagnosing the present can assist with developing a shared consensus of the future. Another important contributor to the debate is Senge (1990), who focuses on the role and skills of the leader as well as the learning process. He describes the manager as acting in the following ways:

As designer, facilitating learning and not just doing and


acting as a role model.

As teacher, developing the capacity of the team and


individuals to think and act critically and self critically. There is clearly a major challenge here in the SHRM agenda to develop a new view of the skills and competence to manage, as we saw earlier in the unit, if these objectives are to be fulfilled. For the SHRM planner there are some distinct messages to be distilled here, such as:

Organisations need to be designed for development and


self-development.

Learning applies to all levels in the organisation and


learning transfer is critical throughout, between individuals, teams and levels.

Continual change is implied through critical reflection on


performance at the group and individual level, which links to our PMS thinking earlier.

A careful balance is required in allowing individual


creativity and determining organisation led initiatives of change to avoid precluding learning at all levels.

The practice of managing learning


Now let us turn to the practical implications of managing learning and the encapsulation of these practices in the SHRM model. One of the most influential strategic models of the LO is the blueprint provided by

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Pedlar et al (1991). This is shown in Figure 6.3. There are five essential components of a learning organisation, and feeding into these five essentials are eleven processes and structural enablers. For example, a learning approach to strategy and participative policy-making enable the strategy that is the first essential component.

Learning approach to strategy S t r at egy Participative policy making

Information

Formative accounting and control L ook ing in Internal exchange

Reward flexibility

T he L ear ning Company


S t r uct ur es

Enabling structure

Boundary workers as environmental sources L ook ing out Inter-company law

Learning climate L ear ning oppor t unit ies Self development for all

Figure 6.3: Pedlars strategic model of the LO.

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Note the holistic approach to analysing and providing internal resource strategies to deal with, and respond to, the external influences, to provide an integrated approach to learning. Note also the relative absence of learning and development at the formal level within this model and the emphasis now being placed upon working and learning systems in the rebalancing of strategic HRD.

ACTIVITY
Now spend a few moments reviewing the LO blueprint expanded overleaf to include some explanation. Think about an organisation you have either worked for or read about. Spend a few minutes completing a quick diagnosis, scoring each of the eleven characteristics on a scale from 1 to 5, where 1 is low and 5 is high.

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Company regularly takes stock and modifies direction and strategy as appropriate.

Policy and strategy formation structured as learning processes.

All members of the company take part in policy and strategy formation.

Policies are significantly influenced by the views of stakeholders.

2. Participative policy making


Business plans are evolved Commitment to airing differences and working through conflicts. Appraisal and career planning discussions often generate visions that contribute to strategy and policy. Company policies reflect the values of all members, not just those of top management.

1. The learning approach

Managerial acts

Information is used for understanding, not for reward or punishment.

Information technology is used to create databases and communication systems that help everyone understand what is going on.

Systems of accounting, budgeting and reporting are structured to assist learning. Accountants and finance people act as consultants and advisers as well as score-keepers and bean counters. The financial system

Everyone feels part of a department or unit responsible for its own resources. 4. Formative accounting

3. Informating
You can get feedback on how your section or department is doing at any time by pressing a button. We really understand the nature and significance of variation in a system, and interpret data accordingly. Information technology is used to create databases, information and communication systems that help everyone to understand what is going on and to make sound decisions.

Control systems are designed and run to delight their customers.

Departments see each other as customers and suppliers, discuss and come to agreements on quality, cost, delivery.

Each department strives to delight its internal customers and remains aware of the needs of the company as a whole.

The basic assumptions and values underpinning reward systems are explored and shared.

The nature of reward is examined in depth.

6. Reward flexibility
Alternative reward systems are examined, discussed, tried out. Flexible working patterns allow people to make different contributions and draw different rewards. We are all involved in determining the nature and shape of reward systems.

5. Internal exchange
Departments speak freely and candidly with each other, both to challenge and to give help. Managers facilitate communication, negotiation and contracting, rather than exerting top-down control. Departments, sections and units are able to act on their own initiatives.

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Roles and careers are flexibly structured to allow for experimentation, growth and adaptation.

Appraisals are geared more to learning and development than to reward and punishment. Departmental and other boundaries are seen as temporary structures that can flex in response to changes.

It is part of the work of all staff to collect, bring back, and report information about whats going on outside the company.

All meetings in the company regularly include a review of whats going on in 8. Boundary workers our business environment.

7. Enabling structure
We have rules and

We meet regularly with representative groups of customers, suppliers, community members and so on to find out whats important to them. There are systems and procedures for receiving, collating and sharing information from outside the company.

We experiment with new forms of structures

We receive regular intelligence reports on the economy, markets, technological developments, sociopolitical events and world trends and examine how these may affect our business.

We regularly meet with our competitors to share ideas and information.

People from the company go on attachments to our business partners, including suppliers, customers and competitors.

9. Inter-company learning
We participate in joint learning events with our suppliers, customers and other stakeholders. We engage in joint ventures with our suppliers, customers and competitors, to develop new products and markets.

If something goes wrong around here you can expect help, support, and interest in learning lessons from it.

People make time to question their own practice, to analyse, discuss and learn from what happens.

10. Learning climate


There is a general attitude of continuous improvement always trying to learn and do better

We use benchmarking in order to learn from the best practice in other industries.

Differences of all sorts, between young and old, women and men, black and white, etc. are recognized and positively valued as essential to learning and creativity.

When you dont know something, its normal to ask around until you get the required help or information.

11. Self-development People here have There are lots of opportunities, materials and their own selfresources available for learning on an open development access basis around the company. budgets they decide what Self-development resources training and are available to external The exploration of an individuals development they stakeholders. learning needs is the central focus of want, and what to With appropriate guidance people are appraisal and career planning. pay for it. encouraged to take responsibility.

Source: Pedlar M. et al (1991). The Learning Company: A Strategy for Sustainable Development, 2nd edition. McCraw Hill Publishing Company. Pp 26-27.

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ACTIVITY FEEDBACK
Your scoring will be unique to you and the organisation that you have chosen. A score of 40 or more probably denotes that the organisational practices are moving towards a LO. A score of 20 or less suggests either an ad hoc or fragmented approach to learning.

ACTIVITY
The LO concept and practice has attracted criticism. What problems have you found in any organisations that you have worked in or know well, in successfully implementing the LO model? (You may want to look again at the jigsaw in the last activity)

ACTIVITY FEEDBACK
From your work to date you might have noted the following problems:

Managers skills and ability to provide the conditions and support for
learning, for example, providing opportunities for coaching and counselling.

Short-termism and little time spent at work on reflection and


learning, to improve processes.

Willingness of organisational sub-groups to share learning for


self-protection, creating barriers to the sharing of information and knowledge.

Different perceptions of what needs to be learnt or changed; the


absence of consensus.

Ability to learn particularly in generative ways organisations are


often stuck in the past relying on past experience as a guide to best future practice.

Emphasis on incremental versus radical change.


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Organisations are increasingly recognising the importance of


working with customers, suppliers and communities but the extent to which experience and knowledge is personalised and made more widely accessible to organisational members is more variable. Finally, as Lant (1992) notes, the nature and origins of poor strategy formulation and decision-making often limit the impact of organisational learning. Managers are often unwilling or unable to learn, so unlearning paradoxically becomes a key feature of developing operative learning organisations.

More recently, Burgoyne (1999) has responded to criticisms of the LO model by stressing that the key features are:

Companies need to be aware of internal politics and


question existing practices and beliefs.

Managers need to be aware of where the collective


learning process and knowledge reside; in peoples heads, in technology or in archives.

Strategies are required to enable collective learning, and


centralisation may be the answer.

The organisation must create its own development tools. Interests of stakeholders must not be in conflict. Issues of ownership of competence and intellectual
property must be addressed.

Processes are needed to deal with interaction between


tacit and explicit knowledge. Are the difficulties in bringing tacit knowledge to the surface technical or political? The ideas of the LO need to be open to challenge and review. We now need to explore the learning processes that might encourage an organisation to become a learning organisation.

Developing Effective Learning Processes in Organisations


How can the designer of SHRM strategies bring about a shift towards a LO? Once again we are looking for a comprehensive and integrated

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approach that will embrace organisational structures, cultures, decision making, developmental and work-based processes and, within this, contribute to the strategic HRD model we introduced earlier. We shall explore this by looking at:

The design of effective learning activities. The role of the manager. Structure and culture to support learning.

The design of effective learning activities


The success of the design will be a function of the nature of the learner and the match of what has to be learnt with a framework, maximising the effectiveness of learning. We shall briefly review some principles of learning to emphasise the need for flexibility in the learning strategies of organisations. These may be familiar to you from your previous studies. Our starting point is Kolb et al's (1974) learning cycle that focuses on an integrated and planned approach based on experience. The four stages of the cycle are as follows: 1. 2. 3. There is a concrete experience for the learner, a work experience or task performance. The learner observes and reflects upon this experience. Deeper analysis of the implications of the learning allows the formation of abstract concepts and generalisations. There are new ideas.

The learner experiments and applies the new ideas to working experience. This is the central proposition for continuous learning. Honey & Mumford (1982) developed this model by associating with each stage an individual learning style or preference for learning:

The activist (stage 1) learns best by trying something out,


experiencing a new situation, discussing it with others and is often a risk taker. The activists philosophy is Ill try anything once. They enjoy brainstorming and the challenge of new experiences but become bored with longer-term consolidation of experiences.

The reflector (stage 2) is good at analysis and listens to


what other have to say, thinks through new ideas from many different perspectives and discusses them. They collect data, think about it thoroughly before coming to any conclusion, but tend to postpone reaching

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conclusions for as long as possible. Their motto is caution. They enjoy observing other people in action.

The theorist (stage 3) likes to read and learn about


something before trying it out and is good at amassing information in order to develop a theory. Theorists adapt and integrate observations into complex but sound theories. They are logical, tend to be perfectionists and are keen on basic assumptions, principles, theories, models and systems thinking. They tend to be detached and analytical, feeling uncomfortable with subjective judgements.

The pragmatist (stage 4) is less interested in a theory than


in its application in reality. Pragmatists are keen on trying out ideas, theories and techniques, which they actively seek out. They like to get on with things and tend to be impatient with open-ended discussions. They are essentially practical, down-to-earth people who like making decisions and solving problems. They respond to problems and opportunities as a challenge. The task for SHRM is to achieve a learning climate that maximises individual learning habits and the impact of learning activities for individuals.

Goals of Learning
The goal of learning can be depicted as shown in Figure 6.4. The top block of Figure 6.4 represents the purposes of strategic HRM:

Data and information; for example, the basic elements of


costing and budgeting.

Specific skills; for example, the use of computer-aided


design (CAD) packages.

Self-development; for example, in broader project


management roles. The arrow indicates the spectrum from more instrumental categories at the left-hand end to more experiential categories on the right. The boxes then represent some examples of learning across the spectrum, with the bottom layer giving examples of training methods. Generally, organisations are attempting to provide integrated development linked to the goals and needs of both the organisation and the individual. Organisations are increasingly aware of the need for flexibility in learning; that to sustain relevant development and a motivated response, development has to be left more open ended and informal, based more on a discovery approach.
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Basic data and information Situation specific skills Self-development

Basic financial awareness

Behavioural analysis training

Unstructured process workshop

Interview skills

Role negotiation exercise

Operations training

Outdoor development

Mentoring: structured self-development

Lecture syllabus Case study Programmed learning

Behaviour modelling Role plays Business simulations

Action learning Job rotation Gestalt groups

Figure 6.4: Goal of Learning.

The autonomy of learning


Handy (1976) offers a useful summary with his reflection on the relationship of the two policies of learning (instrumental and experiential) and the HRD interaction. See Table 6.1. The instrumental policies are employer/trainer-centred, while the experiential policies are learner-centred.

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Instrumental Presuppositions A body of knowledge to be taught. Emphasis on the subject matter. We are part of a wider system, which is ultimately knowable. Trainer role Trainer is expert. Trainer is responsible for success. Distant trainer-learner relationship. Nature of development Practice deduced from theory and then applied. Emphasis on specific acquisition. Formalised learning methods, which are predetermined. Close-ended assignments with grades and comment. Nature of learning systems High entry standard. Power and control lie with providers. Rate and standard of progress visible and closely monitored. Formal qualifications (and perhaps membership of an elite). Identify leading practitioners.

Experiential Talent, ideas, views to be drawn out. Emphasis on the learner. We evolve our own purpose/identity in an unbounded system. Trainer is facilitator/coach/a resource. Learner is responsible for own development. Close relationship with trainer and other learners. Formulate own concepts and perfect own skills through trial and error. Emphasis on general application to life (and work, if appropriate). Self responsible for learning using resources available. Open-ended experimentation with personal feedback. Entry open and voluntary. Power and control widely dispersed. Pace and direction self-regulated quality of experience is proof of progress. Learning open-ended and ongoing. Honour past students.

Table 6.1: Characteristics of the two policies of learning. Source: based on Handy (1976)

This model demonstrates the shift from traditional teaching, to a learning approach whereby the learner has more control over the selection, pacing and sequencing of learning according to need and experience.

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ACTIVITY
Think of your own career to date. What value have you and your employer(s) placed on training and your own self-development? In your current situation are you responsible for your own learning and development?

The principles of learning that we started with introduced us to the level of control and ownership by the organisation and the learner. The proposition made is twofold. First, that if organisations are to develop the full potential of staff knowledge and skill, then more learning needs to take place and this needs to take place close to the work experience of the learner. Second, organisations need to encourage a comprehensive range of learning activities to fulfil the wider instrumental and experiential purposes of HRD. Learning needs to be top down and bottom up.

The role of the manager


The second factor in the approach to developing effective learning processes is the role of the manager.

CASE STUDY
Read the article below and as you read consider the question of what the key features are that the effective manager needs to consider. How Managers Can Become Developers by Alan Mumford (Personnel Management, June 1993) The manager of a hotel is called from his office. An angry customer has complained to the receptionist that he had been interrupted in his bedroom three times in the space of half an hour by a cleaner, the housekeeper, and someone checking the minibar. The manager takes his new deputy with him an interesting experience for you and they both listen while the customer repeats his complaint. The manager goes through the reasons why three different employees arrived in such a short space of time: It is, of course, part of our policy of providing excellent service. The customer departs, still expressing dissatisfaction.

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The hotel manager and deputy return to the managers room. The manager sits behind his desk, blows out his cheeks and says So how would you have handled him? A great deal of management development occurs in this way. An unplanned experience, a question from one manager to another, a discussion reviewing facts and opinions, a decision about what to do in a similar situation. Potentially these are all the elements of an effective learning cycle. There are some other things we know about this kind of experience. First, managers constantly claim that they learn from such experiences. Secondly, they rarely recognise at the time that they are learning, they think they are simply managing. Thirdly, they may not have been introduced to the idea of a complete process in which the elements of learning are balanced. Finally, and most significant, helpful interventions by the boss are all too rare. There are three main developments in the increasing provision of work-based learning for managers. Although they overlap both chronologically and in terms of content, they have been action learning (Reg Revans), the learning organisation (Peter Senge, Mike Pedler, John Burgoyne, Tom Boydell), and the competency approach (Richard Boyatzis). The shift towards work-based learning has occurred in part because of the powerful intellectual contribution of such people, but an even more important driving factor, perhaps, has been the demands of consumers for valid and relevant development. In fact, the three parts of the theoretical drive towards work-based learning coincides with the accidental reality of informal development stressed in the hotel scenario above. Not only are they all centred on learning from real work, they all demand that management development should succeed in putting life into an old management responsibility. If we accept that managers have a major responsibility for developing those who work with them, all the themes demand a major effort from those managers. In the UK the competency approach adopted through the Management Charter Initiative with its emphasis on applied prior learning or crediting competence will require successful intervention by bosses in a form which has not seriously been tackled in most organisations. The stimulus provided by the theories mentioned above, and the demand from managers for effective help with their development, mean we have to combine three elements to produce an effective management development system: Self-development: A recognition that individuals can learn but are unlikely to be taught, and that the initiative for development often rests with the individual. Organisation-derived development: The development of those systems of formal development beloved of personnel and management development specialists.

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Boss-derived development: Those actions undertaken by a senior manager with others, most frequently around real problems at work. Formal management development systems insist that managers appraise, identify development needs, and provide time and money for people to attend courses. These are valuable and necessary processes through which we try to balance the often frantic pressures at work with more effective and planned attention to performance and development. These formal processes could certainly be improved and extended. The significance of the case I am making can be assessed in at least two ways. If my analysis of the three major current themes of management development is accurate, how far do current formal schemes effectively provide the enhanced role of the boss in developing others? A slightly different form of test could be applied by looking at the resources currently devoted to helping managers to help others to learn. If we add up the days devoted to designing appraisal schemes and to running courses on effective appraisal, and compare that with the time devoted in most organisations to how managers can assist in the development of others, the disproportion is staggering. Some organisations run courses on how to be an effective coach or mentor. Useful though these can be, they all too often give managers the idea that the process of developing others is something which is added on to management as a special activity, not an integral part of the process itself. There are a number of things we have to do to enable managers to develop others more effectively including establishing why it is important, giving them a better understanding of the learning process, and developing the skills involved. The starting point for managers must be the managerial situation which provides the opportunity for development.

A boss arrives in a subordinates office at 8:30am one Tuesday and


says: I have been thinking about that problem with client Y you raised with me. I think it might mean not just a specific problem of that kind but something that runs across several. Why dont we get together for two hours on Friday, review what the issues are and how we might tackle them?

A customer phones with a quality problem arising from a recent


major delivery They want the supplier to send their production manager and quality manager to see the reality of the problem on the customers side.

The production manager decides to take a graduate trainee with


him, saying Keep your eyes open, take notes and we will talk about it afterwards.

A director close to retirement has been given a significant project to


do, and recruits a young man thought to have high potential as the finance departments representative. After the first two meetings of

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the project group the director calls this person in and says: I would just like to talk over some of the things that are happening on the group. How do you think things are going? These examples, like the hotel case with which we began, contain some recognition on the part of the boss (or, in the last case, the mentor) that the work situation offered an opportunity for learning. Unfortunately such examples are relatively rare, and that is why our first concern in helping managers to help others learn must be with helping them to recognise opportunities, and then to use them more effectively. The big 0 Managers and, sadly, some management development advisers think too often in terms of what I call the Big 0: We have this splendid chance for you to move from sales into marketing. Even more to the point: We are moving you to work for Jane Smith instead of John Brown. You will find she is a quite different sort of manager. Presenting individuals with this kind of opportunity is usually better than not providing them with an opportunity at all. However, we need to give much more detailed attention to exactly what kind of learning opportunities are likely to exist within the Big 0. What new experiences will be on offer? What are the differences in the work? Who are the new and different people the younger manager may encounter? The best way to help managers to help others is to get them to start by considering the kind of experiences from which they have learned. The following exercise has the advantage of being both simple and immensely productive: Identify the two most helpful learning experiences you have had, and the two most unhelpful. Once the general ground of learning from experience has been established, it is possible to go to a more specific exercise: Think of an experience of being helped by another manager. What was the experience, and what did the other manager do to help you? It is possible to ask people to do these exercises without any stimulus or suggestion of what they might consider. An alternative or supplementary approach is to give them a list of situations in which a manager can offer assistance to others. The list is lengthy but includes learning from a new project, membership of a task force, confronting difficult colleagues and reviewing completed tasks. The crucial point when helping managers to recognise such opportunities is to get them to consider first the activity or the situation, and not to ask them to think initially about learning opportunities at all. Managers think in terms of activities, not learning opportunities!

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It is often a discovery for managers that things they have considered purely as work activities are learning opportunities as well. Like the Molire character who discovered he had been speaking prose all his life, they can be helped to see what they have always taken to be natural work can be used also as a creative learning opportunity. Our main concern must be to facilitate learning through our understanding of real work in the managers world, rather than attempting to impose separate management development processes. Take the following examples:

A manager does a lot of coaching and counselling informally, finding


it effective and less threatening than to be called into the managers office. They just sit down with someone and say: How is it going? Tell me what you are working on. That gives the people a chance to raise things with the manager without making too big a thing of it.

A factory manager is involved in making the arrangements to close


down his factory over a nine-month period. He arranges a meeting with all his subordinates in a group where they discuss each week what has happened, how their plans are going and what actions need to be taken. Then at the end of it he sets aside 20 minutes to ask what they have all learned from what they have done that week, and whether there is anything they should do differently. The major message we have to convey to managers in helping them to help others is that we are not encouraging them to take up totally new activities. Managers do not talk about coaching much, unless they have been on a coaching course. They talk about problem solving; we should start from there, not from How to be a good coach. However, what we are adding to their normal understanding of their managerial work is an extra dimension, explicitly involving learning. Learning should be drawn out from the managerial experience, not bolted on as a quite different extra. For people fully to get the benefit from that experience they need to understand some concepts and techniques which will help them to learn more effectively. One, the learning cycle, was introduced at the beginning of this article. The factory manager quoted above is engaged in the reviewing stage of the learning cycle. Two important practical points emerge from thinking about this kind of approach. The first is that if you simply suggest to a boss that they ought to lead a learning review, the response is not likely to be favourable unless they have already had some kind of introduction built on their own experience. Even more significant, the idea of a review is very much a managerial concept, not just a learning one. Managers are used to the idea of looking back to see whether things worked out, and if not why not. For most managers most of the time, helping others with learning will mean retrospectively reviewing an experience rather than the prospective planning of learning from a future experience. Of course, we need to encourage the latter, but retrospective analysis is not only more in tune with the way in which managers

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behave in other aspects of their managerial life, it also provides immediate practical examples through which a manager can be encouraged to work. Wrong emphasis Perhaps this is why some formal management development processes have not worked as effectively in the past as we would have liked. We have put too much emphasis on planning ahead, and not enough on enabling managers to use, understand and then build on their past learning experiences. Once managers have been engaged in helping to interpret, re-interpret and better understand their past work experiences, they can be encouraged to help others to go through the same process. Beyond this there lies the rosy future of better identified future learning opportunities. In a sense there is plenty of anecdotal evidence that the kind of approach suggested here can work. Some managers have always given time and attention to the development of their subordinates. The question is not whether some managers do it naturally, but whether we can encourage more managers to do it, equally naturally but with some previous encouragement and thought. My experience on this is hopeful. I find managers are intrigued, stimulated and enjoy the kind of activities described here. Again comparisons can be drawn with appraisal training. All too often this is approached by the management developer with a firmness of purpose only equalled by the unwillingness of managers to participate. The situations and processes described here recognise and build on things which managers are aware of, rather than imposing something which is all too often outside their experience and their sense of commitment. Managers develop others for a variety of reasons. Sometimes the formal system instructs them to do so. Sometimes they expect to reduce problems by increasing the ability of their subordinates to handle problems on their own. Nor should we ignore less self-centred reasons. For at least some of them what I call the principle of reciprocity occurs. Managers like helping to develop others not just because of the direct return in the sense of performance, but because they get a glow of satisfaction from having helped someone. The task of helping managers to develop others does not have to be as difficult as management development systems have seemed to make it, if we base our guidance on using real situations, rather than contriving special management development processes. References Mumford, Alan. Management Development: strategies for action, 1PM, second edition, 1993. Honey, Peter and Mumford, Alan. Manual of learning opportunities, Honey, 1989.

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CASE STUDY FEEDBACK


Mumford offers the following key aspects for managers to consider:

Managers should take advantage of unplanned activity for reflection


and experimentation.

Learning is increasingly based at work and moves from accidental to


planned, yet is informal geared to the individuals actual need.

The lessons from the hotel scenario in the case study: indicate that
work situations offer opportunities for learning.

Managers need to seek out opportunities for learning. Three overlapping processes are self-organisation (the little o),
organisation-derived development and boss-derived development (the big Os). They give comprehensive learning coverage for the LO, but organisations prefer the big Os. More attention needs to be paid to the little os.

Thinking beyond planned/coached activities toward opportunities


controlled from events. There is an important point to be made here about managers roles in enhancing learning. From the work that you did previously on PMS you will have differentiated the role of performance feedback (judging and controlling) with learning-based processes: coaching, more directive and boss driven, and counselling, which encourages self-development and reflection. This sits well with the best practice notion of empowered staff releasing their potential.

Effective manager behaviour to support individual and organisational learning can be summarised as follows. Effective managers:

Draw out the strengths and weaknesses of staff. Reward risk, experimentation and questions. Continuously identify learning opportunities. Devote personal time to coaching and counselling
activities beyond the annual review.

Involve staff in organisation problems. Listen, and encourage staff to implement their own
development needs.

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The third factor in developing effective learning processes is the supporting structures and cultures.

Structures and cultures to support learning


Current management practice shows an interesting trend towards a situation where the formal features of organisations often overlap with attitudinal disposition within the structure. You will have looked at organisational structure in your previous studies in HRM and in Organisational Behaviour. One factor, for example, is the level of flexibility of an organisation in terms of job design.

ACTIVITY
From your knowledge of organisational structure and culture write down at least three of the trends in organisational structure that might, in your view, stimulate an effective learning culture.

ACTIVITY FEEDBACK
You might have included any of the following:

Flexibility: multi-skilling and broadening job design. Flatness; removal of management layers, more control. Empowerment: closer to customers, widening of responsibility
and experimentation.

Cross functional and organisational: teams, supply chain and


enhanced flow of communication, knowledge and learning.

Self-organisation: learning through doing. Lateral communication: opening up vertical and horizontal
sources of information.

Leanness: of business processes; reduction of waste through


learning and reflection, potential for block study increment to generating change.

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Total quality management, quality circles and project activity; special


improvement structures to create, disseminate and apply new knowledge.

Networks: looser vertical and horizontal links between organisations


to share and exploit knowledge and expertise across the value chain: design, produce, supply and distribution.

Most of these structural innovations now require a range of employee behaviour (culture) of which the following are examples:

Empowerment, taking responsibility. Being proactive and responsive. Being flexible and prepared to learn and adapt. Sharing information and knowledge. Generating new ideas, share opinions. Participating. Working beyond contract.
Thus organisational behaviour that goes beyond the role and procedure-based features of traditional bureaucracies is essential to establish an effective learning culture. This is one of the biggest challenges faced by organisations. Having explored the processes that might support the creation of a learning organisation, our next step is to think about the development of a strategic HRD policy.

Developing Strategic HRD Policy


One of the challenges that organisations now face is to recognise the relationship between the visibility and maturity of learning and development and the total environment of HRD within organisations. Let us discuss this in a little more detail using Figure 6.5, which shows three patterns of the development of strategic HRD policy; intermittent, institutional and integrated.

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High Pattern 1 Intermittent Level of visible training and development Pattern 2 Institutional Pattern 3 Integrated

Line manager/employee commitment to development


Figure 6.5: Patterns of development of strategic HRD policy. Source: Mabey C. Salaman G, Storey J. (1992)

High

The strategic management of HRD/VET suggests that the first challenge is to invest in formalised training, such as formal courses, both internal and external, and training day targets; moving from pattern 1 to pattern 2 in the diagram. As line manager commitment increases, so does the visible level of training programmes. This moves the organisation from intermittent, non-strategically aligned activity to institutionalised training, where investment and planning are clearly visible. The second level of challenge is to move the organisation from pattern 2 to 3 where a lot of development work is decentralised and devolved, but still working towards the fulfilment of integrated organisational and individual objectives using a mix of processes, as we discussed earlier in the unit. In the integrated pattern, line manager commitment is at its highest but the visible level of training decreases as people take more responsibility for their learning and development. You may find the HRD audit a useful tool for assessing the current status of training or for planning an HRD strategy. The HRD audit framework can be used to probe more deeply into strategic purpose, into the level of integration of training and learning activities into organisational culture, whether intermittent/fragmentary (pattern 1), institutional/focused (pattern 2) or fully integrated (pattern 3). Note that in the checklist the second pattern has been sub-divided into a more operational, situation-specific pattern (formalised) and a more strategic pattern (focused).

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HRD audit checklist Fragmented Purpose 1 Why is HRD initiated? To address specific problems. No necessary link to organisational goals Seen as a cost; to be cut back or eliminated in hard times To feed wider human resource plans To support wider organisational strategy and decision-making Seen as an investment and departments carry their own developmental budgets Seen as a way of cultivating attitudinal change and leadership to facilitate organisational growth Personal development needs met To contribute to the way the organisation forms and implements its policy HRD is interwoven with everyday experience and financed accordingly A way of creating a mentality whereby each persons business is the whole business A way of tapping individual creativity to enhance innovation, motivation and competitive advantage Formalised Focused Fully Integrated

2 How is HRD funded?

Departments bid from a central training budget

3 How is HRD regarded?

Seen as peripheral rather than central

One of a number of other developments and structural tactics with which it is linked Seen as an essential weapon to stay ahead of competitors

4 What HRD outcomes are expected?

A skills gap plugged

Process 5 When does HRD happen? Training is piecemeal and tactical Training programmes are linked in some way to individual needs HRD is an approach rather than a programme, focusing on individual career structure Wide range of developmental activities designed to meet personal learning goals HRD arises from a network of informal interactions, and is therefore continuous and personal All work activity is HRD, with built-in potential for personal development and organisational learning Everyone, through review, reflection and learning from everyday experiences

6 What does HRD consist of?

Off-the-job crisis-oriented training (often remedial)

On- and off-the-job events, courses and assignments

7 Who participates in HRD?

Those deemed as needing a training course in X

Those selected following competence-base d diagnosis (e.g. following assessment centre)

Self-nomination for HRD and self-development activities

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8 How do they participate?

Attendance on course (often cancelled due to work pressures)

Attendance with learning goals previously established

Involvement in activities, with learning being logged and possibly reviewed with mentor/coach Main responsibility for development lies with line manager

Skills, knowledge and attitude acquired in job role indivisible from HRD Every functional manager is a general manager ... and responsible for their own and others development

9 Who administers HRD?

Trainers (internal or external) deliver; line managers largely uninvolved

Trainers deliver; line manager appraisals feed training system

Programme 10 Where does HRD happen? Training takes place out of the work environment Training mainly off-the-job, with some on-the-job Increasing amount of on-the-job development Everyday experience is reflected on, conclusions drawn and new ideas tested People encouraged to take constructive risks learning is turned into action

11 What does HRD consist of?

Emphasis on courses, especially knowledge based

Knowledge-based, with skill training also emphasised

Greater emphasis on learning as a process, with analysis of mistakes as learning opportunities

12 How is HRD delivered? (a) Style Training is directive using formal delivery methods Trainers deliver in classroom setting Wider range of training styles Generally non-directive unless for acquiring knowledge Trainers adopt a wider role as HR consultants At all levels a ceaseless search to improve things to introduce beneficial change

(b) Staff

Trainers require more skills in a broader range of courses More use of organisation-base d material (e.g. company case studies)

(c) Content

Tendency to use academic tools and techniques

Range of methods includes open/distance learning and self-development programmes

Prevailing culture 13 How is HRD perceived?

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(a) By trainees

Training perceived as a reward at best or a waste of time at worst as helpful development of the individual

Well perceived when experienced as helpful

Organisation felt to benefit through development of the individual.

An invaluable part of the job learning

(b) More widely

Seen as a luxury at best or a waste of money at worst

More sceptical the training system felt to be obsolete or irrelevant to individual/ organisational needs Training success stories rewarded by the organisation

Personal growth valued, particularly its contribution to fulfilling organisations goals

Organisation seen as a learning company, constantly monitoring and learning from its internal and external environment Organisation regarded as a classic training ground by recruits and competitors

14 What value is placed on HRD?

Occasional mention in company publicity, internal journals, recruitment material, etc.

HRD features in organisations statement of goals/mission

Source: Willie, 1990, pp. 85-8

ACTIVITY
You should now try to apply the audit checklist to your own organisation or to one that you know well. What is the current HRD landscape of your chosen organisation?

As we stated above, the IiP Standard (reproduced with the permission of the UK Department of Employment), combining top down commitment, planning, action and evaluation, provides a sound framework for building an organisational HRD strategy. Organisations signing up to the standard are regularly audited and assessed against the criteria. All employees are eligible to be audited in the following broad terms:

Their knowledge of broad organisational goals for


development linked to strategy.

Their ability to show how their own development goals


link into the organisational goal.

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Engagement in the process of development review,


planning and action supported by a knowledgeable and skilled line manager.

Taking part in development activity to a broad target


specified.

Involvement in an evaluation of the effectiveness of the


development activity at individual and team level. These points can be mapped to several points in the audit checklist; the first two to the overall purposes of HRD, the last three to the HRD processes and the last one also to the delivery of HRD. Before we end this unit investigating strategic HRD, we need to include one trend in the role of learning in organisations that may shape the mode of delivery and the processes of learning development in the future. This is the trend towards e-learning.

Trends in Organisational Development & Learning: e-learning


Let us begin with a case study

CASE STUDY
Read the article below, in which Sloman reviews the new platforms for learning, e-learning. E-learning: Forewarned is Forearmed by Martyn Sloman (People Management, 5th April 2001) Readers who know their Old Testament will recall the writing that appeared on the wall at King Belshazzars feast. The message indicated that the Babylonian leader had been weighed in the balance and found wanting and that the days of his kingdom were numbered. Today the writing is on the wall for training professionals. Like the unfortunate Belshazzar, we are being weighed in the balance as the e-learning revolution transforms the context in which we work. Our kingdom may not be obliterated by the Medes and Persians, but the warning is clear: we will not be able to add value to the modern economy and our own organisations unless we develop new ways of thinking and working. Fortunately, many training professionals are already doing just that. Among the organisations I studied while researching my latest book, there are plenty of examples of good practice. Perhaps the most impressive is Motorola
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University, an early adopter of learning technology that is well on the way to making half of the training it delivers available outside the classroom. CERN, the European Organisation for Nuclear Research has chosen a different, but equally appropriate, approach, using bought-in content and e-learning to develop an extended international community. Closer to home, Ernst & Young, my previous employer, recently undertook a significant e-learning pilot using Leap (Learning environment for accelerated performance), a system developed by its US arm. Around 150 UK-based employees registered for a session outlining the firms approach to e-business. The participants accessed the 90-minute training session from their desks through their PCs, using both an intranet address and telephone number. They also had the opportunity to send questions and receive immediate answers through an e-mail facility built into the site. There was a universally positive response to the question: Would you participate in another desktop learning session? All the evidence suggested that the participants saw huge potential in making such tuition instantly available anywhere across the country or even the world. Ernst & Young, like other e-learning pioneers, is a knowledge-based organisation whose staff are comfortable with IT. Other organisations face greater difficulties and many have fallen into the obvious trap of focusing on the functionality of the technology rather than on how people use it. Unfortunately, trainers arent very good at sharing their failures no one has yet offered the sort of conference paper parodied below. So how can they avoid these failures and exploit the tremendous potential of e-learning? A helpful start is to distinguish between what could be described as hard and soft technology. The conference paper you will never see Gareth Holmes is training manager of Lakin Scott Golding, a manufacturing company employing 3,000 people on three sites. In 1999 cost pressures led the company to switch from predominantly classroom-based training to courses delivered through CBT and, later the corporate intranet. The result was chaos. In this session, Holmes will describe how:

- the incompatibility of IT systems and chosen products led to huge


overruns, causing the launch and promotion to be delayed three times;

- many of the soft skill modules available on the system were used
once and found to be both trivial in content and difficult to access;

- a newly established learning cafe rapidly degenerated into a badly


maintained spare meeting room;

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- several concerned managers sent their employees on


unauthorised external courses with a resulting lack of budgetary control. Gareth Holmes, an experienced conference speaker, is soon to establish a consultancy specialising in change management. Gareth Holmes and Lalsin Scott Golding are entirely fictitious. Any resemblance to real individuals or organisations is purely coincidental. Hard technology refers to the information and communication systems the architecture of e-learning. This is concerned, for example, with methods of analysing user behaviour or customising learning programmes to the needs of individual learners. Soft technology is the interaction of the individual with the system. The term shifts the focus away from the system and on to the learner. It is concerned with issues such as the way the learning system relates to other HR activity, especially performance management, and what the system is designed to achieve. Is it, for example, about getting learners to take more responsibility for their own development? Most importantly, soft technology is concerned with learner support both individual support, designed to help learners take maximum advantage of the opportunities now available, and group support, which is directed at communities or networks of learners. So far the debate over the introduction of e-learning has been dominated by hard technology at the expense of soft technology. We have heard a great deal from the IT specialists and the systems providers, but not much from the trainers. As e-learning progresses, we can expect a change of focus. This is good news for training professionals, because they know about learners, and the growing importance of soft technology offers them an attractive future. There is no need for those responsible for training to stare at the new technology like a snake at a mongoose recognising that serious problems lie ahead, but afraid to move. They should have confidence in their own judgement. The critical question facing most corporate training managers is what life will look like if between a fifth and a quarter of training is delivered via IT systems. This question is likely to prompt two immediate responses: first, e-learning will be most effective for the acquisition of knowledge and least effective where interpersonal interactions are needed for learning; and second, e-learning will be effective as part of a systematic approach that also involves the classroom and on-the-job learning. On this basis, the expertise and skills of most training professionals will not lose value; they will instead be deployed in a different context. Training managers will take on an increasingly complex and strategic role that focuses on facilitating a broad range of learning opportunities, determining which combinations of technology best meet the needs of the organisation and developing a learning culture. Job titles will change to reflect these new realities. To some extent this is starting to happen as new titles such as chief learning officer or head of learning are imported from across the Atlantic.

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One part of the training managers traditional role, the monitoring and evaluation of resources, will continue to be critical. But the arrival of e-learning means that time, rather than spend, is becoming the most critical issue. Time for individual learning competes with other organisational demands, and these are constantly growing. Demand for better work-life balance is also increasing, yet the ability of the connected economy to deliver training any time, any place threatens to intrude further into individuals personal time and space. Time, therefore, is likely to become the focus of training evaluation. This does not mean that expenditure on training no longer matters. Investment decisions (increasingly concerned with buying technology-based systems) must of course be analysed rigorously. But e-learning calls for a new type of decision making. The traditional resourcing decision facing training managers was straightforward: courses were costed and budgets set on the basis of these costs. With e-learning, the investment decision is a project decision: an initial investment is required that will lead to ongoing savings. Fortunately, there is considerable experience of such costing in IT departments, and it is to them that training managers must look for guidance. It is not only the training manager who has to heed the writing on the wall. The roles of those who develop and deliver training are also changing. It is possible that three functional specialisms will emerge: design, delivery and learner support. In its 1998 report Models for Learning Technologies, Roles, Competencies and Outputs, the American Society for Training and Development (ASTD) identified eight roles for implementing learning technologies, its term for e-learning. These reflect the emerging functional distinctions. They include the designer, who determines content and learning methods; the implementor, who works with technical staff to provide logistical support; and the instructor, who facilitates learning either in a live broadcast or a high-tech classroom. The first of these roles clearly fits into the design function, while those of implementor and instructor would be part of the delivery function. Then there is the organisational change agent, described in the ASTD report as someone who helps an organisation to adapt to new technology and see its value and benefits This role embraces learner support, the third specialism in the emerging distinction. But it is important to note that thinking and practice among US organisations is far less advanced in the softer areas of learner support than it is among their European counterparts, where a strong tradition of softer interventions gives trainers a real chance to take a leading role. None of this is to say that classroom-based training, the core of the job or consultancy portfolio for many CIPD members, is doomed to extinction. For the smaller training consultancies, traditional delivery methods may even enjoy a renaissance. A standard piece of advice to businesses operating in the new, connected economy is give your product away free; make your money through services. Basic training content could, on this basis, become a commodity with the premium gained from effective customisation of delivery especially in the classroom. Put another way, for small training consultancies,

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the future may lie in high touch (one-to-one or group delivery) rather than high technology. Overall, training professionals need to develop new ways of thinking. For too long the e-learning agenda has been driven by those who created the technical opportunities. It is essential that those who will manage their implementation respond appropriately. The potential gains from doing so are enormous. We can take comfort from the fact that, although the writing is indeed on the wall, our situation is not as dire as King Belshazzars. According to the Old Testament, he was slain on the night of his feast. CERN opens door to virtual classroom There can be few organisations better placed to introduce web-based training than CERN, the European Organisation for Nuclear Research. It was there in the early 1990s that a team headed by Tim Berners-Lee, building on earlier developments in IT, invented the World Wide Web in effect, the publishing arm of the Internet. The 6,000 physicists who share their time between their home universities and CERN are computer-literate and accustomed to learning independently, as are many of the employees in the organisations Geneva headquarters. Yet only a few of the 200 internal training sessions that CERN runs each year in subjects ranging from office administration to software engineering are currently supported by e-learning tools. Because we are a public, non-profit-making organisation, I havent had the resources to promote this activity, says Mick Storr, head of technical training. I decided to make this available and, bit by bit, the highly motivated people are starting to use it and telling their friends. Its spreading by a process of osmosis. While this tentative venture into web-supported technical training relies on content provided by external suppliers, CERN has been working on a second e-learning project that will exploit its own lecture and seminar programme. Developed in collaboration with the University of Michigan, this makes CERN lectures, together with any supporting visual materials used by the lecturers, available online. Ultimately, everyone attending these virtual classroom lectures will be able to watch them in real time and interact with the lecturers. This already happens in some parts of the world, notably Finland. But it is in developing countries, where universities may not have the academic resources that CERN has at its disposal, that this project could have the biggest impact. Storr, who was closely involved in the development of the web, is convinced that electronic learning will take off. One of the best ways that the web can be used is for education and training, he says.

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QUESTION:
Having read the article, note down the positive and negative features of e-learning with respect to developing a comprehensive HRD strategy and learning organisation.

CASE STUDY FEEDBACK


You might have noted down the following: The positive features of e-learning include:

Accessible development. Self-paced learning. Devolved and decentralised learning. Time and space flexibility for learning. Best used and currently used mainly for knowledge acquisition. Learning design skills increase for development. The learner, not the trainer, has control over the pace and timing of
their learning.

Monitoring and evaluation becomes more standardised and explicit


through technology.

Self development emphasised. Growing use of Internet supports wider learning networks.
The negative features of e-learning include:

Control of design centralised and relatively inflexible. Interaction and experiential development not highly focused. Provision of learner support may place increasing line manager
demands over professional trainers.

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Work/life balance may shift as learning time overspend


becomes critical.

It assumes a generic content to meet all needs; one size fits all
approach.

CBT fragmentation and lack of strategic competence focus. Investment is more focused on the technology. IT decisions predominate over the softer learning needs.
The key points to note for the implications for the learning organisation are the inherent learner-centred aspects such as self-paced learning, devolved informal learning and the scope and flexibility of learning within a supporting environment. Self-development and the creation of learner-centred networks are emphasised (boundary working, scanning and so on). The downsides of a fixed curriculum, emphasis on the technology and education/training focus impinges on the broader experiential development needs, introduced alongside the experiential/mature but less visible development agendas. However, the mix of media and flexibility of timing of delivery may create a more flexible and creative approach to formal training and development. The intention of learners has not been directly addressed and many providers now recognise the need for synchronised and asynchronised learning opportunities that add a fourth dimension to computer-based training (CBT)/HRD activity, reducing the time and space divide.

It should be noted that for self-development and e-learning initiatives to be successful in an organisation, individuals should be motivated and encouraged to the see the value and benefits of self-initiated and constant learning. This, in itself, may involve a culture change. It is therefore critical to have management support for e-learning as a vehicle for professional development in the organisation. Unlike the more conventional forms of face-to-face training (where there is an instructor and an assessment of learning on completion), e-learning programmes are self-driven. Thus they add little value, unless the individual is highly motivated and accepts responsibility for learning.

Summary
This unit has attempted to define a broader purpose for HRD, that of providing a clear strategic contribution to the organisation. The emphasis shifts from training toward development. The unit sets down the principles that define HRD and sets them within the wider context of organisational and HR strategy. We have presented
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concepts and practices of the learning organisation as a potential all-embracing approach to individual and organisational learning, and as a way of embedding and raising the profile of HRD in fulfilling the strategic purposes of development. We have discussed the nature and importance of the design of learning activities, and the pivotal role line managers, alongside professional trainers, have in the process. The concluding article on trends in the development of e-learning suggests a further specialisation and polarisation of trainer roles into design, delivery and support aligned to their traditional advisory and diagnostic role of organisational needs. We have introduced a framework for HRD policy developed through the HRM audit checklist and the inclusion of the UK Department of Employment, IiP Standard. This emphasises the centrality of HRD in SHRM and the comprehensive policy-making requirements now needed to support dynamic organisational change. In this, learning is the criteria and the defining process that offers the opportunity of real innovation, creativity and the release of employee capability.

REVIEW ACTIVITY
Question 1 What are the four key purposes of a HRD strategy? Question 2 From your work on the units to date, what are the factors that are demanding closer attention to HRD in organisations? Question 3 What do we mean by the terms adaptive and generative learning in organisations? Question 4 What is a learning organisation? Why might it offer a more strategic approach to HRD? Question 5 How do you define the managers role in supporting learning in organisations? Question 6 Define the three goals of learning. How do they relate to the strategic purpose of HRD?

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Question 7 What sort of organisational structures would you recommend to support a learning organisation? Question 8 Define the key activities that need to take place to support a HRD strategy?

REVIEW ACTIVITY FEEDBACK


Answer 1 The four key purposes of a HRD strategy are:

To address skills gaps for both individuals and organisations. To act as a catalyst for change. To provide a competitive advantage in terms of the content
and delivery of HRD.

To create a learning climate as a way of focusing individual


learning needs towards organisational learning objectives. Answer 2 The factors might include:

Performance: output and upskilling. Competence enhancement. Culture change. Speed of response. Building new work relationship within and between
organisations.

Pace of change. New knowledge.

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Globalisation.
Answer 3 Adaptive learning relates to incremental improvement, building on existing knowledge. It is typified by models of continuous improvement such as TQM. Generative learning relates to transformational processes, where the basic principles are questioned and revised thinking the unthinkable. It could be said to be the defining quality of a learning organisation. Answer 4 Pedlar et al's (1988) definition of a learning organisation is one that facilitates the learning of all its members and continuously transforms itself. The blueprint for such an organisation is contained in the model of the 11 attributes, which reflect a strategic approach:

A learning approach to strategy. Participative policy-making. Information used for understanding. Formative accounting and control. Internal exchange. Reward flexibility. An enabling structure. Boundary workers such as customers and suppliers act as
environmental scanners.

Inter-company learning. A learning climate with help and support when things go wrong. Self-development opportunities for everyone.
Answer 5 Senge (1990) uses terms such as designer and teacher and creative tension. Mumford (1982) offers a more practical list of roles that managers perform to support learning. Effective managers:

Draw out the strengths and weaknesses of staff. Reward risk for experimentation.

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Continuously identify learning opportunities. Devote personal time to coaching and counselling activities
beyond the annual review.

Involve staff in organisation problems. Listen, and encourage staff to aim and implement their own
development needs.

Answer 6 The three goals of learning are the acquisition of knowledge, situation specific skills and self-development. Knowledge and situation specific skills provide competitive advantage, and self-development can create a learning climate and act as a catalyst for change. Answer 7 The structures to support a learning organisation should be:

Flexible, with multi-skilling and broad job design. Cross functional with teams and an enhanced flow of
communication.

Flatter with fewer management layers. Lateral communication to open up vertical and horizontal
sources of information.

Empowering, widening responsibility and getting people closer


to customers.

Lean in terms of the business processes. Include aspects of total quality management, such as quality
circles. Answer 8 The key activities are:

Clear explicit policy linked to business strategies. Commitment from the top of the organisation.

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Clear framework of planning training needs analysis and review


processes, objective setting.

Targets for action at the individual, team and organisational level. Setting clear investment pattern for training, development and
education.

Set clear criteria for allocation and responsibilities. Evaluation at each level to ensure the rate of the investment and the
transfer of learning effectively into workplace practice or knowledge.

References
The Strategic Managing of Human Resources, edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, 2004 (Key text for this module) Argyris C & Schon D (1978) Organisational Learning Reading, MA, Addison-Wesley. Burgoyne J (1999) Manager Learning Development BACIE Journal. Vol. 3 No. 9. Oct. pp. 158-60.) Deeks E (2001) CIPD Survey shows manual staff are poor relations in work placed training People Management 19th April 2001 French,.W. & Bell, C. (1999) Organisational Development Prentice Hall, New Jersey Handy C (1976) Understanding Organisations Harmondsworth, Penguin Honey P & Mumford A (1982) Manual of Learning Styles Janis I.L. (1972) Victims of Groupthink, Boston, Houghton & Mifflin IiP (2000) A UK Strategic Model for Staff Development Kolb D et al (1974) Organisational Psychology: An experiential Approach Prentice Hall, New Jersey Lant J.K. , Milliken F.J. & Batra B. (1992) The Role of Management Learning & Interpretation in Strategic Persistence & Re-orientation: An Empirical Exploration. Strategic Management Journal 13, pp 385 608.

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Mabey C, Salaman G & Storey J (2nd ed.1992) Human Resource Strategy Oxford, Blackwell Mabey C, Salaman G & Storey J (1998) Human Resource Management: a Strategic Introduction Oxford, Blackwell Mumford A. (1980) Making Experiences Pay Maidenhead, McGraw-Hill. Pedler M, Boydell T & Burgoyne J (1988) The Learning Company Maidenhead, McGraw-Hill Pedler M, Burgoyne J &Boydell T (1991) The Learning Company: a Strategy for Sustainable Development London, McGraw-Hill Senge P (1990) The Fifth Discipline: the art and practice of the Learning Organisation London Century Business Shepherd D. (1991) Personnel Assessment, Shepherd Associates. Within B884 HR Strategy. Storey J. (1992) Developments in the management of Human Resources Oxford, Blackwell Willie E. (1990) People Development and Improved Business Performance! Ashridge Management Research Group , August.

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LEARNING OUTCOMES
Following the completion of this unit you should be able to:

Explain the process of developing management strategies and


recognise the constraints and choices available to managers.

Critically evaluate various management styles based upon


individualist and collectivist organisational orientations.

Define and develop effective management strategies within


environments supporting industrial relations (IR), employee relations (ER) and SHRM business contexts.

Explain recent trends in employee relations with respect to the


so-called new industrial relations and partnership approaches.

Assess and develop workable management strategies for employee


relations that can fit an SHRM approach to organisational development and change.

Introduction
Industrial relations in Britain has undergone significant change over the last 20 years. These changes have been less pronounced in Europe but, nevertheless, pressures there have instigated some change. Similarly industrial relations in the US has seen major change, as international barriers brought about by globalisation begin to affect the commercial landscape and industrial base of market economics. In line with the environmental shift, there has been an internal shift in many organisations with respect to HRM as we have seen in the preceding six units. SHRM, where it has been deemed to be practised in a coherent way, sits uncomfortably with the traditional forms of industrial relations. The original proponents of SHRM based upon a corporatist view saw SHRM as an alternative to industrial relations (IR).

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In many cases they attempted either to de-emphasise IR as a strategic variable that dominated boardroom thinking or to introduce the term employee relations (ER) into the agenda as a management-led function rather than a union- or employee-led function. ER was suggested as a more sophisticated and strategy-led approach. This was seen by some managers as the only term that should enter boardroom thinking. It was argued that traditional, adversarial IR, as some would see it, should not be linked to business decisions.

READING ACTIVITY
Please read Chapter 14 of your key text, The Strategic Managing of Human Resources, Edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, which covers some of the subjects of this unit. You may also wish to refer to sections of Chapters 3 and 15.

Terminology in Employee Relations


Let us examine the definitions of Industrial Relations (IR) and Employee Relations (ER) first. The term industrial relations (IR) is normally associated with relations between trade unions representing employees collectively, and employers. These relations involve collective bargaining and collective agreements, which are incorporated into individual contracts of employment. IR is characterised by highly formalised rules and procedures, and formal authority for negotiation and resolving conflict. Some commentators have described this as the institutionalism of conflict and unions as the managers of discontent. Relationships are highly centralised and formalised to overcome low trust workplace relations and to avoid stoppages of work in response to disagreements. Procedures legitimise or allow formalised discussions to take place and work to be uninterrupted. Employers are satisfied that disagreements infrequently lead to work interruption and employees build confidence that their grievances and interests will be properly represented. The relationship of managers and employees is mediated indirectly and each change in expectation is formally discussed and argued or vetoed. Employee relations (ER) is often seen, not so much as a substitute, but as a complementary and improved form of IR. It focuses on equal relationships between managers, union members and non-union employees. The emphasis shifts from a concentration on the collective bargaining process with all its formalisation, to a wider diversity of management-employee relations, which managers would argue
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improves the quality of dialogue and understanding in the workplace. Unions have always supported wider dialogue to improve relations, preferring to retain their role at the organisational level through Joint Consultation, and more recently through works councils. Unions have accepted employers rights to develop direct employee communications, employee involvement and various attempts to develop higher employee commitment and motivation. Initially suspicious that this was a way of by-passing unions and securing productivity gains at their expense, trade unions, particularly those in the private sector who have recognised the need to develop enterprise success for long-term job security, have been willing to support multi-level change in employee relations.

Trends in Employee Relations


Trends in the UK
The 1960s saw a major downfall in relations between employers and trade unions. Faced with labour market skill shortages, union power to negotiate better terms and conditions for employees increased significantly. As the international trading position of Britain worsened, employers attempted to concentrate on wage bargaining tied to productivity increases. By 1969 the number of strikes was at an all-time high of over three thousand with the loss of seven million days per annum (Torrington et al, 2002). Union membership rose steadily though the 1970s and increased to a high point of thirteen million by 1979 (Labour Market Trends) with some industries seeing membership density (the percentage of employees in trade union membership) reach 75% and over. Practitioner and academic opinion suggested that the problem was the absence of formal rules of collective bargaining and the formation of collective agreements at organisational level. The national agreements, for example, in shipbuilding, steel, railways, engineering and so on, worked reasonably well but local bargaining was informal and more chaotic. The 1970s saw relatively little improvement, as European and Japanese economies prospered. By 1972 the number of working days lost through strikes was 24 million, and by 1979, 29 million when we had the winter of discontent. Interestingly, the recipe for the success of ER was rather different. In Europe there was high reliance upon social partnership of union and employers, whereby national and regional agreements regulated not only wages and productivity but also aspects of training in the case of Germany. In Japan, unions were organised at the enterprise level and worked co-operatively with employers focussing on organisational objectives. Britain attempted to emulate a greater sense of formality by trying to make collective agreements legally enforceable as in other

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countries. The Advisory Conciliation and Arbitration Service (ACAS), was introduced to support individual and collective labour management processes. Both employers and unions rejected legal interaction preferring the historical voluntarist approaches. The winter of discontent heralded a major shift during the 1980s in that the Thatcher government was elected on a platform that included doing something about the unions. IR had been at the centre of politics and a major source of conflict in both the public and private sectors; IR was in the hands of politicians. IR was strategic in the sense that it dominated managers ability to organise business. Unions saw it differently, certainly in large industries where they felt that employees required a strong voice and presence to equalise the bargaining power of employers, who were trying to break down significant union influences on output, remove trade group control over work practices and reduce the value of terms and conditions of employment in times of significant retail price inflation. The response of the Thatcher government was to embark upon a widespread programme of privatisation of major industries to allow market forces to regulate labour relations. Economic recession was dealt with by large-scale closures, redundancies and industrial restructuring away from old uncompetitive industries. New service industries and smaller high tech manufacturing businesses replaced them. Union membership declined, as unions found it harder to organise in smaller fragmented industries. Laws protecting trade union rights to strike and organise were restricted. New industries were created where the culture of belonging to trade unions did not exist and unions would argue that employers ruled by fear, in that employees were explicitly or implicitly pressured not to join unions for fear of losing their jobs. Arguably, employers now had more power and choices available to them in the management of people. How would they exercise this power? The 1990s have witnessed a greater polarisation of IR. By 1998, in establishments employing over twenty-five people, 47% had no union members and only 45% recognised trade unions for any form of collective bargaining. Membership had fallen to 7.8 million people (Torrington et al, 2002). Guest (2001) suggested that a distinctive split existed between the public and private sectors. In the former the culture of trade union membership remained high. In the private sector ...management were firmly in the driving seat... (Guest 2001). However, commentators have suggested that in both sectors these figures belie significant changes in the relationships between employers, unions and individual employees. Even where union membership has remained high, management has sought to introduce parallel, or in some cases replacement, ER practices to shift the balance from collectivist to individual employee/management relations, for example, direct communication rather than through representatives. Also there has been a shift in the range of issues that managers have been prepared to discuss with unions.

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The labour government of 1997, through legislation in 1999, has attempted to rebalance management and union relations by allowing collective bargaining to be introduced where the majority of employees choose. Hence, agreements to recognise unions for bargaining have once again grown marginally now that recognition of unions is not a management decision alone. The 1999 legislation is supported by a raft of EU legislation enhancing full-time and part-time employee rights and determining rights to consultation, information and protection where businesses change ownership. The gradual enhancement of the social platform of rights, including the various Human Rights Acts, has significantly influenced the scope for management choice. The 1980s and 1990s saw managers take the lead in responding to market pressure through the greater direction and use of the following to make businesses responsive:

Part-time employment. New technology. New lean working practices. Downsizing. Outsourcing functions. Enhancing flexibility, structurally, in terms of skill
acquisition and cognitively, with respect to flexible mindsets and approaches to learning. All these have diminished union and employee control. Perhaps in the new century the tide is again changing, as union membership shows signs of increasing although nowhere, as yet, to the level of pre-1980. Increasingly EU directives impact employment matters in the UK. These span a number of areas including regulation of working time, equal employee rights for part-time and full-time employees, rights of employees in employment transfers. Additionally the following EU directives are to be implemented in the future:

Horizontal Amending Directive. European Company Statute: Employment Involvement. Equal Treatment in Employment and Occupation. National information and consultation of employees. Amendement of the 1976 directive on equal treatment of
men and women in employment and vocational training. Refer to the following DTI website for further details of the above directives to be implemented:

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http://www.dti.gov.uk/er/europe/directives.htm Recent legislation on employment relations, Employment Act 2002, covers a raft of family-friendly rights, covering increased rights for men and women through new maternity leave, adoption leave, flexible working arrangements for parents etc. The Employment Act 2002 also covers dispute resolution in the workplace, improvements to employment tribunal procedures, including the introduction of an equal pay questionnaire, provisions to implement the Fixed Term Work Directive, a new right to time off work for union learning representatives, work focused interviews for partners of people receiving working-age benefits and some data sharing provisions. HR professionals need to be aware of wide-ranging changes which took effect in 2003/2004:

Employment Equality Regulations (Sexual Orientation,


Religion or Belief).

Mandatory disciplinary and grievance procedures.


(attempt by the Government to drastically reduce applications for unfair dismissal).

New provisions in the Disability Discrimination Act. Conduct of Employment Agencies and Employment
Businesses Regulations 2003.

Occupational stress. Holiday pay as a legal right for all workers.

ACTIVITY
Before continuing, reflect for a moment on your own attitudes to union membership. 1. What do you consider to be the benefits and disadvantages of trade union membership? What is your impression of trade unions?

2.

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ACTIVITY FEEDBACK
a) You might have included some of the following as benefits of trade union membership:

- dissatisfaction/distrust of management intentions - protection from job loss and redundancy - protection from unfair management decisions - a response to pressures by employers to reduce terms and
conditions in response to productivity pressures

- unions provide an important check and balance on employer


power

- membership equalises power in employment relations - provides legal and other employment advice - companies dont represent an employees best interests.
Your list of disadvantages might include:

- unions dont really have the power to stop management


decisions and job losses

- membership is a waste of money they are political lobby


groups not related to work experience.

- it is the success of the company that is most important to


employees and their families they can normally work well with management to get things done

- the company would hold union membership against the employee - some people dont believe in unions; they are very negative to
change and growth. b) The second part of the activity is a matter of your personal opinion but you might like to consider how media coverage influences your choice and value systems. Are unions portrayed positively? What is your reaction to this portrayal? You might like to reflect on whether your reaction would be different under condition of IR and ER work practices.

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Trade unions in the UK have made great efforts in the last 15 years to improve their public image and attractiveness to a society that generally has adopted the spirit of the individual and the customer, community loyalty having widely, although variably, diminished throughout the UK.

ACTIVITY
What attempts have you seen by trade unions to improve their attractiveness for membership and improve their image?

ACTIVITY FEEDBACK
You might have noticed improved services to members in the areas of:

- information - legal advice and support - secondary services such as financial advice and various product
and service discounts

- training provision - womens forums and services.


You might also have noticed improvements in their organisation such as:

- support for training - support for productivity agreements - support for New Industrial Relations see below - support for employer initiatives; ER providing union presence is
maintained

- acceptance of business unionism recent employer support - assistance and support for response to skill shortages and
recruitment problems

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- positive support for European initiatives - co-operative bargaining and support for assistance and external
support.

Trends in the USA


The US Department of Labour acknowledges the wider recognition and acceptance in the USA of the dominance of the universalistic principle for best practice presented through a high performance work system led by a strong management tradition. (Dorrington 1983) However, whilst union membership and density has been in steady decline, there are widespread examples of the so-called managing through partnership, and of unions being involved strategically in the business. Jackson & Schuler (2000) give several examples of union commitment to partnership from the private sector. Using examples of the 28 Fortune 100 Most Admired Companies who recognise unions, they show how Ford, Saturn, AT&T, Xerox and the Eaton Corporation have negotiated worker involvement. Worker involvement has been achieved through quality and efficiency programmes where staff are directly reducing design and engineering costs, absenteeism and grievance procedures, and maintaining improvement in design and manufacturing set-up times. In the case of Ford and several airlines, commitment has been further secured through equity shareholding in exchange for wage concessions. This is described as managing the partnership strategically for business and employer ends. However, a word of caution must be introduced. Jackson & Schuler (2000) go on to illustrate the case of UPS (United Parcel Services) and the Teamsters Union. After 82 years of collaboration, working in a fiercely competitive global service market, the union went on strike in 1997. The issue was the attempt to reduce costs through the reduction of the $1billion company contribution to the employee pension scheme, and the increasing use of cheaper part-time staff to enhance flexibility. This illustrates two issues:

The limits to partnership under global competitive


pressure where interests of employees and organisations differ over, for example, location of production.

One of the central tenets of SHRM is flexibility. Whilst


flexibility can be seen as a central business need, and some might argue that it protects a core workforce, flexibility can be at the heart of breaking the sense of employee commitment if pursued too far. In this way we see flexibility as a potential threat to collaborative and partnership ER.
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Proponents of best fit SHRM might use this as a case for questioning the best practice view of SHRM and continue the rather tenuous relationships IR and ER have within the SHRM paradigm. IR/ER has often been regarded as potentially divisive and therefore acting as a barrier for organisations trying to practise SHRM, where alignment of individual and corporate values is seen as the central issue for integration. Membership of TU suggests commitment to third party organisations and value systems. Nevertheless, collective bargaining eventually resolved the dispute and the parties are again working together at UPS.

European trends
High commitment practices and universalistic approaches to IR have always been less in evidence in Europe. Brewster et al (2000) place most European countries firmly in the contextual paradigm whereby the relationship between managers and employees is strongly influenced by the society in which organisations operate. So we find UK and US models of HRM have undergone significant critique in Europe. Even the HR terminology gives us an insight into the values placed on systems. Flexibility is often regarded as atypical work by the European Commission and vulnerable work by many trade unionists. HRM tends to retain a national ethos rather than organisational ethos. However, European models are under considerable pressure to change, witnessed by recent mass trade union demonstrations in Italy (March 2000) in response to government rather than organisational management pressures. A EU Commission Report (1995) states that high level of labour inflexibility and unemployment are obstacles to growth. Brewster et al (2000) highlight the increasing level of flexible working across Europe, Japan and Australia, particularly in the area of short-term and fixed term working. Only 50% of European workers (CRANET 1999/2000) have full-time permanent jobs. What is the impact upon workplace ER? Brewster et al (2000) highlight the continuing divergence of collective versus individualised communication between Europe and the UK. As we have seen, individualism is one of the key features of a move towards SHRM in most models, even where a collective tradition exists. Brewster et al draw upon the CRANET survey of 1999/2000, which compares individual, written, verbal and collective forms of communication. High levels of collectivism were particularly apparent in Denmark, Netherlands and Scandinavia, where representation channels were still of significance. This is an interesting reflection, as works councils begin to become more important within ER systems. The Brewster et al study provides an important insight into, and offers valuable evidence of how, communications are being used to support changes in the management of ER. Brewster et al offer a view that individual forms of communication can be seen as alternative to, rather

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than replacing, representative channels. We could also add that the amount of management-led communication does not always equate with being effective or valued from the employee perspective. Employees can regard management- dominated media with scepticism. However, a walk around many workplaces reveals a wider diversity of decentralised information about organisational and team performance, which tends to be a matter of employer and management debate on action rather than mediated through trade unions. Before we leave our review of trends in the wider environment of ER, we should note some of the features that distinguish European ER from those in the UK, Japan and US. Most notably, in Europe you find the following:

The importance of state intervention and involvement in


industrial conflict and conflict resolution through compulsory state regulating authority.

A tendency toward strong regional and national trade


union activity over enterprise initiatives.

Wider coverage of collective bargaining for determining


employment contracts.

High levels of trade union density in Scandinavia, Italy


and the southern European states. France and Germany have low density through a significant political presence for trade unions. We will return to trends in employee practices later. What we see in this review of key international models of ER is a number of trends:

In the UK we see a progressive shift away from collective


relations and managers designing active strategies to deal directly with ER, hence the shift from IR to ER. This might be considered conducive to enhancing SHRM practice, however the external legislative environment is once again intervening to re-balance power between unions and management, such that management choices need to be reconsidered as we shall consider later. This can be seen to follow the research findings that some fifteen years of SHRM thinking, reshaping and rethinking has brought about the possibility of new forms of SHRM and ER. We shall develop this later.

Interestingly, in Europe traditionally there has been a


reliance on a strong role for the state at the expense of enterprise management choice. This is still prevalent, yet some pressures in the labour market for flexibility and

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higher performance are bringing about shifts in ER systems.

The US has always been the home of a strong industrial


tradition. This is sustained with traditional SHRM unitary principles prevailing in the private sector organisations in particular. It should be noted that the public sector retains a highly regulated environment supported by trade unions.

ACTIVITY
We have listed the key features of the changing contract of employment below. Alongside each one note what effect, in your view, these features will have on ER. We have done the first one for you as a guide.

Features Organisation: size and the location of work

Effect on management/employee relations or management/union relations Fragmentation of work; less likelihood of joining union and social isolation of employees Home-working and career mobility leads to individualisation of ER

Economic structure: change in industrial base, SME growth

Political and legal context

Social and individual preference: propensity to join unions

Globalisation

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ACTIVITY FEEDBACK
You might have noted the following, which is not an exhaustive list:

Features Organisation: size and the location of work

Effect on management/employee relations or management/union relations Fragmentation of work; less likelihood of joining union and social isolation of employees Home-working and career mobility leads to individualisation of ER

Economic structure: change in industrial base, SME growth

Move to smaller businesses less ability to organise labour Move to smaller number of large global businesses concentration of labour and enhanced employer power Globalisation and internationalisation of union movement Pressure from low cost/low union membership producers to reduce costs

Political and legal context

Support for union and employment rights EU support for social partnership Legal platforms of human and employment rights Union role and EU Government role in securing rights Power of unions within EU and nation states to control multinational companies

Social and individual preference: propensity to join unions

Individualised consumer societies Image and media coverage of unions Organisation of employees across national and virtual boundaries

Globalisation

Multinational corporate dominance (MNC) Increasing business pressures in cost/innovation Power of MNC to shift capital away from union-orientated nation state to low cost producers Pressure to be customer and market responsive puts pressure onto extensive consultation and collective bargaining World Trade Organisation unites the possibility of universal labour and employee rights across trade blocks

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Managing ER
The continuing conceptual problem we are faced with for SHRM is as follows. ER is characterised by an attention to the conflicts of employer/employee interests. It deals with governance and the distribution of power between the parties, as contained within collective agreements and the collective bargaining process. It deals with sanctions and areas where either party can veto the others decision-making power. This is a rather different agenda and intention from that of the SHRM corporate agenda. We will argue below that these tensions always lie beneath the surface, and that consensus has to be earned and legitimised through a combination of effective management practices with respect to ER and may, within the organisational life cycle, require a more collective orientation to secure trust and consensus. We now focus on the management strategies for ER. In this part of the unit we will look at:

Possible perspectives of the management context for


developing strategic ER and the choices that are involved.

Possible models of the management of ER. A holistic view of the strategic framework for managing
ER.

Perspectives and Choices


Storey (1998) uses both a systems and an agency perspective within which to set the management context for developing strategic ER. These perspectives create a set of dependent variables that determine the scope and nature of management choice in ER as determined by the strength or weakness of internal or external forces. For example, occupying a strong legal environmental and societal value system enables organisations to conduct ER at a regional or national level. Multi-national organisations with global products may seek to take a more company-led approach. Figure 7.1 takes the level of analysis further by looking at the internal decision-making framework in response to the strength of trade union, organisation and employee preferences and expectations. Managers must decide whether to take a strategic or planned approach, or attempt to de-emphasise ER as a strategic variable. The decision variables are included within the table. We shall develop these further below.

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Out er Cont ex t Economy and Society I nner Cont ex t Sector Organisational ownership Legal environment

ER practice

Organisational size

Production and labour market, e.g. globalisation

Systems perspective

Outer and inner context

Employment Relation Institution Collective Bargaining Works councils Communication frameworks

Management strategy Conflict resolution and negotiation process Employment Relation Practice

T.U. strategies

Employee expectation

Adapted from Storey, J. (1998) An agencies perspective p.7

Figure 7.1: Managing ER: Systems and Agencies perspectives

Storey (1998) goes on to stress the importance of management choice as a function of the degree of regulation and the source of the procedures and rules to shape that choice.

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Externally determined rules Highly regulated Industrial level, e.g. Germany

Internally determined rules Strong internal collective bargaining, e.g. Ford

Minimally regulated

Minimum terms and conditions, e.g building industry

Consultation Management prerogative, e.g Marks & Spencer, IBM

Table 7.1: ER Decision Variables, Storey (1998, p.8)

ACTIVITY
Imagine that you are in the position of having to make some decisions about the management of ER in an organisation. Spend a few minutes listing the decisions you might have to make.

ACTIVITY FEEDBACK
You might have come up with the following:

Should we recognise trade unions for collective bargaining? Should we channel communication to employees mainly
through the trade union or through direct forms to employees?

How far should we bargain with or consult the trade union? Do we need a distinctive ER strategy to secure commitment of
the stakeholders or can we subsume individual relations within the wider SHRM?

Is a collective as well as an individual ER strategy necessary?

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Do we have the staff with the relevant skills to handle ER effectively?

Possible models of management


Salamon (2000) puts forward three possible management models.

Systems actor
In this model managers seek to maintain stability through a framework of institutions, processes and rules through which the organisation can respond to the environment.

Strategic actor
Management can exercise purposeful discretion or choice in making decision (goals and strategies) in relating IR strategies and business strategies.

Agent of capital
Market laws of the capitalist system constrain management to a view of labour as a factor of production, cost and efficiency. The method of legitimising its authority to the workforce will vary according to market circumstances, for example, direct control, joint determination of rules or responsible autonomy. These models have resonance with our strategic response and fit of SHRM and contingency-based fit given varying market circumstances. For example, management may adopt the following approaches:

If there is high demand for knowledge workers, use an


ER strategy of high involvement and individual orientation. Employees have no need for union protection.

If there is high demand for labour with high flexibility,


use an IR strategy securing commitment through agreement. There may be an alienation risk from flexibility, supporting union membership.

If there is low demand for labour and high employer


vulnerability, employers may attempt union recognition or opt to avoid or reduce recognition.

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These models imply a variable SHRM/ER strategy over time (best fit). Proponents of best practice would advocate the longer-term benefit of partnership and commitment to union and employer through high investment in ER practices to build trust, transparency and confidence in management strategies to deal with market turbulence. This approach is a variant on the new psychological contract debate in Unit 2 where we considered the new deal based upon reduced employment security, whereby commitment is rebuilt around providing support to staff through the transitions. In ER terminology this might mean:

Extensive communication of business results. Mutual obligation to workplace improvement. Enhanced flexibility through training. High consultation in work practice changes. Mutual discussion/negotiation of job terms to support
change. Of course, the choices managers make will be dependent upon the contextual limitations of the wider environment and also on their own preferences: for example, the prevailing leadership style (direction-empowering), market objectives (globalisation, centralisation, decentralisation of barriers to decision making) and the wider beliefs and values about ER. One of the first key strategic decisions organisations often take is whether to recognise trade unions for collective bargaining over the determination of terms and conditions of employment and matters of performance. Use the next activity to focus on the example of the recognition of trade unions.

ACTIVITY
In addition to the traditions, customs and practices of their location, region or nation state, managers are not isolated from their communities and value systems. Managers often believe that unions are a necessary check and balance and provide for equitable relations. Unions, like charities, do good work for vulnerable employees. After all, most managers are employees as well! If you were a manager what might you consider the advantages and disadvantages associated with dealing with trade unions to be?

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ACTIVITY FEEDBACK
Pragmatically, as a manager you might hold the following positive views about unions:

They provide a good basis for easy communication. The union as manager of discontent takes on responsibility of the
manager.

Unions are good at securing commitment from staff. Union-mediated agreements have a strong basis for securing
commitment or consensus in certain labour markets.

Unions solve management problems. Unions ensure fairness.


Managers can argue against unions by saying that they:

Slow down ability to change. Compromise a key area where managers are experts and should
make the decisions.

Make organisations uncompetitive. Are political, with objectives outside of the workplace that do not
always fit with organisational objectives.

Increase bargaining power of staff and increase costs. Reduce legitimate management prerogative as delegated by
shareholders.

Break down effective corporate culture.

However, recurrent themes of the unit and module are that responsibility is more widely spread between stakeholders both inside and outside the organisation. We have discussed the need to embrace a wide network of interests covering community interests (public and private sector), shareholders, suppliers and customers, employee/unions, governments, and the importance of

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self-managing employee teams to secure the availability of core competence. All these necessitate an individual management choice but also an integrated strategy to fit the context as well as organisational strategies. Salamon (2000) suggests that management choice is mediated through three types of rationality. Here Salamon is attempting to determine why and on what basis management might choose to deal with trade unions in a collaborative way as opposed to resisting them. This is central for organisations in deciding whether they wish to develop the strategic approach. We have looked at internal and external pressures influencing strategic choice; now we are looking at the mindset of the managers themselves. The three types of rationality are:

Material interest which is intended to secure


management interests such as cost control.

Moral idealistic values; matters of principles such as


social responsibility. Unions have a legitimate place in the organisation to secure fairness and equity, while managements prerogative is to manage. Technocratic values; policy design to maximise the utility of technology, manufacturing systems and service delivery a pragmatic view. The following activity should help you to clarify your understanding of the management of ER thus far.

CASE STUDY
Read the next article from Legal and General. Keeping Watch Case Study: Legal and General by Digby Jack, David Pottinger and Peter Reilly (People Management, 14 September 2000, p.38-40) To what extent do organisations and employee representatives ever sit down and discuss their motivation for entering a partnership deal? Moreover, how often do organisations review their employee relations, especially if they have made a conscious change to the arrangement? There is a natural tendency to sail along, believing all is well. This is fine until you run into an iceberg. Some organisations are very positive about partnership, seeing it as a practical approach to employee relations that allows management to facilitate organisational change. Other companies would define partnership more in terms of creating a set of shared values and gaining employee commitment to common goals in a way that allows the business to prosper and the workforce to benefit.

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For trade unions, there is the chance to be better informed and more influential on strategic business matters. More specifically, unions have sought to win undertakings from employers on matters such as employment security or training. But there are critics who see partnership as an illusory concept. Those on the left of the political spectrum say it leaves employees unable to defend their interests against the interests of capital. They fear that unions, far from gaining influence, will be co-opted by management into their projects, effectively neutralising any chance of opposition. Critics from the right would argue that partnership hampers managements ability to manage or, as the president of the CBI, Sir Clive Thompson, believes, that it may even provide a Trojan horse through which unions could gain undue influence. The partnership concept does look flimsy whenever an agreement breaks down. Were the recent troubles experienced by the high-profile partnership of Rover and the T&G anticipated, or did they emerge suddenly to the surprise of one or other of the parties? One obvious way of minimising the chances of this happening is to monitor the partnership closely. This is what Legal & General and MSF did in April. The two had first agreed their deal in 1997. All in the same boat The objectives of the partnership agreement between Legal & General and MSF are:

To work together to further the success of the business by enabling a


flexible approach in a time of rapid and continuous change;

To work together in a spirit of mutual confidence, partnership and


co-operation both formally and informally;

To work together to achieve fairness and equality in the treatment of


staff, including transparent pay systems, contractual provisions that encourage equal treatment regardless of age, creed, disability, race or sex, and access to good vocational training and career development. The parties set out to recognise both their differences and their shared interests. They committed themselves to avoiding conflict that would damage the business. MSF accepted managements right to manage. Legal & General acknowledged the unions right to represent its members both collectively and on individual matters of grievance or discipline. In procedural terms, the machinery for collective bargaining was replaced by a joint employment policy forum (JEPF) meeting that would take place every six months. The JEPF was given a wide scope. Subjects up for discussion included business strategy, learning and development, health and safety, reward and equal

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opportunities. Given the importance of pay, the company undertook to provide MSF with market data and to consult on any issues that emerged. The agreement also committed management to give representatives training and facilities that would enable them to perform their union functions properly. Both parties expressed the view that joint communication was the preferred route, but recognised that this would not always be possible. Similarly, there was the intention to use informal methods of dispute resolution and to talk at the earliest possible stage on all matters of mutual interest. Management accepted that it would not always have all the answers. After three years, how did this agreement look? Members of the companys HR team and both full-time and lay union representatives gathered at a specially convened JEPF to review the situation. Peter Reilly from the Institute for Employment Studies was also present as an observer and occasional contributor. The meeting examined why the parties had signed the deal, what problems had arisen and what improvements could be made. In 1997 both sides had got tired of dancing the pavane, as John McCarthy, Legal & Generals HR director, had described the ritual way in which pay rounds were conducted. Little was achieved that could not have been accomplished in half the time. We all felt that this sort of unnecessary verbal fencing discredited everyone involved. Legal & General had seen advantages in having a strong union that could represent staff interests effectively. This would facilitate greater employee flexibility and acceptance of change, which remain key business objectives. In a similar vein, MSF had recognised that a changing world needed a new approach, with different solutions in employee representation. It also had the specific objective of halting a decline in membership. The unions leaders felt that partnership might be a mechanism that would demonstrate the value of trade unionism to employees more effectively. Both the company and union had also been looking beyond the confines of the organisation. Legal & General felt that confirming a partnership agreement would go with the grain of British industrial relations. And there was the prospect of new consultative structures, if the government were to sign up to the European social chapter. In business terms, the proposed stakeholder pensions and partnership at work were seen as compatible concepts. MSF also acknowledged the changing political climate. It felt that being in a partnership arrangement had given it a chance to contribute to the TUCs work on labour relations. The opportunities that partnership offered included:

Increased flexibility, honesty and trust in relationships. Better-quality, faster decision-making.

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Decisions that were more likely to be readily accepted within the


company.

Positive public relations. A rebranding of the union to attract new members. Having the right people focused on the right issues. The development of an adult relationship in which company and
union could move in the same direction. There were difficulties to be faced in the review. One key issue identified was that not all managers seemed to understand what partnership meant. This presented itself as failures to involve union representatives in employment matters, or of being reluctant to give them time off work to carry out their duties. And some managers, rather than encouraging union membership, were hostile to it. There were problems too with the union representatives. A partnership role was more demanding of them in terms of knowledge and skills. Were all of the representatives able to meet this challenge, even after training? If they werent, the inequality in expertise between them and managers could undermine the relationship and cause both parties to retreat to their entrenched positions. There were also concerns about the views of employees. On the one hand, MSF didnt like the idea of freeloaders non-members who would enjoy the benefits without paying the subscription fees. But there were also those who complained that the union was too close to management and that there was a lack of bite in negotiations now that traditional bargaining had gone. Looking to the future, some anxieties were expressed over whether the partnership would be able to handle big strategic changes such as a takeover or major downsizing programme. Equally unresolved was whether their arrangements would remain compatible with any new legislative imperatives on consultation and communication. Both parties were confident, though, that if an exceptional situation were to arise, the relationship established through the partnership deal would provide an excellent platform for immediate, high-level discussions. Although specific problems were difficult to anticipate, the partners would not be starting off from a defensive or adversarial position. All parties agreed that training was an obvious place to start in order to strengthen the relationship. A significant investment had already been made, but it was thought that improvement could come from:

Undertaking more joint management and representative training. Working harder on business awareness for MSF representatives. Ensuring that both managers and union representatives understood
the meaning of partnership, the behaviour that was associated with it
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(even supporting this by incorporating accountability for partnership values into managers key responsibilities), and MSFs role.

Including partnership as a specific element in all management


induction and development programmes. There was an acceptance that symbols were important in the public arena. Were employees sufficiently aware of partnership and its benefits? Were management and the union selling the idea effectively? Ways of increasing the visibility of the partnership included creating displays on office notice boards with pictures of representatives, statements of principle, details of successes and so on. Induction packs could similarly have promotional material enclosed about the partnership deal. Company and union newspapers could feature how it had helped to deliver business objectives. Using the term partnership in the title of the JEPF would be another potentially symbolic act. Everyone felt that more could be done outside the organisation to promote partnership. For example, appearing together at conferences and writing articles including this one would give a public show of commitment. And both parties could be more active in discussions within the TUC and employer bodies on the virtues of partnership. It might even become a selling point when Legal & General was pitching for business. The review team also looked at ways of strengthening MSF membership and representation. One suggestion was that the company should issue a statement strongly recommending that all staff join the union. Another was that someone should be seconded to lead a recruitment drive and develop the union representatives recruiting skills. The company could also signal that acting as a union representative would be viewed as an individual development activity. The role could be recognised by including it in representatives job descriptions. Even so, the team understood that the company could go only so far down the path of encouraging membership before intruding into areas that were the preserve of the union. Fears that partnership might lead to co-option to the management agenda would be strengthened if there was the merest suggestion that management was recruiting or appraising the performance of representatives. Lastly, the team discussed how the success of the partnership agreement could be monitored in future. Suggestions included testing employee opinion through the use of surveys or focus groups, or by agreeing a yardstick that might indicate the level of success for example, MSF membership levels or the number of disputes or grievances. Although the group spent time on improving the institutional workings of the agreement, we felt that, more than anything else, partnership would live or die by the attitudes of everyone involved. As one union representative said during the meeting: Management has got to start thinking staff and the union has got

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to start thinking business. This seems to encapsulate exactly what social partnership is all about.

QUESTIONS:
1. How far were the management models mentioned earlier fulfilled (systems actor, strategic actor and agent of capital)? Which of these models seem most prevalent? (This, you may recall, was the extent of the choice managers choose to exert in managing ER and the extent to which they include market control in their approach.) 2. What, in your view are the advantages and disadvantages of a partnership approach?

CASE STUDY FEEDBACK


1. Systems actor Through the joint partnership agreement, management and unions were seeking actively to create stable employee relations through a set of rules and procedures:

- joint employment policy forum with carefully defined


procedures to replace collective bargaining

- clear definition of responsibility to consult, inform and


negotiate

- clear focus on business agenda - clear roles and responsibilities defined through joint training - ER supports response to change in the political, economic and
social environment. Strategic actor Management demonstrates a purposeful set of choices to raise the profile and strategic value of ER based upon a set of values: integrity, trust, right/responsibilities and a balance between individualism and collectivism. ER is not left to a cycle of power and coercion depending

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upon the economic or market conditions alone. There is a clear strategy based upon synthesis and values. Agent of capital Management has to be guided by the model and ensure that the ER systems are responsive to business objectives. However, market circumstances are considered to be addressed better through partnership than through adversarial options. 2. The advantages of partnership here seem to be demonstrated in the expectations and opportunities presented. In short, it holds out the prospect of a more collaborative, unitary and best practice approach to SHRM, where employee/union member values are brought more closely into alignment. However, it is about developing effective relationships over time. The risks are clear from the case study and may be summarised as follows:

- emasculation of unions; their inability to offer effective


representation once they are included within management processes and functions

- market pressures will eventually break the trust between


employer and employee, and provide an opportunity to allow unions to gain influence of employees and use their collective power at the expense of the management prerogative the Trojan horse syndrome

- widespread understanding of the philosophy of


partnership and how it works in practice-consistent commitment across all members and managers

- tension/tolerance of union and non-union members in


partnership agreement. (Note: employees in the UK have a legal right to join or not to join a trade union.)

- business issues outside the control of original parties to


the agreement (agent of capital) quoted as downsizing, take-overs

- breaking down the culture of deference and opposition


between managers and employees.

We need to explore the concept of partnership further.

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ACTIVITY
Below are listed the principal features of partnership. Refer back to the article in the last case study, re-reading it if necessary, and note down how these features of partnership were fulfilled in the context of the model introduced earlier in the unit. Success of the enterprise Building trust and greater employee involvement Recognising the legitimate role of partners Employee security-company flexibility Sharing success Informing and consulting staff Representation of employee interests

ACTIVITY FEEDBACK
You may have noticed the following: Success of the enterprise

- subjects broadened at the JEPF - acceptance of change - clearer focus on business objectives.
Building trust and greater employee involvement

- opportunities offered by partnership - trust through better information, training and assistance to adapt - positive public relations.

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Recognising the legitimate role of partners

- collective bargaining to joint employment policy forum - monitoring the agreement jointly - a form of HR evaluation survey of opinion.
Employee security-company flexibility

- employee flexibility and willingness/confidence to change - business awareness forming - high level union involvement in company strategy to reduce
insecurity Sharing success

- acceptance of change - better recognition of management decisions - faster decision-making - more staff involvement and control.
Informing and consulting staff

- new consultation structure arising from European Social


Charter

- careful preparation of expectations and understanding of


partnership. Representation of employee interests

- representatives given training in their role - encouragement by management of employees to join the union - strong union with effective representation.
The criteria you have been working with provide what many commentators believe to be the basis of a new relationship for organisations, unions and employers. This is the basis of partnership that we shall discuss later in the unit. We have tended to see IR as a traditional change limitation model, whereby employers try to contain unions within a framework of regulation, to control conflict and regulate how terms and conditions are determined. These are normally seen as operational not strategic. ER, as we have seen, marks a

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new positive shift, to drive the employer agenda through individualistic and direct relations with their staff; for example, communication, involvement and so on. Partnership perhaps offers a third way that addresses a combination of needs: regulation, governance, commitment, low conflict and progressive agendas built around purposeful development and growth. You will be asked to reconsider this later in the unit.

A strategic framework: a holistic view of ER


It is vital that organisations adopt an inclusive approach to ER and embrace it fully within SHRM thinking, to ensure that SHRM is a viable management system and process in all organisational settings. You may have already come across the work of John Purcell in determining management styles as a basis for determining an ER strategy. In summary, the styles are as follows:

Style Traditional

Characteristics fire-fighting, non-strategic, authoritarian right to manage.

Paternalist

unions unnecessary, high commitment/performance management system, alignment of employees with business objectives union recognition, union consultation as a basis for securing commitment of staff; right to manage preserved, move from IR to ER IR practice where commitment is legitimised through collective agreements; union may veto management decisions, high emphasis on rules and procedures no common approach; varies according to life cycle of organisation and the shifting power between unions and managers; non-strategic

Consultative

Constitutional

Opportunistic

Table 7.2: ER and Management Styles, Source; Purcell J and Sissons K (1983, p.112)

The paternalistic, consultative and constitutional styles tend towards a strategic and planned approach, as they rely on a clear specification of rules and procedures on such matters as bargaining, conflict resolution, employee communication and so on. Let us extend this analysis a little further by looking at these strategies along the primary axis of a decision between an individualistic or collective approach to ER. See Figure 7.2.
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Individual as a resource

Sophisticated human relations

Sophisticated consultation

Paternalistic employee development

Individualism

Paternalism

B ar gained Const it ut ional

Modern paternalism

Employee as cost

Traditional

None (unitary)

Adversarial

Co-operative

Collectivism
Figure 7.2: Individualism vs. Collectivism in ER, Source: Storey and Sisson (1993, p.47)

The vertical axis represents an organisations preference, and perhaps also an employees preference, for individual, contractual ER options. The vertical axis also shows the perceptions organisations have about the individual and the emphasis they place on investing in the employee. This, you will recall, is a central issue in best fit/best practice, hard/soft approaches to SHRM. We see here how this manifests itself in ER choices. The horizontal axis represents increasing levels of collective organisation of employees into unions and the strategic response of management. This is the basis on which ER strategies can be aligned to the prevailing history and expectation of staff, unions and employers or can indeed reflect the basis of strategic change in approach to ER strategy. The authors plotted the movements that can be seen in the trends in IR/ER management as depicted by the models. This shows a range of options from doing without unions and seeing employees as a cost with little real strategy being adopted, to developing effective ER. We see the emphasis of operational responses based upon determining rules and procedures for containing and institutionalising relations. You may recall the 27-points model comprising so-called Personnel and SHRM approaches. The table shows progressive best fit approaches to ER based on advanced forms of management communication and involvement practice. This takes us through the cycle of choices offered by Salamon, from agent of capital, systems actor to strategic actor respectively.

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Strategic Variables
We have now located the generic options available. We must now turn to the decisions that contribute to a strategic management model. We are discounting agent of capital and systems actor strategies as not really offering us a realistic route if we are trying to develop SHRM. However, it must be recognised that in some businesses certain features of the systems actor (stylised rules and procedures) may be necessary to secure the commitment of and acceptance by staff. We shall concentrate on the strategic actor approach. In this part of the unit we shall look in more detail at four aspects of the strategic management of ER:

The recognition of trade unions and new industrial


relations.

Collective bargaining. Involvement and participation. Conflict resolution.

Recognising trade unions


In January 1999 the UK Government published the Employment Relations Bill, which included provision for statutory trade union recognition where a majority of relevant employees elects for it. If they resisted, employers could be forced to recognise unions. This goes against the voluntary tradition of the UK but aligns the UK with the systems that offer legal support for unions. We have seen earlier that similar decisions in the 1970s had been the subject of unsuccessful experimentation. We have already evaluated the advantages and disadvantages of working with unions. Instances of derecognition of unions have been relatively few, but non-recognition is a frequent occurrence in new businesses. Generally organisations have sought to avoid unions or at least let them wither away. The Nissan experiment in 1985 to codify a recognition arrangement, based upon the so-called New Industrial Relations (NIR), was started in regions such as the North East of England. In such regions, inward-investing employers felt that it was sensible to base their IR strategy around local cultures where unions were widely supported. Pirellis greenfield site in South Wales and Sanyo in the NE of England developed the concept of NIR. We might see this as the forerunner of partnership arrangements of the late 1990s. The objective is much the same, to build a sense of commitment of the union to organisational success rather than retain a sense of third party interest. This mirrored,

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to some extent, Japanese practice although of course unions were national rather than company unions. Electricians and engineering unions were keen to enter such agreements, as they felt it made sense for their skilled members, to ensure higher wages and benefits. Industrial or general unions in the UK, with traditions of representing lower or semi-skilled employees, were more wary of such deals, tending to prefer social goals that transcended the workplace; for example, minimum earnings rates. Nevertheless, with the steady reduction of unions through amalgamations, most unions have experimented with such agreements.

New Industrial Relations (NIR)


So what constitutes NIR? Bassett (1986) was one of the first writers to explore the new deals. He describes the Toshiba plant in Plymouth as typifying the bundle of practices, including:

Sole bargaining rights for a single trade union. No strike agreements; extended provision for negotiation
and arbitration (independent body examines the relative merits of the case under dispute).

Final offer arbitration (or pendulum arbitration)


whereby the arbitrator selects either the employers or unions last offer. This encourages the parties to reach a more reasonable conclusion to avoid the judgement going against them. This compares with normal arbitration, whereby a decision between the position of the parties is chosen, a compromise.

Harmonisation of terms and conditions to reduce status


divides.

Broad-based consultation through joint consultation


committees, more recently Works Councils.

Managers free to organise work, free from day to day


union interference.

Teamworking, direct communication and high levels of


employee involvement in business and job improvement outside of collective bargaining.

Emphasis on flexibility and breakdown of barriers or


so-called demarcation between jobholders, together with wage harmonisation, which we saw as a strategic variable in Unit 5.

extended collective agreements to reduce the frequency


of potentially damaging collective bargaining, for

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example, one to two/three year agreements; ideal in times of stable inflation. Not all aspects of the so-called NIR might be implemented, and the third Workplace Industrial Relations Survey of 1994 was sceptical about the uptake of such packages. However, whilst full no strike deals were rare, and sophisticated arbitration was unusual, there was wide uptake of the remaining conditions. Where multiple unions existed on a brownfield site, unions were required in many cases to form a single table for bargaining, where it was up to them to achieve inter-union consensus. Multiple union conflict had been a major problem of the 1970s and 1980s. These agreements were the subject of wide experimentation in UK-owned plants such as BP Chemicals, and Honeywell Control Systems in Scotland. The Industrial Relations Services report of 1997 (62 p5) records that 60% of surveyed engineering companies had undertaken restructuring supported by integrated ER system change. These changes involved continued recognition of unions and restructuring into multi-skilled cellular teamworking with non-union mediated TQM processes to support performance enhancement. The major shift that took place between the late 1980s and late 1990s was a movement to enhance employment security measures alongside the longer term agreements. Early recognition agreements under NIR banners were essentially a reawakening of employer interest in using ER as a strategic and planned tool to achieve business improvement objectives. Seeing ER used to underpin a strong corporate culture in start-up sites gave traditional employers hope that a turnaround in attitudes and behaviour might be achieved, to support culture change legitimised by unions. Many employers had decided that strategic change through HRM principles would either be unworkable or take too long to implement. NIR offered the prospect of broadening the scope of ER to support strategic objectives. So for example, whereas most collective bargaining centred on employee interests such as pay and conditions, employers wished to include flexibility of working practices, performance enhancement and so on. In this way ER could be seen to be added to the SHRM business objectives and fit the strategic paradigm. With the waves of manufacturing and white collar service redundancies in the late 1990s, SHRM and NIR were both flagging in achieving the desired outcome. The objective then shifted towards securing employee commitment by offering job security. We saw in Unit 3 the tension of securing commitment without job security. Such groundbreaking agreements were pioneered in two UK organisations. Incomes Data Services (1997) demonstrate how, first, British Airways negotiated three year agreements with one of the largest industrial unions, the Transport and General Workers Union. The agreement included a pay freeze (no increase) in exchange for job security for ground staff for the duration of the agreement. The business strategy was made transparent for staff: save 20 million to cut costs to compete
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and invest in new aircraft and equipment. A similar agreement, which covered five years, was negotiated at Blue Circle Cement: job security in exchange for work practice efficiencies, flexibility and business process restructuring. The company agreed to restrict outsourcing of work along the lines we saw in the USA at UPS. These are good examples of using ER/IR collective agreements based upon carefully specified recognition arrangements to integrate ER and business strategy.

CASE STUDY
Read the article below In Place of Strife? by Gregor Gall and Eila Rana, (People Management, 14 September 2000) Gregor Gall June 6 was a watershed for trade unions in UK it was the date from which applications for statutory union recognition under the Employment Relations Act 1999 (ERA) could be submitted to the Central Arbitration Committee (CAC). But the day itself was purely symbolic because, in the years before the ERA became law, the industrial relations landscape had already begun to change. Despite the serious criticisms that unions make of the ERA, it has clearly helped to revive their fortunes. There have been 748 recognition agreements listed on my database since 1995. From 1995 to 1998 between 80 and 100 new recognition deals were signed annually, bringing 100,000 workers under union recognition over the four years. In 1999, a further 260 were signed. So far this year, more than 100 have been concluded, bringing another 150,000 workers under union recognition. But not all the data on deals signed gives the number of workers covered: my own research suggests that one could safely double these numbers to 500,000 workers. Among the recent scalps have been Virgin Atlantic, Barclaycall, Tilbury docks, Chunghwa electronics, Newsquest newspapers and United Parcel Service. The turnaround is impressive, although hardly an earthquake when compared with the decline of trade unionism that went before. The 1998 Workplace Employee Relations Survey shows that the proportion of organisations with union recognition fell from 53 per cent in 1990 to 42 per cent in that year. The Labour Force Survey records a similar decline in the proportion of workers covered by such agreements. This stood at 49 per cent in 1993, but had dropped to 43 per cent by 1998.

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These figures illustrate the scale of the task facing the unions, although they exclude the recent growth. Allied with the increases in union membership recorded since 1998, the new deals could start to reverse the decline. The TUCs Trade Union Trends surveys, coupled with my own information from unions, reveal more than 600 current campaigns for recognition covering 500,000 workers. In 170 of these cases, covering around 80,000 members, unions have already recruited more than half of the relevant workforce the proportion that can trigger automatic recognition under the legislation. Successful high-profile campaigns featuring household names could boost future campaigns. And, of course, although unions are seeking voluntary deals, they can threaten employers with the CAC. But this is not only a numbers game. To HR practitioners, the kinds of new deals being signed and where, by whom and under what conditions are also important. They will influence not only the conduct of industrial relations in those organisations themselves, but also the behaviour of other organisations. Before considering these questions, it is worth noting that the rise in recognition agreements is more than just the product of the ERA. The Labour government has helped to engender a climate in which many employers are less inclined to behave unilaterally, and this has legitimised a union role in organisations. The act is itself part of the changed industrial relations environment. Increasing numbers of employers are realising that there is a positive business case for dealing with their workforces through unions, and that it is more efficient, effective and democratic than treating employees as a collection of atomised individuals. Many organisations have been persuaded to sign voluntary deals, aware that they may be better able to influence their content by reaching an agreement in a more comfortable, unpolarised and lower-risk environment. Such employers also realise that delay could leave them facing more serious, and more credible, recognition campaigns as the unions become more active in recruiting and organising. Partnership is in vogue at the moment. But of the 748 deals on my database, no more than 150 describe themselves or have been described as partnership agreements. This is somewhat surprising, because there is pressure to sign such deals and they receive disproportionate media coverage. Even among those that are described in this way, few comply with the TUC model for partnership, which includes principles covering job security, openness and the quality of working life. For most people, partnership is a vague term that may describe the atmosphere in which the deal is struck, or the relationships between negotiators, rather than its content. Most deals are, in terms of content, standard recognition agreements covering rights of information, consultation, representation and negotiation. This is partly because of the influence of the union officers who help to draft them and partly because employers prefer to stick to statements of fact rather, than to produce wish-lists with vague promises on issues such as job security.

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It follows that so-called sweetheart agreements negotiated with a single union and featuring no-disruption clauses and compulsory arbitration are also uncommon. Around 40 are known to exist, including some signed by the AEEU and the T&G. There has also been a small but significant number of non-traditional deals stipulating that bargaining should be conducted through company councils or staff forums on which there may also be representation for non-union members. There is evidence of 30 to 40 such cases, including GB Airways and Monarch Airlines (both with the AEEU) and Eurotunnel (T&G). Often this results when a company adds union recognition on to its existing consultation procedures. These may or may not be described as partnerships. Five main unions account for the lions share of new recognition deals. In descending order, these are the GMB, T&G, AEEU, MSF and GPMU, so it is unsurprising that the vast majority of deals are in manufacturing rather than less-organised sectors. Deals have also been struck in areas where there is residual union strength or presence. This strategy of concentrating on the easiest targets makes sense to the unions, which are reluctant to waste scant resources trying to crack overly hard nuts. Noteworthy exceptions are not-for-profit organisations and charities, road haulage firms and air transport companies. Campaigns in call centres, retail and business services have also had some success. Among these was an agreement at Barclaycall and deals between the GMB, Unison and Capita for outsourced BBC work. Where recognition campaigns do occur, they are primarily the result of approaches by workers (members and non-members) to a union for help in resolving a grievance. Unions are also looking at unrecognised workplaces where they have existing pools of members. Cold calling on workplaces, by leafletting from outside or attempting to recruit the employer first and then members, is rare. Campaigns normally comprise meetings, propaganda, publicity in local media, servicing members and agitating around issues. Recognition is applied for when membership is in excess of 50 per cent. So far unions have lost only one of the 50 or so ballots that they have contested involving Virgin Atlantic staff other than pilots. (see Eila Ranas article). But the picture for unions is not all rosy. First, there is the issue of the union-busters. American anti-union consultants are touting for business in the UK. More significant is home-grown anti-unionism, in the form of substitution, including company councils or forums, open-management techniques and suppression. The latter covers dismissals, victimisation, harassment and spying. Second, there is inter-union competition, which wastes their resources. Employers that wish to muddy the waters can play off one group against another in a bid to find tame unions a tactic that has been used in call centres, electronics and transport. So far the TUC and the STUC have kept a lid on what could become a rerun of the 1980s union rivalries, but trouble is never far from the surface. That said, neither are employers having it all their own
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way. Those using company councils to deflect interest in trade unions often find that councillors become willing advocates of recognition. Harder tactics can create martyrs who become rallying points for the other workers. Manzour Chaudhary, the owner of the London-based Pricecheck supermarkets, conceded recognition last year following the dismissal and demotion of several staff, who then became the focus of the recognition campaign (see Eila Ranas article). Overall, the situation is much improved from the unions point of view, but only time will tell whether they can use this bridgehead to regain further ground. On the basis of the 1976-1980 experience, when ACAS could require recognition but was rarely used, we shouldnt expect the CAC to be directly involved very much. Rather, its influence will depend on the shadow that it casts. Eila Rana Whether its the calm before the storm or a permanent change in relationships at work, no one yet knows. But union recognition legislation seems to have brought about an amiability between management and unions that has surprised all involved. Unions seeking recognition are finding that many of the doors that they once pushed in vain are falling open. Managers whose knowledge of unions is derived from the horror stories of the past are discovering a degree of helpfulness from the other side that they had never anticipated. Although Gregor Galls research shows that most recognition agreements are not partnerships, employers and union representatives who spoke to PM agree that there has been a welcome spirit of co-operation in drawing them up. The proposition unions are putting to employers is different from what it was a generation ago, says Robbie Gilbert, chief executive of the Employers Forum on Statute and Practice, a body set up to lobby over the detail of legislation. More are approaching companies with an offer that seeks to provide workforce representation in a way thats not necessarily going to make life disruptive for the employer. They are asking: How can we work with you? Weve been surprised at the extent to which the voluntary approach seems to be the dominant one. Unions are approaching organisations informally to talk to them about recognition, rather than banging in a formal request under the legislation. This is to be welcomed. Very few cases have gone to the Central Arbitration Committee. Gall points out that recognition claims have focused on the softer targets, either in traditionally unionised sectors (see panel) or in sectors with no union experience. Among the latter are a number of voluntary organisations. MSF is expected to sign an initial voluntary agreement with NCH Action for Children, a national charity, this month. Negotiated jointly with public-sector union Unison, the deal is significant because the charity has never recognised trade unions throughout its 131-year history.

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Two years ago, its joint consultative committee a forum comprising managers and staff expressed concern about the way that the committee was working and suggested that matters could be improved. Earlier this year, the charity called in an independent consultant to run staff workshops explaining the options available for employee representation. A subsequent staff ballot revealed overwhelming support for recognition. On a 45.5 per cent turnout, 79.8 per cent voted for recognition and 92.8 per cent chose a joint agreement with MSF and Unison. The senior management team had wanted to establish a works council but, with such a clear mandate from staff, the charity has approached union recognition positively. John Monks [TUC general secretary] has been saying for a long time that the new way is the right way, says Janice Cook, the charitys director of HR. Trade unions have worked hard to move towards the partnership model. It doesnt mean youre not going to have conflict, but if you have a strong partnership agreement underpinning that, youll work through it. Cook welcomes the more intelligent, collaborative, non-bureaucratic approach taken by unions. But at mental health charity Scope, a similar claim for recognition fell on stonier ground. A staff survey in 1997 revealed that 66 per cent were in favour of recognition, but it drew only a 17 per cent response rate. Without a clear mandate for recognition, managers opted for a works council. But Marie Taylor, assistant director of personnel, says that it would have been easier to recognise a union. Scope may review its decision in the future. MSF has also recently signed a voluntary recognition deal with the National Lottery Charities Board (NLCB). A postal ballot of staff revealed that 90 per cent were in favour of union recognition on a pretty good turnout, according to Stephen Bubb, the boards former HR director. Bubb once a union man himself was determined not to involve the unions when NLCB was founded in 1995. Today he is a convert to recognition, a living testament to the change in the UKs industrial relations climate. In the early days of setting up NLCB, I preferred to do things myself without having to negotiate things with a union, but I did pay the price for that, he admits. We didnt get the buy-in and the communication or the feeling of involvement. As an employer, the NLCB has got above-average terms and conditions, but staff never had the same satisfaction that they would have got had they won them through hard-fought negotiations. NLCB already had a staff forum but, according to Bubb, MSF brought more professionalism to the process. We saw the union as a positive part of our communication channels with staff, he says. Organisations that dont see unions in that way are losing out. Unions have moved on and they do recognise the importance of a different, partnership approach. And Bubb admits that the organisation would eventually have been faced with a recognition claim. Far better to take the initiative and earn Brownie points, he says.
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Richard Bransons Virgin Atlantic airline is another company that has taken the bull by the horns. It headed off the possibility of a CAC-enforced staff ballot by arranging its own through the Electoral Reform Society. The only group to give clear backing for recognition was the pilots. Branson, who had spent two years politely declining requests from the British Air Line Pilots Association (Balpa) for recognition, has now begun talks. But requests from other unions for similar discussions have been turned down. Balpa officials believe the ballot result vindicated their softly-softly approach. We didnt think it would be sensible to take any sort of action against Virgin, says Keith Bill, communications officer for Balpa. We knew the legislation was coming along and we would rather enter voluntary agreements because we find you get more out of them. The Virgin Atlantic press office declined to comment. A tougher battle for recognition was fought by the T&G with a small supermarket chain in north London, Pricecheck. It involved dismissals, demotions, pickets, boycotts all the paraphernalia of old-fashioned confrontation. But even here, relations between the union and management have apparently improved since a deal was struck. Dave Turnbull, the unions regional industrial organiser for catering and retail, says that the staff, including some store managers, approached the T&G for help in a claim for premium payments for working on Christmas Day and other bank holidays. At first, proprietor Manzour Chaudhary rejected the idea of unions. I will not recognise any union, he was quoted as saying. If staff dont like it, then they dont have to work here. Seven ringleaders among the 100 staff were either dismissed or demoted, including T&G shop steward Iftakar Ul-Hak. The T&G started tribunal proceedings and mounted a boycott campaign, picketing shoppers outside Pricecheck stores. Eventually, Chaudhary settled the tribunal cases out of court and recognised the union. We have quite a good relationship, Turnbull says. He tells me he doesnt know what he was worried about in the first place. Turnbull believes that the tribunal cases, the boycott campaign and the looming recognition legislation prompted Chaudharys change of heart. Employers like him, with no experience of dealing with unions, have seen things like the miners strike on television, but have no idea what a normal, day-to-day relationship between employers and unions is like, he says. Its not confrontational but about improving communications and protecting our members. Its not a big deal. Chaudhary was contacted by People Management but was unavailable for comment. Gilbert agrees that many managers have over-hyped unions. He says that half of todays managers have never dealt with unions and that their views are coloured by memories of the 1970s.

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The principal characteristic is probably one of ignorance or even fear, Gilbert says. An awful lot of people are unaware of the legislation and its potential impact. We are talking about Thatchers children. They havent needed the industrial relations skills that featured so strongly in the 1970s. Companies have a dearth of people with the experience and understanding of unions to manage these relationships efficiently. Geoff Armstrong, director-general of the CIPD, believes that some managers concerns about the return of unionisation are justified. Over the past two decades, he says, many managers have become more democratic and inclusive in their approach to employees relations, yet too many union representatives are still stuck in their old ways. An awful lot of people say: We like what John Monks and Ken Jackson say. But the reality is that our union reps are still resistant to change, Armstrong says. Employers are genuinely fearful that, if they had to revert to collective bargaining and the sorts of practices involved with union recognition, they could not act fast enough to anticipate and respond to changing customer needs. Such fears may prompt organisations to try to keep unions out. But, as Gall points out, attempts at union-busting can backfire. Northcliffe Newspapers, the countrys third-biggest regional newspaper publisher, saw union membership among its journalists rise after management distributed allegedly anti-union leaflets. People were saying: I dont want the company telling me what to do; I will make up my own mind says Jeremy Dear, national organiser for newspapers at the National Union of Journalists (NUJ). Ken Thompson, director of employment affairs for Northcliffe Newspapers, says that the leaflets were a response to information distributed by unions. We do not believe that recognising any trade union would benefit our employees, he says. It is our job as managers to communicate directly with our staff. Of the 10 regional newspaper publishers that the NUJ has approached with a request for recognition, only Northcliffe has responded in such a way. Dear admits to being surprised at the co-operation the union has had from Newsquest, whose American parent firm, Gannett, has been involved in high-profile industrial disputes in the US. After overwhelming support for union recognition at two of its main titles the Telegraph and Argus in Bradford and the Oxford Mail Newsquest has drawn up an agreed procedure for managers to follow if approached by a union. We think Newsquest looked at the legislation and issues such as high staff turnover, and made a business decision that it was probably in their interests to begin talking to the NUJ, Dear says. I think they have been pleasantly surprised that the process has gone as smoothly as possible. The NUJ is working on around 15 voluntary recognition deals, but it has vowed to take Northcliffe to the CAC if no progress is made.

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But, while the new legislation is helping unions to gain a foothold in previously inaccessible organisations, some managers think that the old language of collective bargaining, recognition and ballots is undermining employee relations. The language that hangs around the new law is old-fashioned and probably frightens people, especially small and medium-sized employers, says Lesley James, CIPD vice-president, employee relations, and a member of the DTIs partnership funding panel. My personal experience and view is that unions have a place, but that the agenda for them needs to get modern and the language needs to get modern. Tilburys watershed Tilbury docks earned its place in union history during the dispute that followed the abolition of the National Dock Labour Scheme in 1989. Hundreds of dockers were dismissed and it took four years for them to win their unfair dismissal cases in one of the UKs longest-running tribunal cases. So the re-recognition agreement struck this year between Forth Ports, the docks current owner, and the Transport and General Workers Union, has a special significance to the union. Graham Stevenson, T&G national organiser for transport, describes the Tilbury agreement as a watershed. The new deal came about after Forth Ports, a major operator on the east coast of Scotland, bought Tilbury in 1995. The firm was less hostile to unions than the docks previous owner and had long-standing agreements with the T&G elsewhere. After a gap of almost five years, during which attitudes on both sides at Tilbury changed, the new deal was negotiated. We see a stable relationship with the unions as a benefit to the company and customers, says Alexander Morrison, director of personnel at Forth Ports. But we needed a period of time to establish ourselves, assess the situation, draw up a proper agreement and reassure our customers. Stevenson says that the company had some reservations at first. Tilbury had a reputation for militancy and the management team that originally derecognised the union was still in place. About two years ago it became clear that there would be union recognition legislation, he says. An agreement at Tilbury was merely a matter of time. With Forth Ports signed up, the T&G is now targeting independent companies that operate on the companys land at Tilbury.

QUESTIONS:
1. What is the strategic business case for developing voluntary recognition agreements with trade unions?

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2.

How does the TUC (the national body representing all trade unions in Britain) view partnership arrangements? How might this be different from the employee perspective? Evaluate how employers are attempting to secure more effective union relations without alienating or turning non-union employees towards trade unions. What are the adversarial trends that are developing to defy the new legal provision? What is the new union proposition to employers? Does it appear to fit with the attitudinal and behavioural alignment organisations are seeking? In your view have unions and employers arrived at a mutual stakeholder view?

3.

4.

5.

CASE STUDY FEEDBACK


The article provides a wide-ranging review of the changing nature of IR/ER in Britain in the late 1990s. The scale of the research is broad and provides a significant view of change across a wide range of business sectors. ER is not just the provenance of large manufacturing locations but is relevant to all sectors such as the new growth sector of call centres or service centres, the so-called office-factories. 1. Employers have identified that effective ER has produced more efficient, effective and democratic work relations that fit the empowering business culture. A voluntary arrangement is seen as a better base for co-operative relations rather than an enforced legal deal later. The TUC sees partnership as requiring job security and quality of working life and as being long term. As we have seen, this might coalesce with employers attempting to secure scarce labour markets or where redundancy has damaged the psychological contract. However, flexibility, cost and control of wages may be more pressing at other times. UPS provides a good example of the tension. Employers in 40 agreements have attempted to link recognition into their existing company councils so that bargaining will take place including non-union members. It is interesting to note that key features of the employer-led agenda of the 1980s, no strike/no disruption and compulsory arbitration, have not been sustained. Compulsory arbitration is contentious, as it can be habit-forming, where both parties surrender easily to allowing outside bodies to solve internal problems. Seemingly attractive, it really outsources management and

2.

3.

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employee skill in developing solutions to and ownership of business problems. It is hard to conceive of value alignment and shared values emanating from this. We saw in Unit 6, and will see again in Unit 8, the importance of experiential learning through developing effective work relations. The same applies to ER and indeed the effective process of ER, be it through participation, negotiation or joint consultation, is especially important in developing an effective corporate culture. This is sometimes forgotten, as corporate culture proponents tend to see culture as a matter for managers and individual ER. 4. The growth of anti-union consultants, the development of tame unions and more coercive tactics are being used as ways around the union claims for recognition. Inter-union rivalry for members still exists, as even unions have generated a business mentality of membership, revenues and survival. The so-called beauty contests of the 1980s, whereby unions bid for recognition contracts, have not entirely disappeared. Employers are still suspicious that once recognition is established, unions will be under pressure from members to secure greater influence as depicted in the 1970s. Employers are impressed by a more flexible and less bureaucratic (procedural and rule bound) approach. Professionalism in organisation and presentation has been the union watchword. Union communication skills are being seen as a positive benefit for managers putting the business case to staff in a legitimate way. However, not all managers or union representatives have the collaborative competence of the TUC/union leaders, and this will be an area for SHRM style development by both parties.

5.

Collective bargaining
The second of our strategic variables is collective bargaining. As we saw earlier, collective bargaining was seen as the very essence of the IR/ER process. The institutions and procedural agreements determining the bargaining unit, bargaining level stages and bargaining rituals, were pivotal in UK IR, whereas European states had well-defined state support roles and the US focused more on detailed collective agreements. Collective bargaining defined IR. We have seen how unions have been encouraged to operate as one union within each organisation to avoid rivalries. We have also seen that where multiple unions exist, to represent different categories of staff, a single table agreement is frequently used. We should also note that in Britain, and increasingly in Europe, the level of bargaining is shifting from national, regional and industry level to the level of the enterprise. This is a two-fold shift:

First from multi-employer to single employer bargaining.


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Then from multi-establishment (company) to single


establishment bargaining. Examples of this decision-making shift are:

In engineering, the late 1970s shift away from the


Engineering Employee Federation bargaining nationally, towards increasing emphasis on enterprise level.

The decentralisation of bargaining to business and plant


level within the multi-national giant in the UK, GEC Marconi. There are examples of organisations that have tended to retain control of enterprise bargaining at the national level. Ford and Philips Electronic for many years retained control of UK-wide bargaining, Ford based upon a World Car Manufacturing strategy. We need to look at the merits of decentralised bargaining:

At the location/company level. Multi-employer, national level.


The importance of considering the location and level at which bargaining takes place relates back to the central question of scope for management choice that we addressed at the start of the unit. The more decentralised the bargaining, the more management can determine its ER strategy, in particular for the key variable of the bargaining unit.

The location/company level


Decentralisation of bargaining is normally associated with moves away from national bargaining by groups of employers or public bodies that work across business units or locations. For example, bargaining for nurses across all UK hospital trusts or industrial bargaining in manufacturing in Germany and applied in Europe outside the UK, by a single employer and union group irrespective of the different individual companies or manufacturing models. This illustrates some of the differences that are determined by the tables that we saw earlier in the unit. Decentralisation, or Single Employer Bargaining, is perceived to be of value according to the following arguments:

It develops a greater sense of ownership of agreements


and the need to establish positive relations to address business and employee needs. Realistic partnerships exist at all levels of employee, trade union and management representation with this level of bargaining.

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Collective agreements arising from single employer


bargaining are likely to be more responsive to market conditions and the needs of the partners, specifically their working practices, efficiency, flexibility and employee priorities such as pay, security, training and so on.

ACTIVITY
Note down what you consider the disadvantages of decentralised bargaining might be.

ACTIVITY FEEDBACK
You might have noted that the disadvantages could include:

The costs of conducting collective bargaining. The risk of fragmentation of either management or union resources.
Unions have found themselves less able to organise members, and organisations may be picked off by unions who are able to exert more power over a single company rather than over multi-employer groups.

Organisations can find themselves more isolated in the labour


market and find it difficult to control escalating costs of labour, whereas a multi-employer stance can effectively control labour market costs.

Multi-employer, national level


This form of bargaining features strongly in the Netherlands, Scandinavia, Germany and more centrally controlled economies such as Singapore. Such agreements have the advantage of supporting national income restraints in times of inflation and they support union objectives of wage equity for comparable job skill levels. This has always been important in public authorities: regional government, health, education and so on, where job demand (see Unit 5) can be seem to be very similar and a common labour market exists. Employee value systems tend to support concepts of equity and distributive justice in terms and

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conditions of employment. The concept of market rate is viewed with suspicion. Here we see a reinforcement of the cultural and contingent factors supporting reward strategy in Unit 5, which can substantially influence management choice. Industry or multi-employer agreements have advantages for both employers and unions:

They control costs and establish a rate for a job, which


can reduce scope for conflict and division between comparable jobs.

They promote collective ownership of pay and conditions


at the expense of fragmentation and individuality.

They offer a powerful unified management face to


unions in collective bargaining. However, they can also:

Create minimum standards and fail to recognise the need


to invest in labour market growth areas.

Sufficiently recognise and allow employees to share in


company success.

Be responsive to the organisational need for structure,


process and work practice flexibility in segmented markets and customer groups.

Be inflationary, as one of several types of bargaining.


In reality, however, the picture of collective bargaining is a little more complicated. Rarely is bargaining conducted exclusively at national or local level. As Salamon (2000) shows, national or multi-employer bargaining normally fulfils one or more of these roles:

It provides a minimum or safety net pay such as the UK


minimum wage.

It establishes a floor on which high rates can co-exist at


the company level.

It determines actual pay rates, for example in the public


sector. Even in the UK public sector, whilst national rates apply, some flexibility is allowed through special allowances to reflect cost of living or responsibilities; for example, London weightings. The main reason associated with national pay rises by industry, as widely used in Germany, is the need to stabilise and reduce labour costs as a competitive feature of business. This works well in recession cycles but is less responsive when selective markets are growing and need to

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respond to skill demands. A clear example of this tension has been met by the national engineering union IG Metall, in negotiation with Osram in Angsburg in the late 1990s (Marsh, 1997). Marsh highlights Osrams threat to transfer production to Italy without changes to working time and shift working, including weekend working to improve productivity. Osram highlighted the need for a more flexible plant, as opposed to regional agreement to address productivity, customers and specific plant technology issues. The deal exchanged flexibility for job security. The agreement kept the German business unit ahead on productivity despite high flexibility, and lower cost plants had already been identified in China and Britain. The agreement reached was done so by circumventing national agreements. As we can see, both employers and trade unions are making key decisions about the use of collective bargaining, and the size and level of bargaining to underpin wider strategic goals. Employers are weighing up the relative advantages of securing commitment through bargaining as a form of participation against the risk of delay and resistance to change. However, collective bargaining is still a key component of ER/IR strategy. The willingness of the parties to co-operate on bargaining by including a broad agenda is at the heart of the benefit of placing ER as one of the central features of SHRM in certain environments and contexts. The agenda includes employers needs to restrict costs, enhance flexibility and willingness to change and employees needs for security, continued employability through training and a voice in business decisions.

Involvement and participation


The third strategic variable concerns involvement and participation. We have already stated that collective bargaining fulfils the function of involvement and participation. A useful definition is provided by Salamon (2000, p.323) Collective bargaining is a method of determining terms of employment and regulating the employment relationship, which utilises the process of negotiation between representatives of management and employees and results in an agreement which may uniformly be applied across a group of employees. However, it is more than a method of pay determination. It is a process as we saw from Lawlers strategic points in reward strategy from Unit 5, which regulates managerial authority and provides a means of participation in workplace decision making. As Salamon points out, the overlap between the governance function of collective bargaining and formerly consultative processes normally associated with Works Councils, is becoming more pronounced. The EU Directive on European Works Councils starts to blur the boundaries.

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To fulfil the wider function, that is distributive and governance, collective bargaining needs to deal with the following:

Substantive terms and conditions: economic pay, hours,


holidays.

Procedural rules: management/employee relations,


balancing employer and employee interests for control/change and protection in terms of working practice.

Disclosure of information to empower parties, building


trust.

Styles of bargaining philosophy to achieve mutual


dependence. The options in bargaining may be:

Conjunctive: coercive through the use of power. Co-operative: concessions are exchanged. Transactional: acceptance and distribution. Integrative: seeking commonality of purpose, problem
solving. You will see that the styles of bargaining and negotiation can be related to our strategy models identified by Storey & Sisson. In other words, these perceptions underpin the wider intended strategy of the parties. The style of bargaining or bargaining culture is important in developing the concept of partnerships and integration of values. Bargaining style can contribute to the culture change and learning-based approaches that have been discussed in Unit 6 and that will be consolidated following the completion of this unit. Clearly, an integrative bargaining style builds relationships and trust. The parties will be receptive to open sharing of information and open analysis of issues and problems. This will build aligned values and objectives. Transactional relations and co-operative bargaining retain the essential differences of the parties but establish principles and rules for reconciling them. This develops our understanding of the Personnel and SHRM approaches from the 27-points model.

Wider involvement strategies with ER


Under joint consultation, management controls the agreements and retains discretion over the final outcomes. However, it is often hard to differentiate collective bargaining and consultation agreements without careful categorisation of the subject matter. If the subject matter is too well-defined, employees and unions consider that consultation has
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marginal importance as a tool of involvement. That brings us to more practical tools of involvement. Rather like the goals of learning, education (consultation) is rarely enough to fulfil wider skills and experiential development objectives. Education and consultation are essentially top down and management-led, which will not necessarily engender employee commitment through involvement in change (see Unit 8). Learning requires a greater mutual engagement and empowerment that can be facilitated in part by more effective ER systems. Hence, management strategies have focused on moving union and employees away from macro-level information exchange (which in developmental terms has limited utility in transferring into job performance) and negotiation, to job level and enterprise level performance. The parallel with the HRM agendas is again apparent. As with skill specific and experiential development, work-level involvement and participation are more likely to engage employee capability and develop performance cultures towards business aims. Hence, the priority given by employers to this form of employee involvement to enhance learning development and value alignment. Employee involvement and participation are key activities to bring about workplace partnerships. However, as we saw above, they can also be used by managers to develop more individual ER strategies that negotiate partnerships. How should we define involvement and participation? Salamon (2000:369) again offers a useful definition: ...The terms involvement and participation are used...to cover all processes and institution of employee influences within organisations (including joint consultative and collective bargaining). However, it is perhaps better to see involvement as enhancing the support and commitment of employees to the objectives and values of the organisation, and participation as providing employees with the opportunity to influence and take part in organisational decision making. This definition firmly makes the link between involvement and participation and wider SHRM principles. It is not so much about securing ER peace and job satisfaction. It is about aligning values, securing influence and commitment, and we might go on to suggest developing the competences and resource capability. It takes ER away from seeing the human resources as a cost of production to viewing it as a resource capable of development. Reviewing the strategic framework, it draws us up the scale on an individual and collective level. We can now summarise methods that organisations have used to enhance involvement and participation at a consultative, collective level. These are:

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Industrial democracy. Works councils.

Industrial democracy
Designed to put worker representatives on the Board of Directors in the 1970s to democratise the workplace, the experiments never really worked and do not really match employees, unions or market-led economies. Managers felt constrained in decision-making, unions felt uncomfortable in being incorporated into management functions, whilst the whole process became a largely bureaucratic extension to company-wide consultative processes. The pressures to involve staff and engage them in participative policy making and workplace involvement have been brought about by a number of SHRM related issues. From managements view these are to:

Secure commitment of staff. Develop and utilise knowledge and capability. Align behaviour and values. Empower staff in delayered organisations. Empower staff and operate with fewer staff. Break down dependence; the them and us mentality
and culture.

Retain core skills/competence. Harness the power of knowledge-based economies.


For employees they include:

Expectations of how they will be employed, based upon a


deeper educational base.

Being treated as equals in the wider society. Opportunities to develop and grow within the
organisation beyond status and position.

Enhanced emphasis of democratic rights/stakeholding


within organisations. From a management perspective, involvement and participation is a unitary concept but it can also be utilised to draw unionised employees towards management goals. Involvement and participation (I&P) strategies emphasise common goals and profitability. Managers

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also emphasise the relevance of I&P to employees as something close to their work experience and something they can reasonably influence.

Works councils
Works councils are a relatively recent introduction to the ER/IR agenda. They have been introduced by an EU directive as a statutory means of supporting co-operative relations between employers and employees/unions, to enhance organisational performance. The compliance rate is variable. Councils or voluntary agreed alternatives have been developed within the statutory guidelines. The European Works Council (EWC) Directive provides for EWC or other agreed information and consultation procedures that may include collective bargaining with recognised trade unions, to be established in any multi-national organisation with at least 1,000 employees, including at least 150 in each of two member states. Management or union (or 100 employees) may initiate the request to form an EWC. The minimum standard is:

A minimum of three and a maximum of 30 members,


proportionate to the workforce numbers subject to a minimum of one per state.

Minimum yearly meeting to discuss the structure,


economic financial performance of the organisation and probable development, including substantial change in products, markets or workplace structuring; mergers, closures, redundancy transfer of undertakings and so on.

Special meetings to discuss exceptional circumstances


such as redundancy and closure.

Workforce representatives entitlement to hold


premeetings.

Right to independent expert advice.


Many voluntary agreements have now been signed. Some involve unions, some do not. Others provide for joint union and non-union representatives. The objectives were to provide greater organisational transparency and a wider range of employer dialogue. There are new information and consultation proposals arising from the EU Directive of 2001. This calls for member states to introduce information and consultation legislation for all companies with over 50 employees, and is to be implemented in phases starting in 2005.

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Conflict resolution
The final strategic variable is conflict resolution. At the individual level grievance procedures (employee orientated) and disciplinary procedures (employer orientated) provide a framework of governance or rules by which matters will be dealt with. It is a set of procedural rules to ensure that conflict is handled in a transparent way and that each party recognises the legitimacy of the other to raise matters of concern and have them dealt with fairly and openly. Establishing grievance and disciplinary procedures is based on the premise that a structured system of handling of conflicts and disagreements will achieve a number of positive outcomes as follows: 1. Procedures enable employees to channel disagreements into structured discussion and provide a framework of rights to have a disagreement properly heard. In this way it is hoped that disagreements do not tend to create long term damage to the employment relationship. Procedures provide confidence within the employee relations system between the parties, empowering them to resolve their differences without recourse to industrial action such as strikes. Procedures provide a basis for internal government within an organisation; each party is given rights, power is divided where management has agreed or has been obliged to recognise a trade union for collective bargaining purposes. Both parties will seek to establish collective agreements for bargaining over the work practices, and terms and conditions of employment. However, the parties may disagree. You will have noted in your earlier studies that in employee relations unions may sometimes act as an intermediary between the employee and the employer; this is collective relations.

2.

3.

The key issues for our discussion of how choices about conflict resolution fit into our development of a strategic perspective on managing employee relations is built around two central issues: 1. First, procedural rules, as we saw in Storeys 27 points of difference between Personnel and HRM, tend to place pluralist (that is, power sharing with different interest groups such as unions) and the institutionalised management of conflict within a non strategic framework. The Personnel and IR approach, Storey suggests, tends to draw organisations into an emphasis on procedures, labour management as an end in itself, and decision making is slow through extended procedures. More importantly, it maybe geared towards compromise and power sharing rather than business led outcomes. Storeys model places extensive emphasis on industrial relations procedures as the antithesis of the SHRM outcomes of speedy customer-focused decisions,

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flexible organisation structures and work practices based upon a clear corporate culture based upon continuous empowerment. 2. Second is the extent to which organisations develop effective procedures and methods for building internal consensus and resolution of conflict. Traditionally, European models of employee relations have differed concerning the degree to which managers and internal union representatives have prioritised the need to resolve issues internally or rely on external apparatus to support achieving industrial harmony. Organisations tend to draw up collective dispute resolution procedures that eventually end, leaving either party, if still not in agreement, to resort to independent action. A union may elect to ballot members for a strike or ban on overtime working. A company may chose to implement a pay award or a new working practice despite there being no agreement.

Alternatively, organisations and national employee relations have other choices:

To seek voluntary conciliation by an independent party


normally made available by the State to help the parties find ways of agreement without obligation, or voluntary arbitration where both parties agree to be bound by the decision of a third party. This system operates in the UK.

The State establishes a compulsory system of arbitration


whereby both parties must submit their case to a legalistic process before independent industrial action is permissible in law. The Federal Australian Industrial Relations Commission (AIRC) has the power to intervene in disputes and the parties must refer cases to the AIRC. In the USA, compulsory arbitration works in a limited area of public sector worker disputes. The interaction of state intervention and national/regional bargaining is a feature of the European employee relations system. The purpose of these mechanisms is to ensure industrial peace. However, there are profound implications for the employee relations system and the strategic management of people. A remaining question that we must address is how conflict resolution has been adapted within the strategic framework of employee rather than industrial relations, which we have argued is the key to integrating employee relations as a strategic lever within SHRM. This contrasts the process of marginalising industrial relations from SHRM, which was the preference for early US led approaches to HRM, a favoured alternative to Personnel and IR management that was supposed to enshrine labour management at the collective level. Conflict resolution has been one of the key strategic variables alongside union recognition and the nature of collective bargaining and

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partnership within the so-called New Industrial Relations since the 1980s. Organisations have a key interest in minimising or eliminating industrial action, damaging to the business, and at the same time enhancing management control. As we have seen, individualising direct employee involvement strategies and enhancing line manager authority are key issues. How have organisations attempted to further reduce the scope for strikes? Some organisations have experimented with one or more of the following, including them within a package of measures to develop comprehensive understanding with trade unions rather than allowing piecemeal decisions to be taken. Having a package of ER measures is at the heart of the strategic approach. Some examples of packages or bundles of related and mutually reinforced policies are identified below.

New Industrial Relations: some features


Single union bargaining for an employer:

Extended collective agreements, perhaps 2 to 5 extending


from the annual review of wages and conditions, to cover organisational change over a number of years.

Work flexibility is a key aspect of procedural and


substantive rules.

Work flexibility, job security and training enter the


bargaining agenda.

No strike agreements, effectively extending the scope of


discussions and bargaining but potentially shifting power away from employees. Sometimes used in Public Services under public interest arrangements, for the police, for example.

Binding final offer arbitration (so called pendulum


arbitration).

Reduction of restriction on employees doing extended


and flexible work; multi-skilling and so on.

Extended consultation/involvement forums at the


expense of bargaining over issues of organisational change. Again this shifts the power to veto management decisions away from employees, although it places obligations on managers to adopt comprehensive communication practices as an alternative to winning commitment, as we have seen under the SHRM policy framework. These have been features of the strategic formulation of employee relations in Japanese organisations entering the UK in the 1980s, who were prepared to work with trade unions (Toshiba in Plymouth and

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Nissan in Sunderland). Organisations that had a long history of working with unions, often in adversarial conditions, such as British Airways and Blue Circle Cement, attempted to experiment with these practices to build more effective employee relations based on partnership rather than conflict. It has proved more difficult on sites where lengthy histories of industrial conflicts exist. All pursued similar attempts to engage and embrace unions within management decisions about change through comprehensive extended agreements. From the perspective of our discussion on conflict two elements of the so-called new style employee relations are important to note.

First, the concept of no strike. This is controversial, as


this can be seen as taking away a fundamental employee right in the event of outright disagreement and an indication of power in the contracted relationship. It requires very robust and effective bargaining procedures to build confidence in agreeing to this. It has not been widely adopted in the UK or Europe, although it clearly has resonance with a unitary (closed) approach to SHRM where interests are commonly focused around business success.

Second, final offer pendulum arbitration and arbitration


in general has been more widely practised in the UK and the US but still does not fit the voluntarist organisational culture whereby managerial responsibility and employee ownership of solutions have tended to prevail. Pendulum arbitration is a different form of third party arbitration. Traditional approaches to arbitration normally involve both parties agreeing to be bound by the decision of an agreed third party expert. In the UK such experts are appointed by the government-supported body called ACAS, the Advisory Conciliation and Arbitration Service. The third party reviews the bargaining position of both parties and provides a compromise position that they believe meets the needs of the parties and protects the interests of the business. It is normally a compromise between the two. Industrial relations commentators argue that this encourages the parties to give little away in their own negotiations for fear that the arbitrator will further concede in the compromise. In other words a dependency culture develops around a reliance on a third party to resolve disputes. This clearly works against the culture of building effective internal management employee relations built on one of our key SHRM values of commitment and flexibility of the parties. Pendulum arbitration is focused somewhat differently. The arbitrator is commissioned to review the cases of both parties and must choose the best case as they see it, either the union claim or management offer. This encourages the parties to negotiate in good faith to provide the most realistic position that can be established to address the business/employee interest. The arbitrator is more likely to select the
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best case that recognises these needs. Such a process is felt to emphasise the importance of the internal processes and culture of dialogue. Hence the inclusion of pendulum arbitration has been encouraged as a means of last resort conflict resolution within a package of new style employee relations aimed at consensus building, providing a realistic view of business need and employee rights to a voice and involvement in business developments. This concludes our review of how mechanisms of procedures for the resolution of conflict might be adapted into an SHRM template and be integrated more effectively to ensure that organisations that are faced with the need or choice to engage with and develop a business led approach to employee relations may do so whilst avoiding the apparent disadvantage of the old style industrial relations, which in SHRM commentator eyes did not support the development of effective business strategies.

Partnership agreements
We have been building up to defining what we mean by partnership for some time. In the UK, the Involvement and Participation Association (IPA) launched a project in 1992: Towards industrial partnerships: A new Approach to Relationships at Work (IPA 1992). The document was endorsed by a joint body of employers and trade union leaders. The document identified three commitments and four building blocks. The commitments were:

Parties subscribe to the success of the enterprise. Building trust and greater employee involvement. Recognising the legitimate role and responsibility of the
parties. The building blocks were:

Employees need employment security and employers


need to maximise job/organisational flexibility.

Success should be shared by the organisation and its


employees.

Staff should be widely informed and consulted at the


company level on matters affecting their employment.

Employee interests (voice) need representing.


Many of these principles have already been recognised in the so-called NIR and amplified into specific action in terms of recognition, collective

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bargaining and dispute resolution. These are important steps. Unions have to shift their ground from promoting social goals and employee rights to promoting the prime needs of the enterprise in a market economy. Employers have to share power effectively in certain areas whilst retaining managerial rights. Their commitment is not to a variable approach to employees based upon power in the market but in long-term engagement. The Blue Circle and British Airway agreements are close embodiments of these mutual partnerships.

ACTIVITY
In what ways does partnership support the goals of SHRM?

ACTIVITY FEEDBACK
You may have noted the links to the four SHRM activities of flexibility, quality, integration and customer responsiveness, and generally the performance enhancement goal. Partnership enshrines the need to make jobs and organisational processes flexible without unreasonable union interference, providing managers involve, communicate intentions to and fully develop staff for changes. Enhancement of quality and innovation are firmly in the organisational domain of decision making to meet customer needs. The shift from personnel, rules and procedures to HRM can do responsiveness is apparent.

However, there are other important aspects of partnership. It promotes a shared vision, aligns values and promotes consensus in a stakeholder context. Employees are legitimate stakeholders (balanced scorecard technique) alongside customers and shareholders. The alignment is not achieved exclusively through management practices but more substantially through joint collaboration.

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ACTIVITY
Spend a few moments matching ER practice to partnership principles and building blocks. For each item in the list below, suggest an example of ER practice. We have done the first one for you.
Principles Success of the enterprise Trust and involvement Legitimate role of the parties Building Blocks Employee security Maximum flexibility Shared success Information and consultation Representation and voice Business objective priority BA/Blue Circle

ACTIVITY FEEDBACK

Principles Success of the enterprise Trust and involvement Legitimate role of the parties Building Blocks Employee security Maximum flexibility Shared success Information and consultation Representation and voice HRM & job guarantee Productivity agreements, multi-skilling Organisation-wide bonuses, profit share Works councils, team briefing, etc Collective bargaining, joint consultation Business objective priority BA/Blue Circle Sharing information, participation in TQM, etc Recognition agreement NIR

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The list in the last activity provides the one example of the key HR levers that can provide effective integration of the partnership approach. The original conceptualisation of HRM is often used in a more restrictive way, to denote individualistic ER operating without unions, as a unitary policy outlook focusing on employer and corporate culture. A broader best fit approach emphasising stakeholding, mutuality and alignment of values based on balancing interests, seems to offer more promising prospects whereby SHRM is not marginalised in environments that support collective ER as an alternative to or in parallel with individual ER. SHRM, therefore, might be seen to have wider business relevance. Certainly the WIRS 4 survey data would support this view. SHRM can, therefore, represent broader interests than those of management. Under these conditions Ulrich (1997)(see Unit 1-2) sees a full spectrum of HR interventions covering Business Partner, Administration (Policy and Reward Practice) Expert, Change Agent and Employee Champion. Sceptics may argue that this is still social manipulation and the incorporation of union objectives and purposes.

CASE STUDY
The article below represents the changing nature of workplaces and the growth of new key labour markets, which have largely been outside the organisational scope of trade unions. It considers whether the typical workplace offers us the opportunity to practise SHRM in a strategic sense. The case also illustrates some of the pitfalls of adapting SHRM and integrating effective ER strategy. As you read this case you might like the following question: 1. What are the tensions demonstrated in modern employment environments between SHRM practices and employee relations?

Case study Comeuppance Calling by Seamus Milner, (The Guardian, 26 November 1999. Source: Salamon 2000) This weeks walk-out by thousands of BT call centre workers the first ever nationwide strike in the fastest-growing sector of Britains much-vaunted flexible labour market will have come as a rude awakening to those who imagined such confrontations to be an anachronism in these engine-rooms of the post-industrial economy. Faced with an unexpectedly effective campaign of disruption and alarmed that its customer service workers new-found industrial confidence might prove catching, BT managers, are now deep in talks with the Communication Workers Union about how to address its members grievances.

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But their discontent which is focused on a 19th century management style, impossible targets, stress and understaffing, rather than pay goes to the heart of the way these white-collar factories operate. Damned as the sweatshops of the 21st century, call centres are in reality the logical extension of the Fordist production methods of the early 1900s to the frontline of the emerging 24-hour service economy. They represent the apogee of the time and motion theories of industrial management pioneered by Frederick Taylor 100 years ago. As Sue Fernie, research fellow at the London School of Economics Centre for Economic performance, puts it: The possibilities for monitoring behaviour and measuring output in call centres is amazing to behold the tyranny of the assembly line is but a Sunday school picnic compared with the control that management can exercise in computer telephony. In the archetypal call centre of the late '90s, thousands of mainly women workers sit in serried ranks in giant hangars, answering telephone inquiries to a predetermined script in relentless succession and under perpetual supervision, each call and its duration recorded, each visit to the lavatory carefully rationed. Companies such as BT are prickly about what they regard as one-sided stereotypes. But given that a key rallying point in the current dispute has been the threat of disciplinary action if workers fail to complete every call within 285 seconds, it is scarcely a surprise to discover that one popular software package used by a call centre management is marketed as Total Control Made Easy. ... it has been, the combination of the impact of integrated computer and telephone technology, the falling cost of long-distance calls and availability of low-cost labour in areas blighted by industrial decline Leeds, Liverpool, Sunderland, Glasgow and now Belfast are the industrys hot spots that has fuelled the call centre boom of the past decade. Banking and financial services led the way, but now call centres are increasingly becoming the crucial contact point between producer and consumer in every imaginable service industry, from travel information to tax advice, holidays to health services, and are now spreading to the public sector. ... The consensus is that there are now about 250 000 call centre agents, as head-set operators are known, working in Britain, accounting for nearly half of the European market. BT, Sky and First Direct the first bank to operate entirely without branches are the biggest players in the field and the largest call centres, in Scotland, employ upwards of 4000 people. ... Contrary to industry mythology, most call centre workers are full-time staff and around half are covered by union-negotiated agreements, though some employers are aggressively anti-union. Salary rates range from 8-17 000, the finance union Unifi says, with the majority in the 10-l3 000 range roughly half national average pay and heavily dependent on performance bonuses. But staff turnover is notoriously high and sickness rates are said to be double the average for the finance industry. The stress and tedium means 18 months is
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the average length of time in each call centre job and in some cases annual turnover can be as high as 80%. With a tightening labour market, employers have been forced to jack up pay and improve conditions to attract new recruits. Some are now even providing on-site jacuzzis. But, despite its meteoric growth and the added impetus of the Internet, most observers believe the call centre will turn out to be only another way-station in an accelerating industrial revolution. With further call-switching to lower labour-cost centres abroad, the expansion of e-commerce and rapid advances in speech recognition technology, call centres are eventually likely to start closing as quickly as they opened. The OTR Group, a communications consultancy, recently forecast that automation would eliminate 40% of all call centre staff within the next five years. But BT believes that will prove exaggerated. People will still want human contact, a spokeswoman says.

CASE STUDY FEEDBACK


You may have identified the following: SHRM practice:

High work performance; measured and monitored outputs. Assembly line office working to ensure productivity and
performance measures are met.

Repetitive customer engagements; low work variety to assure


standards and consistency.

High evaluation of performance. Standardised role behaviour trained in via the induction process. Emphasis on cost minimisation. High dependence on performance incentives.
SHRM problems:

Motivation, alienation and retention. Lack of investment in training.

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High recruitment and replacement costs. Competitive wage markets between call centres. Poor leadership and ER.

Call centres have grown rapidly during the 1990s and the early part of the new millennium, employing large numbers of staff within high unemployment areas of the UK. Since the article in the last activity was written, call centres, often the derivatives of large blue chip organisations, have reviewed ER practice. Wider management training exemplified by the University of Sunderland Service Manager Certificate for an international insurance organisation, together with a wider range of employee involvement strategies, have alleviated some of the tensions raised by the article. However, the case is still relevant in highlighting potential weakness of the SHRM principles: hard (employee as a cost) versus soft (employee as a resource) strategy. Before we leave the theme of partnership we should briefly review the key employee process embraced within the involvement and participation family. They are critical for underpinning the criteria of partnership.

Trade union leadership perspectives


Marks (1998) restates the TUC terms for partnership:

Employment security. Employee voice. Fair reward. Investment in training.


He emphasises the need for a change in corporate governance that aims to improve fundamentally workplace relationships of trust, respect and leadership commitment. This, he believes, leads to a sense of insecurity and lack of commitment and identity within organisations. He criticises organisational short-termism and lack of longer-term investment that promotes an enhanced stakeholding. A stakeholder company might be described as an organisation that balances the interests and roles of shareholders, employees, customers and suppliers, and other interested parties such as government and the community, the public. Marks (1998) identifies the criteria against which the TUC measure a stakeholder company as follows:
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Legal duties of directors to reflect interests of employees,


suppliers and customers.

Partnerships supporting SHRM. Quality standards for the customer. Community involvement; recruitment to reflect local
community.

Job security and flexibility bargaining. Financial participation in SHRM by employees. Commitment to develop workforce skill.
Marks places stakeholding and partnership at the heart of the UK competitiveness agenda. In a sense, it is a knowledge economy manifesto. He reinforces the message by linking the TUC position to the OECD research showing that employment tenure (service) is strongly linked to employer and employee commitment to training, development and SHRM development. Clearly Marks, the OECD and UK governments over a period of nearly ten years regard SHRM intervention, including a core role for ER, as central to delivering economic, organisational and individual success. We end this unit with a case study.

CASE STUDY
Read the case study below, and as you read reflect on the following case study questions: Mindful of Powercos dual strategy of shaping employee relations arrangements to the circumstances of its regulated distribution and supply business and its non-regulated businesses (in particular electrical appliance retailing): 1. Consider the policy choices facing managers in devising new arrangements for staff representation, including trade union recognition, bargaining and consultation arrangements and the role of workplace union representatives. Consider how the company might take maximum benefit of the opportunity to carry out a major overhaul of pay and rewards. Attention should focus on the means by which pay systems and structures might be re-modelled and also the steps to be taken to link pay with measures of individual, team and business performance.

2.

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3.

Consider how the company might amend its working time arrangements in order to respond to its goal of enhanced customer responsiveness and service quality.

Changing employee relations at Powerco by Hamish Mathieson, (McGoldrick 1996) Introduction The following case is concerned with the employee relations policy choices faced by managers in a regional electricity company. The creation in 1990 of 12 privatised regional electricity companies (RECs) in England and Wales set in motion changes in the organisational and cultural context framing the management of employee relations. Prime elements in the new context are the introduction of competition, pressure to reduce operating costs and the companies perceptions of themselves as separate businesses in which meeting shareholder and customer expectations are accorded high priority. The case focuses on decision making in three key areas: bargaining and consultation arrangements, pay systems and workforce flexibility. Back to the case The essential tasks of the industry are the generation of bulk electricity in a network of power stations, its transmission via the high voltage National Grid, and its ultimate distribution and supply to consumers on a local basis. Prior to the passage of the Electricity Act 1989 which triggered the privatisation process the industry was structured (at least in England and Wales) on the basis of a vertical separation between the upstream generation and transmission activities undertaken by the Central Electricity Generating Board (CEGB), and the downstream distribution and retailing functions fulfilled by a collection of regional area boards. The industry in Scotland, on the other hand, demonstrated full vertical integration of generation, transmission and distribution functions undertaken by two regional electricity boards. An analogous arrangement applied in Northern Ireland. So far as England and Wales are concerned, the post-war pre-privatisation era, set in train by 1947 legislation nationalising the industry and further legislation a decade later, was characterised by two important features. 1. There was little competition. Successive governments prioritised continuity of supply and capital investment in hardware ahead of measures to enhance competition. Moreover, the prices charged to consumers by area boards were heavily influenced by the tariff terms upon which the monopoly generator, the CEGB, sold bulk electricity to the boards. Some commentators likened the relationship between the CEGB and the area boards as one of domination and subservience. The industry was production-driven. The statutory duty to keep the lights burning and meet demand from the consumer rested with the CEGB. As a consequence the industry became engineering-led and also acquired a reputation for extensive procedural bureaucratisation.
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None of this, however, should mask the sustained expansion and success of the industry in terms of capital investment, technological change and productivity growth. The 1989 Electricity Act has brought substantial changes in the organisation and operations of the industry. In introducing the governments plans for the industrys privatisation the Secretary of State for Energy declared that his proposals were aimed at transforming a producer-dominated industry into a consumer-led industry. This has subsequently entailed the break-up of the CEGB and the creation in its place of three competing power-generating companies in England and Wales National Power, Powergen and Nuclear Electric. In Scotland, the successors to the integrated area boards are Scottish Power and Hydro-Electric, together with the nuclear generator, Scottish Nuclear. Privatisation also created 12 regional distribution companies in England and Wales (the RECs), whose powers and responsibilities significantly exceed those of the former area boards. They exercise control over the transmission grid through joint ownership of the separately constituted National Grid company; they are able to buy bulk electricity from whichever generator they wish; and they may enter the field of generation themselves. The RECs operate under a public electricity supply (PES) licence which places upon them the statutory obligation to meet demand formerly held by the CEGB. Compliance with the terms of the licence, which also requires the companies to separate different businesses (distribution, supply, appliance retailing, electrical contracting, telecommunications, etc.), is monitored by the Director General of Electricity Supply (DGES) at the Office of Electricity Regulation (OFFER). A principal role carried out by the DGES the Regulator is to supervise the prices charged by the RECs to their customers for the distribution and supply of electricity in which they have regional monopolies. These so-called regulated businesses are responsible for the management and operation of the physical distribution network in the franchise area and the purchase of electricity from generators and its sale to consumers respectively. Taken together the distribution and supply businesses may typically account for 90 per cent of profits with the non-regulated activities (appliance retailing, electrical contracting, telecommunications, etc.) accounting for the rest. Several implications arise from the regime imposed as a result of privatisation so far as the RECs are concerned. 1. Decisions by the DGES to cut the future allowable level of prices the RECs may charge their customers for electricity are likely to affect the companies projected income and profits levels. Consequently, managers are under pressure in such circumstances to cut operating costs and increase efficiency to compensate. A strategy of diversification involving expanding non-regulated businesses may also be chosen as a route to top-up profits.

2.

Although the RECs are less exposed to competition than the generators by virtue of the regional monopolies in their distribution businesses, they nevertheless face competition for the supply of
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electricity to non-domestic large consumers of which there are estimated to be 50,000. A further spur to competition is the plan due to be realised in 1998 allowing domestic electricity customers to choose between alternative suppliers. 3. The responsibility placed on the RECs to meet demand by their holding of PES licences requires managers to be vigilant in ensuring responsiveness to customers and quality of service. To this end the DGESs brief includes monitoring the companies efficiency in dealing with customer requirements. Company managements cannot ignore the fact of their companies stock exchange quotation; sensitivity to shareholder and City expectations and, since April 1995, the possibility of take-overs and mergers, act as a stimulus to management practices which never lose sight of the bottom line.

4.

Employee relations in the industry Employee relations in electricity supply have been characterised by sophisticated collective bargaining and consultative machinery, stability and relative industrial harmony. In many respects the arrangements introduced following the legislation nationalising the industry in 1947 and surviving until privatisation mirrored the classic Whitley pattern. Negotiations were conducted at national, i.e. industry, level in four separate collective bargaining machines covering different sections of the workforce. These bodies were made up of senior members of the electricity boards together with senior trade union officials. They were:

The National Joint Industrial Council (NJIC) which covered the


largest group of employees, industrial manual staff including foremen, represented by the craft-based EETPU and AEU (merged in 1992 into the AEEU) together with the GMB, TGWU and UCATT.

The National Joint Council (NJC) covering professional,


administrative, clerical and sales staff, including the majority of female staff in the industry and represented largely by NALGO (incorporated into Unison in 1993) and GMB/APEX.

The National Joint Board (NJB) covering the strategically


powerful professional engineers represented by the Electrical Power Engineers Association (EPEA).

The National Joint Managerial Committee (NJMC) covering


managerial staff up to executive level and also represented in the main by EPEA and NALGO. Below the national bodies there existed district (regional) and local (works) level committees for each bargaining group responsible for ensuring the proper implementation of national agreements and resolving any difficulties. In

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addition, there were formal disputes procedures with stages at local, district and national levels plus arbitration and a parallel three-tier union-based machinery of consultation. Several important outcomes resulted from such arrangements. 1. Collective agreements tended to be highly formalised and comprehensive in scope, given the intention of their framers that the terms would apply to the complex circumstances and eventualities of an entire industry. The strong commitment of the employers to a centralised, collective model of industrial relations entrenched the trade unions while also concentrating union power in the hands of full-time officials. This together with the tendency of the disputes machinery to refer issues upwards removed a stimulus for workplace union organisation. The arrangements delivered benefits to both parties: employers achieved significant changes in working practices, reductions in manpower and productivity improvements with remarkably little union resistance through industrial action. Employees experienced pay and conditions terms which were superior to the norm in many cases. The role of central government cannot be overlooked, as ultimate paymaster to the industry and being directly responsible for keeping the lights on, given the potentially devastating industrial strength of the power workers. Balancing these roles ensured that political influence in the industrial relations affairs of the industry was always present whether in blatant forms or via backstairs whispers.

2.

3.

4.

Overall, however, the traditional pattern of employee relations management conformed closely to the good employer model in which collective bargaining and widespread union recognition was central. The trade-off for union recognition was an expectation of union co-operation in issues such as increasing productivity and in introducing new working practices and new technology. This was largely delivered. The advent of privatisation The fragmentation of the industry into 19 separate companies after privatisation has provided an impetus and a vehicle for change in the management of employee relations. As companies respond to the post-privatisation marker-oriented climate in which they are responsible for their own destinies, managers are faced with a range of employee relations issues and choices:

What is to be the mix between individualism and collectivism? How is bargaining and consultation to be conducted? What reward systems are to be introduced?

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How might the workforce become more flexible in order to


meet quality and service performance targets? It is to these questions that we now turn in considering the case of Powerco plc. POWERCO PLC The company, in common with the other former area electricity boards, was floated on the Stock Exchange in 1990 in its new guise as a regional electricity company (REC). As one of the larger RECs, it employs approximately 8000 people in its seven businesses, reflecting the companys strategy of becoming established as a diversified utility services group. At the core of the company are its electricity distribution and supply businesses which together employ around 5000 in tasks such as the maintenance of the distribution network and in billing and meter reading, and which make by far the biggest contribution to Powercos profits (approximately 85 per cent). Clearly the performance of these businesses is critical to the success of the company. These are also the regulated businesses subject to the scrutiny of the government-appointed Regulator who conducts periodic reviews of the allowable charges which the company may make to its domestic customers for electricity. In a recent review, the Regulator ordered that distribution charges be cut by 14 per cent in the next financial year, followed by four years in which charges must be reduced by the Retail Price Index (i.e. the rate of inflation) minus 2 per cent. Powerco has calculated that the price caps will have the effect of reducing company income by 300 million over the next five years. In a recent statement the Chairman responded by declaring that unless the company significantly reduces its costs there will be a substantial loss in profits which would be unacceptable to shareholders who might shift their investments elsewhere to the long-term detriment of the business and job security. Given that the pay bill accounts for the largest proportion of the companys controllable costs, Powerco has announced the shedding of 1200 jobs over a five-year period, almost a quarter of current core business staff numbers. As part of the restructuring, five area offices will be replaced by three regional offices. A voluntary severance scheme has been introduced to assist in the avoidance of compulsory redundancies. Other requirements specified by the regulator involve the setting of more demanding standards of service to customers. In response Powerco is developing a number of customer centres, dealing with customers electricity enquiries, which have opening hours extending into the evenings. The core business workforce is heavily unionised with union density standing at 85 per cent. Industrial (manual) staff are organised by the AEEU, GMB and TGWU, with the former union accounting for three quarters of the membership. Clerical, administrative and support staff are organised mainly by Unison while professional engineers are represented by the EPEA (part of the Engineers and Managers Association, the EMA). In terms of the proportions of total union membership in the core business, the AEEU and Unison account for approximately 75 per cent, divided equally. The EPEA has 15 per cent with the GMB and TGWU sharing the remaining 10 per cent between them.

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In sum the business priorities in the core or main businesses are to retain and build on the traditional base by a combination of cost reduction, increased efficiency and improved standards of customer service. The non-regulated businesses A second plank in company strategy is to vigorously pursue the exploitation of potentially profitable opportunities in non-regulated business areas. Such an approach is designed to reduce the dependence of Powerco on profits from the regulated business, particularly at a time in which it will be increasingly exposed to competition in these traditional markets as a consequence of the decision to permit domestic consumers to buy their electricity from competitor power companies in 1998. A major element in the strategy for the non-regulated sector of activities is the expansion of electrical appliance retailing. The company inherited a string of high street electricity showrooms from its predecessor area board but has since embarked on an ambitious strategy of opening up out-of-town superstores located in retail parks, a number of which are outside its heartland area. Moreover, Powerco has acquired additional such stores plus a number of high street shops from another REC, again geographically remote from company HQ. Plans have been announced for further expansion. As a result of such growth almost 60 per cent of sales come from superstores, and the losses in electrical retailing chalked up in pre-privatisation days have given way to growing profitability. This turnaround in fortunes has been against a background of intense competition and PES licensing rules which prohibit the cross-subsidising of retailing operations by the much more profitable distribution business. A key factor has been the employment of managers from the retailing sector who have sought to change the culture from being an arm of a state-owned industry to a free-standing business which can compete with the established giant electrical goods retail chains. In addition, however, staff have been subject to a pay freeze on basic rates for the past year. Powercos retailing operations are less well unionised than the core business around 50 per cent of staff are in membership. Membership has been falling following privatisation, particularly as a result of the companys expansion into the poorly unionised superstore sector. The vast majority of union members are in either the AEEU, covering groups such as delivery drivers and after-sales service staff, or in Unison which organises shop sales staff. The share of total membership is two thirds to Unison, one third AEEU. While Powerco continues to recognise unions for bargaining purposes in its high street locations it has yet to follow suit in respect of its retail park stores. The survival of the retailing business would seem to depend to a large degree on an aggressive market-place presence and sustained pressure to drive down costs, which inevitably focuses on staff deployment and pay, given the labour-intensive nature of the operation. Powerco maintains a contracting business which undertakes a range of industrial, commercial and domestic electrical work and has recently added to its portfolio the supply of double-glazing and cavity wall insulation. Trading conditions have, however, been very difficult on account of recessionary
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conditions in the construction industry and in the housing market. The company has wielded the scalpel and staff numbers have been reduced by 20 per cent as part of a restructuring exercise. This has returned the business to profitability following several years of losses. The contribution of a 36-month pay-freeze and an increase in the length of the working week from 37 to 41 hours negotiated with the AEEU the union which represents the mainly electrician membership must also be noted. In addition, new staff have been recruited on terms and conditions negotiated nationally for the electrical contracting industry. Nevertheless there is no room for complacency and continued progress depends on tight control over costs (especially labour costs which comprise two thirds of a typical contract), competitive pricing and quality of service. Two other businesses have recently been started, telecommunications and gas, in order to exploit the liberalisation of markets in telecoms services and in gas supply. These are at an embryonic stage but are expanding rapidly. Finally the company has made its first foray into electricity generation via a number of investments and joint ventures in environmentally friendly generation schemes at home and abroad. A significant percentage of staff in these businesses have personal contracts. Employee relations in POWERCO The employee relations inheritance At the time of privatisation, Powerco, in common with the other regional electricity companies, depended upon the long standing national collective bargaining arrangements for the orderly determination of pay and conditions. Pay bargaining, therefore, took place against a background of pay data relating to national trends, supplied by the employers industry association (the Electricity Council, later Association). Four separate bargaining groups existed: industrial workers (ranging from unskilled labourers to skilled time-served craftsmen), professional engineers, clerical and administrative staff, and managers. The resulting highly detailed and prescriptive agreements were designed to try to minimise the risk of disruption to electricity supply in what was seen as a single vital industry. Industry agreements, however, each of which had a different annual review date, did not provide for an integrated pay structure or common terms and conditions across the bargaining groups. Nor did they specify common procedures for handling disputes, grievances and disciplinary matters. Instead each agreement contained its own grading and pay structure; consequently Powerco inherited a pay structure with, in total, nearly 30 grades and over 200 salary points. Moreover, agreements varied in relation to the length of pay scales measured in terms of the number of salary points, in degrees of overlap and in minimum and maximum salary levels. Salary ranges within grades also tended to vary in width. In addition, there were differences in staff entitlements in relation to holidays, in standby, call-out, meal and car allowances, in travelling expenses and in premium payments for overtime and shift working. Some of these disparities gave rise to rankles among the industrial staff in particular centring on what they saw as their inferior status in comparison to the professional engineers. Tension between the craftsmen and the engineers also surfaced in respect of
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work demarcation; for example, engineers guarded their right to authorise the isolation of power lines prior to work being undertaken by manual staff. Craftsmen felt that such duties were well within their competence range. The ensuing restriction on the ability of top-graded craft workers to move into areas of work traditionally the preserve of professional engineers impeded the progress of workforce flexibility. More generally technological change has tended to remove some of the traditional rationale for the strict classification of the workforce into manual, staff and professional categories. The vulnerability of the traditional pay determination structure to claims under the equal pay for work of equal value amendment to the Equal Pay Act has been demonstrated by a series of legal cases and other claims against electricity companies, including Powerco. NALGO (now Unison), which represents the majority of female staff who are concentrated in the clerical and retail sales grades, claimed that pay inequities were sustained by the operation of the separate bargaining machines. This led to comparisons being made between jobs in the clerical structure, and those mainly undertaken by men in the industrial pay structure in which the grades have both shorter numbers of salary points from bottom to top and higher minimum and maximum salaries. The success of the union campaign has been reflected in a series of favourable reports from independent experts and also the verdict of an industrial tribunal that the jobs compared were of equal value. As a result the company is anxious to avoid further equal pay claims. Several other significant features of the traditional collective bargaining arrangements may be mentioned. 1. Progression within grades was related to service; although progression was dependent on satisfactory service, the absence of explicit criteria meant that failures to progress were a rare occurrence. The salary scales specified in the pay structures applied throughout the company as a unified entity; thus the pay rate and other terms and conditions of employment of a person, in a given grade, would be identical whether he/she worked in electricity distribution or retailing. All national agreements fixed the basic average working week at 37 hours; they also specified, however, that these hours would be worked on a rigid day-working pattern, Monday to Friday. Any time worked outside the 9 to 5 pattern attracted overtime payments. Senior managers and engineers had their pay and conditions determined collectively. The national negotiating machines spawned separate local (district and in-company) joint management/union works, staff and technical staff committees whose role was to police the operation of the national agreements, dealing with such matters as working schedules and shift rotas. A company-wide Joint Consultative Council including reps from all unions met to discuss non-negotiating issues ranging from welfare matters to technological change.

2.

3.

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5.

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Management and Unions The traditional pattern of employee relations in Powerco accorded trade unions a central position. This derived in part from the unions strong claim to representativeness of staff interest based on very high membership levels. It also reflected prevailing management attitudes, however. A culture of almost automatic consultation with union representatives characterised relations; thus prior to negotiations management would tend to quietly consult union negotiators about its proposals, to gauge reactions. Communication of these proposals to the wider membership was left to the discretion of the unions. Following the conclusion of negotiations the results would be communicated to the workforce via a joint management/union communiqu. Another reflection of management style was in relation to the facilities afforded to shop stewards: the procedural agreement provided that time-off would be granted in relation to electricity industry industrial relations business, thus allowing facilities for attendance at cross-industry union meetings and geographical mobility in the local district. In individual workplaces, such as depots, shop stewards had the freedom to represent all union members irrespective of their possible employment in different divisions of the organisation. Privatisation and new employee relations strategies Powerco is moving to devise employee relations strategies in order to facilitate its business objectives. The companys priority in an increasingly competitive market place in all its businesses is to continue to be profitable by developing a more commercial approach and by becoming more customer-service oriented. The cost, quality and productivity of staff are identified as the major factors in remaining competitive. Moreover, the company is concerned to adopt strategies which match the particular product and labour market circumstances of the core distribution business on the one hand, and the developing non-regulated businesses on the other. In common with all the other RECs, Powerco has given notice to the trade unions of its intention to withdraw from national bargaining arrangements and move to company bargaining. The move is justified by the obsolescence of national bargaining in a situation in which the company is an independent business in competition with others in the industry (and elsewhere). The advantages are seen to lie in the customising of pay and conditions to business objectives and local markets, the streamlining of bargaining machinery and pay structure and the facilitation of greater workforce flexibility. The move is also seen as an opportunity to overhaul joint consultative arrangements. The company has recently restructured its personnel function. A new Personnel Director has been appointed at the slimmed down corporate centre with responsibility for developing human resources strategies. Each business has in turn set up its own personnel office with responsibility for day-to-day policy implementation. Apart from the strategic move to devolve bargaining, the personnel function has recently made public the framework of Powercos employee relations strategies in other important areas. Among these are:

Reward. The company will develop pay and benefits


arrangements which are appropriate to business needs and
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which are sufficient to attract, retain and motivate staff. In addition to market rates, pay and benefits arrangements will be based upon flexibility, equity and objectivity, merit/competence-based progression and the relation of reward to business performance. Salary adjustments will henceforth be subject to periodic review of company performance and ability to pay, external salary data on the employment market, and pay claims submitted by the trade unions.

Communications. The company will ensure that everyone


understands where the company is going and how it is doing. It will encourage people to behave as if Powerco were their own company.

CASE STUDY FEEDBACK


1. This case emphasises how ER strategies can support strategic change. The change will affect the structures, systems and culture of ER. It may indeed shift the model of IR based on IR to ER and linked to a wider SHRM philosophy. Specifically the organisation will need to consider:

- single table bargaining - decentralised bargaining to meet business unit needs - partnership agreements to address performance, flexibility and
work practice issues

- individualism, I&P principle to enhance performance and build


commitment

- structural change to achieve team working in the non-regulated


businesses, for example

- performance management systems particularly in regulated


businesses

- reducing the scope of recognition and collective bargaining


agendas to allow greater managerial prerogative

- retaining joint consultative council and include non-union


members

- reviewing reward strategies to emphasise personal


contributions as well as job demand to facilitate innovation and performance enhancement

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- reviewing salary scales with a view to harmonisation to


support organisational restructuring (delayering) in business units

- wider use of salary incentivisation to support business


objectives: see the PMS performance pyramid in Unit 4

- localised business unit bargaining limits derecognition


based upon employee ballot, for example, manager/professional staff. 2. You should now review Lawlers (1984) reward decision frameworks to review the choices to ensure that pay supports organisational developments. In question one we have highlighted:

- reward base: job to person/skill - create incentives: team, SBU targets as well as individual
performance targets

- create scope for progression through broad-banded


salary scales to reflect market performance and personal contribution

- introduction of more broad band PMS focusing on


individual development and broader based market and financial criteria

- harmonisation of salary structure to reduce status


differentials

- market tested salaries to reduce internal relationship


orientation

- consider introducing JE to reflect evolving job demand to


meet market change

- continue to engage/communicate with staff on reward


policy

- shift reward/pay balance away from retention via benefits


to allow new skills to be imported within the career system

- reduce union involvement in pay determination of


performance aspects

- expand and improve appraisal feedback system - enhance management skill in performance management.
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3.

Working time arrangements need to embrace aspects of flexibility, which might include:

- annualisation of working contracts to allow for flexible use of a


defined set of hours to meet fluctuating seasonal demand

- introduction of non-standard or atypical work contracts


including shift work

- develop Service Centres or Call Centres control


technologies

- define service competence and standards for inclusion within


recruitment, development, appraisal, career planning and reward strategies.

Summary
Our starting position for this unit was that IR/ER might not fit the SHRM paradigm. This might seriously limit its appeal and utility. Investigating the components of, and values behind, IR/ER and partnerships arrangements reveals that significant benefits and options are available in securing employee commitment, flexibility and performance enhancement through the careful selection of appropriate and well-matched ER strategies. So, far from discarding ER from the strategic appraisal, managers within defined limits include ER firmly within the strategic model to shape attitudes, behaviour and organisational culture. In studying this unit we have addressed the significant environmental and historical as well as cultural issues that shape the ER landscape and influence management choice. Not least amongst these influences is the mindset of managers and their perspective on whether ER is a viable and legitimate area in which to devolve powers, or whether market and business objectives should prevail. As we saw in Unit 2, Ulrich (1997) would advocate the employee champions role in HRM as an important agent of strategy. Ulrich probably had in mind the need for managers to lead on ER as an alternative to unions. However, as we have seen, SHRM is shifting from a more straightforward integration of employee interests with those of the organisation and its shareholders to a more sophisticated integration of various stakeholder interests within and across organisational boundaries through the customer, community and employee value chain. This unit has attempted to address the option of using this more complex level of integration to secure wider commitment. This unit, and in particular the discussion around partnership, could be said to mark a major step in strengthening the validity of SHRM, giving greater weight to the best fit approach, and indeed offering breadth of relevant
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coverage of the best practice modes of SHRM, previously seen as the domain of non-union or non-collective oriented organisations.

REVIEW ACTIVITY
Question 1 What are the primary constraints on management decision making in IR/ER? Question 2 What are the primary strategies and operational choices available to managers? Question 3 Recommend and differentiate a preferred IR/ER management style to meet SHRM best practice, SHRM best fit and SHRM resource-based view (RBV) objectives. Question 4 What are the main ER practices that will support the achievement of SHRM? Question 5 Identify three distinguishing features of New Industrial Relations and partnership agreements. Question 6 How can ER strategy achieve cultural change within organisations?

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REVIEW ACTIVITY FEEDBACK


Answer 1 The primary constraints on management decision making in IR/ER are national culture and IR systems, organisational limits and culture management, and employee preference for individual and collective ER practices. Answer 2 The primary strategies include partnership, consultation, constitutional approaches and adversarial approaches. The operational choices involve recognition of trade unions, collective bargaining, conflict resolution and involvement and participation Answer 3 SHRM best practice: ER heavily based upon tasks level involvement and participation. SHRM best fit: Partnership to IR/constitutional practices. SHRM RBV: Paternalism to ER with extensive use of I&P practices closely assimilated with learning rather than procedures. Answer 4 The main ER practices that will support the achievement of SHRM include involvement and participation practices that are normally associated with achieving SHRM objectives. These operate at the task and power levels. Answer 5 New Industrial Relations is characterised by:

Single union/single table. Extended compulsory arbitration. No strike/no disruption. Broad based consultation. Defined and limited bargaining. Emphasis on tasks based involvement.

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Partnerships agreements are deficit by:

Core principles and building blocks. Enterprise success. Trust and involvement. Legitimate role of parties. Employee security. Maximise flexibility. Informing and consulting. Representative and voice.
Answer 6 ER strategy can achieve cultural change within organisations if staff are involved in problem solving and participation activity that empowers and develops self-development capability, which in turn enhance learning potential and experiential change.

References
The Strategic Managing of Human Resources, edited by John Leopold, Lynette Harris & Tony Watson, FT Prentice Hall, 2004 (Key text for this module) Bassett P. (1986) Strike Free, London Macmillan Brewster C., Mayhew W & Morley M. (2000) New Challenges for European Human Resource Management, London, Macmillan Cranfield Network (1999) CRANET survey on European Human Resource Management Cranfield University Cully M., OReilly A. and Millward N. (1998) Workplace Employee Relations Survey: First Findings London Department of Trade and Industry Deary S. and Ireson R (1999). The impact of industrial relations climate, organisational commitment, and union loyalty on organisational performance:

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a longitudinal analysis, Proceedings of the Academy of Management Conference Chicago Illinois . Delaney and Huselid (1996) The impact of human resource management practices on perception of organisational performance, Academy of Management Journal, 39 (4). pp949-69 Dorrington US (1983) High Performance Work Practices and Firm Performance, Washington D.C: US Government Policy Office Green, Madison and Wilkinson D (1996) Trade unions and training practice in British Workplaces CER Discussion Paper No.278, London: LSE Centre for Economic Performance) Guest D, Mckenzie, Downey K and Patel A (2000). The employment relationship, the psychological control and knowledge management: Securing employee trust and commitment. Proceeding knowledge management: concept and controversies 9-10 Feb 2000. Guest D. (2001) Chapter 6 Human Resource Management. A Critical Text: Thomson Learning. Incomes Data Services (1997) Report No7, London, IDS. Involvement and Participation Association (1992) Towards Industrial Partnerships: a new approach to relationships at work. IPA. IRS report (1997) Jackson SE and Schuler, RS (2000) Managing Human Resources: A Partnership Approach 7th Ed South-Western College Publishing Inventor Thomas Publishing Group. Labour Market Trends, various years Certification Officer Annual Reports. Lawler E E. (1984) Pay and Organisational Development Addison Wesley. Marks J. (1998) General Secretary, UK TUC. Marsh P. (1997) A Shift to flexibility Financial Times 21st February. McGoldrick A (ed) (1996) Cases in Human Resource Management, London, Pitman Publishing Purcell J and Sissons K (1983) Strategies and practice in the management of industrial relations in G.S. Bain (ed) Industrial Relations in Britain Oxford, Blackwell Salamon M (2000) Industrial Relations Theory and Practice (4th Edition) Harlow, Pearson Education

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Sparrow P and Marchington M (1998) Human Resource Management: The New Agenda Financial Times, Pitman Publishing. Storey J (1998) B824 Managing Employment Relations Unit 5 Open University Storey J and Sisson K (1993) Managing Human Resource and Industrial Relations Buckingham, Open University Press. Torrington D, Hall L & Taylor S (2002) Human Resource Management, Harlow, FT-Prentice Hall Ulrich D. (1997) Human Resources Champions Boston, Harvard Business School Press.

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Unit 8

Managing Change: Culture and Performance


LEARNING OUTCOMES
Following the completion of this unit you should be able to:

Evaluate the role of organisational and employee culture in relation


to organisational performance.

Diagnose and evaluate the need for culture change in organisations. Evaluate the nature of different change strategies to suit different
strategic business contexts.

Explain the managerial and employee assumptions that support


change management processes and relate these to selected strategies for change.

Design a planned framework of organisational change. Evaluate and design effective SHRM interaction to support
organisational change strategies.

Explain the components of organisational cultures and relate them to


organisation competence and capability.

Introduction
As the process of change continues to accelerate, change management is a fundamental competency needed by HR professionals. Today organisations are increasingly focusing on creating a high-performance culture to compete effectively in the knowledge-based and globalised business environments they operate in. Creating such a high-performance culture often involves a paradigm shift in organisational thinking, working practices and in the behaviour of its people. HR is the stabilising influence and change champion in bringing about this shift.

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READING ACTIVITY
As an introduction to this unit, read the article 'An Overview of Change Management' at the BPR Online Learning Center website: http://www.prosci.com/change_management_overview.htm Note the two perspectives of change management; organisational change management and individual change management. Both are areas of strategic HRM focus.

This unit will introduce ways of approaching complex change and managing that process. The term we shall use to discuss a range of analytical task and change management strategies is organisational development (OD). However, OD is more than a set of techniques employed by managers to attempt to change the attitudes and behaviour of staff toward corporate objectives. It not only describes methods that managers can use but also sets a philosophy, a value system in terms of how change should be managed. So we must review a number of aspects of managing change as follows:

An assessment of culture and the possibility of change. The assumptions behind change in organisations and an
introduction to change strategies.

Introducing and using OD stages as a particular strategy


for long term change.

A comment on the role of SHRM within change


management.

READING ACTIVITY
Read Chapter 9 of your key text, The Strategic Managing of Human Resources, Edited by John Leopold,