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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
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University of Sunderland 2007
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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

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95
96
99
108

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
250
250
261
262
266
270
272
272
282
288
291

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

293
295
310
311
316
324
337
342
348
353
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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

355
356
357
368
385
410
429
432

Unit 8
Managing Change: Culture and Performance
Introduction
Role of HR in Organisational Development
Culture
Change Management
Summary
References

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435
440
446
464
508
524

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.

U n iversity of
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Strategic Management of Human Resources

Introduction
Knowledge and understanding
1)

Understanding of the origins and models of human resource


management.

2)

Understand the relationship between business strategy and the


core human competencies required of organizations.

3)

Critically evaluate the various models of HRM and the related


stakeholder interests.

4)

To understand and be able to evaluate a range of HRM policies


that constitute a strategy in a context.

5)

Understand and explain the HR variables that can support


organisational change.

Skills
6)

Demonstrate the cognitive skills of critical thinking and analysis.

7)

Be able to conduct effective independent organizational and


information sources research.

8)

Be able to conduct organizational reporting and diagnostic skills.

9)

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.

iv

U n iv ersity of
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Unit 1

Definition and Purpose of


Strategic Human Resource
Management (SHRM)
LEARNINGOUTCOMES
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.

READINGACTIVITY
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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Unit 1 Definition and Purpose of SHRM

Strategic Management of Human Resources

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 1520 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 socalled 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 longterm 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.

U n iv ersity of
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gnikrowmaeT

secitcarp
)MQT( tnemeganaM ytilauQ latoT fo noitpodA

ycarcuaerub dna tnemeganam fo slevel decudeR

stnemeerga level ecivres fo noitpoda

tnempoleved slliks dna edutitta eeyolpme

sucof remotsuc retaerG

Strategic Changes

HR Implications

noissecer cimonocE

yteicos ni sedutitta tnereffiD

noitalsigel tnemyolpme weN

sdeen gniniart
seeyolpme emos fo ycnadnuder

dednamed slliks ni segnahc

ygolonhcet wen fo noitcudortnI

Environmental changes

HR Implications

Strategic Management of Human Resources

Unit 1 Definition and Purpose of SHRM

U n iv ersity of
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tnemngila eulav
sdeen gniniart

egdelwonk
dna gnikam-noisiced ,ymonotua eeyolpme

ffats fo noitapicitrap ,tnemevlovni


,ruoivaheb eeyolpme fo snrettap degnahc

sdeen gniniart desaercni


ecnamrofrep dna ycneiciffe no sucof

gnikrowmaeT

ruoivaheb
evitaroballoc dna noitarepo-oc eveihca
ot krow ot ,tnemtimmoc ,sedutitta ,slliks
lanosrep-retni dna spihsnoitaler eeyolpme

secitcarp

)MQT( tnemeganaM ytilauQ latoT fo noitpodA

krow fo ytisnetni dna ytiruces ni


egnahc ,tnemyolpme fo snoitidnoc dna smret

ytilibatnuocca dna tnemrewopme


erom ,serudecorp dna selur fo noitcuder

sdeen gniniart

stnemeerga level ecivres fo noitpoda

tnempoleved slliks dna edutitta eeyolpme

HR Implications
noitcudorp esaercni ot ecnamrofrep no sucof

krow fo snoitatcepxe tnereffid

ycarcuaerub dna tnemeganam fo slevel decudeR

sucof remotsuc retaerG

Strategic Changes

noissecer cimonocE

yteicos ni sedutitta tnereffiD

snoitagilbo dna sthgir eeyolpme/reyolpme


fo ecnalab eht ni segnahc

sdeen gniniart

dednamed slliks ni segnahc

seeyolpme emos fo ycnadnuder

noitalsigel tnemyolpme weN

ygolonhcet wen fo noitcudortnI

Environmental changes

HR Implications

We thought the implications might include:

ACTIVITYFEEDBACK
Unit 1 Definition and Purpose of SHRM

Strategic Management of Human Resources

Strategic Management of Human Resources

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,
systembased 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):

dna slliks ecracs ssecca ot ytiliba eht snaem sihT

.stessa elbignatni gniganam fo egnellahc ehT

fo smrof wen fo snoitacilpmi eht htiw epoc ot


.snoitasinagro
,egnahc cigetarts gniganam fo egnellahc ehT

rof segnellahc rojam etaerc segnahc esehT

ni ytilibixelf sdrawot sdnert gnidulcni

a eriuqer dna spihsnoitaler dna sedutitta gnikrow

pu kaerb eht ,ngised boj ni dna snoitasinagro

elpoep ot hcaorppa citsiloh dna deniatsus

serutcurts lanoitidart fo dna seicarcuaerub fo

.tnemeganam

.tnemyolpme fo
tahw fo smret ni noitavonni fo egnellahc ehT

emoceb ytivitaerc dna noitavonni ,tnempoleveD

dna sdoog fo yaw yb ecudorp snoitasinagro

gniganam rof sucof a ,stessa elbignatni eroc

.ksat eht hcaorppa yeht yaw eht dna ,secivres

eht gnignirb ,sdrow rehto nI .yllacigetarts elpoep

sucof a htiw rehtegot noitavonni fo sksat ngised


.ruoivaheb yrotavonni no

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:

Actioncentred skills artforms.


Learning from errors reactions of people, anticipation.

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Unit 1 Definition and Purpose of SHRM

Strategic Management of Human Resources

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
problemsolving.
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 Justintime (JIT),
Business Excellence, and Total Quality Management
(TQM)

An assessment of the strengths and capabilities of the


organisation that is, a bottomup 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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Unit 1 Definition and Purpose of SHRM

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?

U n iversity of
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This model is one attempt to establish the concept of the strategic response
and strategic fit of SHRM.
seicilop
tnemtsujda
tnemyolpme
dna ytiruces
boj etaitogeN
.selur krow ni

ytivitcudorp
evorpmI

ruobal lortnoC

evorpmI

niatniam dna stsoc

dna ytivitcudorp

.ecaep ruobal

ytilibixelf eveihca

.elarom
dna noitavitom
eeyolpme
dna ecaep
ruobal niatniaM

noitazinagro
dna yhposolihp
eeyolpme/ruobaL

eeyolpme cisab teS

snoitaler

snoitaler

tnempoleved
lanoitazinagro
dna tnempoleved
secivres

tnemeganam

ytilibixelf niatniaM

tnemelpmI

na fo slliks dna

dna gniniarter

ecrofkrow gniega

gnitlusnoc reerac

hguorht
maet tnemeganam
evitceffe dluoM

sreddal reerac
gnihsilbatse nigeb
gniniart eeyolpmE

lliks erutuf enifeD

tnempoleved dna

dna stnemeriuqer

.serutcurts
noitasnepmoc
lamrof hsilbatsE
.stceffe ytiuqe
noitasnepmoc

lortnoc

tnelat dedeen

dna noitasnepmoC

deecxe ro teeM

stifeneb

tekram ruobal

tub tekram

tcartta ot setar

lanretni redisnoc
lortnoC

tsoc rethgiT

lanretxe teeM

stnemevom
dnuora sboj tfihs
snoitazinagroer
sa ytilibom
egaruocnE
.sgninepo

eziminim ot

ecrofkrow

dna sffo-yal

dna snoitcuder

wen edivorp

noitacollaer

tekram
ruobal lanretni
dipar eganaM
.gninnalp
noisseccus
tnemeganaM
.srekrow

Growth

Maturity

etauqeda tiurceR

egaruocnE

dna nalP

xim dna srebmun

revonrut tneiciffus

deifilauq fo

,tnemtiurceR

tseb tcarttA

dna noitceles

/lacinhcet

gniffats

tnelat lanoisseforp

Introduction

tnemelpmi

Human resource
functions

Decline

Life cycle stages


Critical human resource activities at different organizational or business unit stages

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.

ACTIVITYFEEDBACK
Unit 1 Definition and Purpose of SHRM

Strategic Management of Human Resources

Strategic Management of Human Resources

Unit 1 Definition and Purpose of SHRM

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

Single product in one company

Multiple products globally

noitceleS

tsilaiceps gnisu noitatneiro lanoitcnuF

noitatneiro tsilareneg dna lanoitcnuF

airetirc boj

airetirc evitcejbo dna citametsys gnisu

lanosrep yb derusaem dna evitcejbuS

elpitlum no desab ,evitcejbO

tcatnoc

slaog lanoitasinagro

spahrep detacolla ,citametsysnU

emoS .slaog dennalp ,elpitlum no desaB

yllacitsilanretap

noitercsid tnemeganam pot

a yllausU .ecneirepxe boj hguorht ylegraL

snoisivid ssorca ,citametsys dna lamroF

sucof noitcnuf elgnis

seiraidisbus dna

lasiarppA
sdraweR
tnempoleveD

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.

ACTIVITYFEEDBACK
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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Unit 1 Definition and Purpose of SHRM

Strategic Management of Human Resources

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.

10

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Strategic Management of Human Resources

Unit 1 Definition and Purpose of SHRM

Flexibility of both organisational structure and functions,


based on a multiskilled 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.

tnemevorpmi ecnamrofrep

tnemtimmoC

noitubirtnoc
seitinutroppo tnempoleved
rof epocs dna ytiruces boj

ytilibatnuocca

nopu desab drawer

tnemtimmoc

Organisational expectations
dnoyeb tsurt hsilbatse

Employee expectations

tnemecnahne reerac
.sweiv

dna troffe fo noitingocer


tnemeveihca
dna daolkrow fo ssenriaf

lanoitasinagro derahs

tnemtaert
ytilibixelF
tnemecnahne ytilauQ

U n iversity of
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11

12

U n iv ersity of
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esitrepxe
dna stcudorp devorpmi
sseccus fo tnemerusaem
tnemevlovni
secruoser fo esu tseb
snoitcirtser on
ytilauq suounitnoc
seimonoce/ycneiciffe

dereffo slliks

egdelwonk esu ot epocs


noitamrofni/slliks
noitingocer
ytiruces boj
ytilauqe/noitapicitrap

tnemecnahne ytilauQ

eb dluohs ssecorp krow fo


noitanidro-oc/lortnoc woh
dna erehw ,tnemeganam

tnempoleved slliks

fo slevel ynam woh .e.i ,eb

krow fo emit

noitasinagro fo epocs/ezis

dna noitacol revo lortnoc

eht dluohs tahw ,era

krow ni noitairav

seiradnuob snoitasinagro
eht erehw gnidiced

seciohc gnitcartnoc

gnikam noisiced rof epocs


boj rieht revo ymonotua

ytilibixelF

tnemtaert
dna daolkrow fo ssenriaf

tnemeveihca
.sweiv
lanoitasinagro derahs
tnemevorpmi ecnamrofrep
ytilibatnuocca

dna troffe fo noitingocer

tnemtimmoc

tnemecnahne reerac
rof epocs dna ytiruces boj
seitinutroppo tnempoleved
noitubirtnoc

dnoyeb tsurt hsilbatse

nopu desab drawer

tnemtimmoC

Employee expectations

Organisational expectations

You may have come up with some of the following:

ACTIVITYFEEDBACK
Unit 1 Definition and Purpose of SHRM

Strategic Management of Human Resources

Strategic Management of Human Resources

Unit 1 Definition and Purpose of SHRM

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 resourcebased 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 socalled 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.

CASESTUDY
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.

CASESTUDYFEEDBACK
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 teambased
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 oneway flow, from a mainly operational model.

informs

Business strategy

HR strategy

Figure 1.2: Business strategy informs HR strategy

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Business strategy

HR strategy

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

A twoway flow means that there is dialogue between business and HR


strategy, but not necessarily an interdependent 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 topdown/bottomup 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 bottomup 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 resourcebased model has a different perspective from other
approaches. Whilst conventional HR approaches start with external
factors such as threats and opportunities, the resourcebased 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 resourcebased 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 coordination 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 resourcebased 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 resourcebased 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.45) suggest that sustained competitive
advantage derives from internal resources, which must:

Add value.
Be unique or rare.
Be difficult to imitate.
Be nonsubstitutable, for example, by technology.
Mueller (1998) develops the resourcebased 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 broadbased 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.

An airline

2.

A computer company

3.

A carrier company

ACTIVITYFEEDBACK
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 fit

Resource-based

seY

seY

Best practice
seY

?ecnamrofrep esisahpme ledom eht seoD


?noitasinagro krow esisahpme ledom eht seoD
?ruoivaheb dna slliks esylana ledom eht seoD
?reggirt ro tniop gnitrats sledom eht si tahW
ro noitnevretni ycilop esnopser sledom eht sI
?seitivitca fo noitatilicaf

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ACTIVITYFEEDBACK

Best practice

Best fit

Resource-based

seY

seY

seY

seY

seY

seY

seY

ssenisub ehT

ssenisub ehT

elbaliavA

tnemnorivne

secruoser

yciloP

fo noitatilicaF

noitnevretni

seitivitca

seY
seY

?ecnamrofrep esisahpme ledom eht seoD


?noitasinagro krow esisahpme ledom eht seoD
?ruoivaheb dna slliks esylana ledom eht seoD
?reggirt ro tniop gnitrats sledom eht si tahW

tnemnorivne
yciloP

ro noitnevretni ycilop esnopser sledom eht sI

noitnevretni

?seitivitca fo noitatilicaf

CASESTUDY
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

1998-99
012,252,21

1994-95
010,858,8
764,966,3

183,970,2

288,064

163,521

:revonruT
:)xat erofeb( tiforP
:stsoc emitrevO

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.

CASESTUDYFEEDBACK
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 employeecentred
mediation approach to a managementorientated 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 resourcebased 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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REVIEWACTIVITY
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)?

REVIEWACTIVITYFEEDBACK
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.779801.
Buller P. (1988) Successful partnerships: HR and strategic planning at eight
top firms Organisational Dynamics, Austen pp. 2793.
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.111135.
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. 63572.
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. 7991
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 Managementa
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
LEARNINGOUTCOMES
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.

READINGACTIVITY
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

ACTIVITYFEEDBACK
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.


Takeup 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


businessled.

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, coordinated 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.

ACTIVITYFEEDBACK
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.

2.

Be proactive in putting forward formal solutions to business problems.

3.

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.

4.

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.

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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 businessorientated 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


worklife 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 jobbased employment to personbased


systems and the impact on HR policies.

The role of information and the structure of jobs and the


decisionmaking 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


policymaking.
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 resourcebased 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, nonwork


activities and perhaps multiple organisations.

Offer differing levels of commitment and flexible policies


to fit these differing employee expectations.

Offer contractual flexibility.

CASESTUDY
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 i st i cs: all est abli shment s
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

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

Personnel
characteristics

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

Source:WIRS 3

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.

2.

Workplace industrial relations in transition, by N Millward, M Stevens,


D Smart and W Hawes, Dartmouth, 1990.

3.

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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.

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.

5.

Human resource management in the multi-divisional company, by J


Purcell, and B Ahistrand, Dartmouth, 1994.

6.

A European perspective on human resource management, by C


Brewster and F Burnois, personnel Review, 1991, vol 20, issue 6.

7.

The role of personnel directors on the board of directors, by J Kelly


and J Gennard, Strathclyde Business School, 1994.

8.

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.

9.

Developments in the management of human resources, by J Storey,


Blackwell, 1992.

10.

Managing the factory, by P Edwards, Blackwell, 1987.

11.

Human resource management, corporate strategy and financial


performance in British manufacturing, by S Fox, Management Research
News, vol 14, issue 7,1991.

12.

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.

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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CASESTUDYFEEDBACK
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 wideranging 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 inhouse
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 costeffectiveness, 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 businessled 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 decentralised, 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
policymaking, 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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ACTIVITYFEEDBACK
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 crossfunctional 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.

ACTIVITYFEEDBACK
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 inhouse. Let us now review these arguments more
closely by reading the article in the next activity.

CASESTUDY
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

Maximum scores

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03

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?

CASESTUDYFEEDBACK
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 longerterm


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 longerterm
adaptability and flexibility of the organisation. This decision will have
significant implications for the reaction and cooperation 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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ACTIVITYFEEDBACK
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 worldwide plan to
outsource HR transactions to an ebusiness 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
ebusiness 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.

Computerbased training can be tailored to the


individual, and allow for selfpaced development and
education.
New service centres are redefining the way traditional HR facetoface
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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ACTIVITYFEEDBACK
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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CASESTUDY
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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CASESTUDYFEEDBACK
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 employeecentred 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.

accomplish business goals

2.

improve operating efficiency

3.

take care of employees personal needs

4.

adapt to change

HR participates in...
5.

the process of defining business strategies

6.

delivering HR processes

7.

improving employee commitment

8.

shaping culture change for renewal and transformation

HR makes sure that...


9.
10.

HR processes are efficiently administered

11.

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HR strategies are aligned with business strategy

HR policies and programs respond to the personal needs of employees

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HR processes and programs increase the organizations ability to


change

HR effectiveness is measured by its ability to...


13.

help make strategy happen

14.

efficiently deliver HR processes

15.

help employees meet personal needs

16.

help an organization anticipate and adapt to future issues

HR is seen as...
17.

a business partner

18.

an administrative expert

19.

a champion for employees

20.

a change agent

HR spends time on...


21.

strategic issues

22.

operational issues

23.

listening and responding to employees

24.

supporting new behaviours for keeping the firm competitive

HR is an active participant in ...


25.

business planning

26.

designing and delivering HR processes

27.

listening and responding to employees

28.

organization renewal, change or transformation

HR works to...
29.

align HR strategies and business strategy

30.

monitor administrative processes

31.

offer assistance to help employees meet family and personal needs

32.

reshape behaviour for organizational change


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HR develops processes and programs to...


33.

link HR strategies to accomplish business strategy

34.

efficiently process documents and transactions

35.

take care of employee personal needs

36.

help the organisation transform itself

HRs credibility comes from...


37.

helping to fulfill strategic goals

38.

increasing productivity

39.

helping employees meet their personal needs

40.

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.

3
Employee champion

4
Change agent
noitseuQ

erocS

noitseuQ
3

11

21

51

61

91

02

32

42

72

82

13

23

53

63

93

04

latoT

latoT

erocS

noitseuQ
2
6
01
41
81
22
62
03
43
83
latoT

erocS

noitseuQ
1
5
9
31
71
12
52
92
33
73
latoT

74

2
Administrative expert

erocS

1
Strategic partner

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ACTIVITYFEEDBACK
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

A dminist r at i ve ex per t

Business focus
Results orientation and
performance enhancement

Professional practice
New policies to support
change or employee
commitment

E mployee champion

Change agent

Achieving commitment
through partnership or
involvement strategies
in times of change

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.

READINGACTIVITY
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

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

10

Be marketplace agile

11

Manage the strategic vision

12

Manage stakeholders

13

Empower individuals and teams

14

Ensure supply of talent

15

Reward for performance


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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

14

Knowledge of HR practices

17

Ability to manage culture

19

Ability to manage change

22

Personal credibility

27

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.

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References
1.

Harvard Business Review, January-February 1998.

2.

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.

Strategic Management of Human Resources

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 longterm 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.

READINGACTIVITY
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

1:95

Managerial/professional personnel staff to


full-time employees

1:168

Salary and bonus costs of personnel


department staff per organisation employee

208

Personnel salary and bonus costs as a


percentage of the total

1.5%

Overall cost of the personnel function as a


percentage of overall organisation costs

1.7%

Recruitment costs per new recruit

650

Training costs per employee year


(internal and external) - private sector

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.
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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 newlyempowered line
managers is problematic. What happens to professionalism, expertise
and coherence of strategy? We examined the nature of the socalled 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 clearcut 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.

REVIEWACTIVITY
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?

2.

What are the problems that HR departments face in adjusting to the


new agendas?

3.

Identify three key trends in the design and organisation of HR


departments. How might they address issues raised in Question 2?

4.

How and why might HR departments set up methods of service


monitoring?

5.

What advantages do audits offer HR departments in the management


of people?

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?

REVIEWACTIVITYFEEDBACK
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
LEARNINGOUTCOMES
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.

READINGACTIVITY
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 parttime
workers and the better use of female staff through childcare support or
career break schemes, the adoption of mobile and homeworking.
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 homeworking 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 nonstrategically or in a nonplanning 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, 1619 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 shortterm
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

ACTIVITYFEEDBACK
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 knowhow 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 socalled 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.

Reconciling future resourcing needs with future HR plans.

2.

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.

3.

Assessing the effectiveness of the HR policies in accessing,


creating and using human resource capability.

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

Mid-career

Senior
Management
Professional

Redundancy

Horizontal flexibility

Early career

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 midcareer level instead of the norm for the
industry, which was promotion in early career. Under these conditions,
the longerterm 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 shorttermist 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 multiskilling 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 decisionmaking
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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102

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stnartne etaudarG

setar egatsaw ,srevael fo rebmuN

slliks yek fo ytilibaliava tekram ruobaL

serugif ecnadnetta dna ssenkciS

slliks fo esu evititepmoC

stnemeriteR

tuptuo noitacudE

slliks yek fo noitacol tnemeriuqeR

snoitomorP

ytilibapac tnempoleved lanretnI

ffats ot sreganam fo oitaR

slliks tsilaiceps dna ytilibixelf ,stneilc dna

stsop dna seeyolpme fo rebmuN

ecrofkrow eht fo xim sllikS

slliks dna sboj fo sedarg ro sleveL

sremotsuc ,elpmaxe rof ,sruoivaheb dna sedutittA

TNEMNORIVNE LANRETNI

Quantitative

Qualitative

You might have listed the following examples:

ACTIVITYFEEDBACK
ecrofkrow eht fo xim sllikS

stsop dna seeyolpme fo rebmuN

Quantitative

Qualitative

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.

ACTIVITY
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Strategic Management of Human Resources

Quantitative

Unit 3 Employee Resourcing Strategies

Qualitative

TNEMNORIVNE LANRETXE
dna yrtsudni ot sknil ,snoitasilaiceps etairporppA

tnemtiurcer etaudarg rof seitisrevinu tegrat fo tsiL

noitatuper
ot ssenetairporppa dna snoitasilaicepS

seicnega tnemtiurceR

drocer kcart ,stnemeriuqer lanoitasinagro


.g.e tnemtiurcer rof slennahc aidem-itlum fo tsiL

pihsredaer dna noitalucric pihsredaer ,hcaeR

lanoisseforp ,oidar/VT ,tenretni ,srepapswen

eliforp

slanruoj
lliks fo saera ni secruoser rof setar tekraM
egatrohs
namuh fo seicnetepmoc yek dna egdelwonK

noisnapxe ecruoser rof stegrat noitisiuqcA

htiw hctam dna ,tegrat noitisiuqca ni secruoser


noitargetni fo esaE .ygetarts lanoitasinagro

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. Decisionmaking
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 1015 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?

ACTIVITYFEEDBACK
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 reshaped 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 customerled 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.

Reconciling future resourcing needs with future HR plans.

2.

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.

3.

Assessing the effectiveness of the HR policies in accessing,


creating and using human resource capability.

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 knowledgebased workforce the
organisation is trying to nurture, the frequent restructuring 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 eworking,
improved worklife 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 difficulttoimitate 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 supplyside 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, lifelong 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 crossculturally, 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 cooperate.
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
industryspecific 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 organisationspecific 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 subunits.

Knowledge of the firms strategy and goals.


Intraorganisational competences are inextricably linked to the
organisational culture of the firm, and vice versa. Indeed, some of the
metacompetences may be ineffective if they are not linked to relevant
intraorganisational 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 wordprocessing 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 inhouse training systems are the
standard ways to achieve these skills.

Technical trade competences


These competences are task and industryspecific, 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 taskspecific:

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
inhouse 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 highperformance
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
decisionmaking 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
decisionmaking: 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 cooperative 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. Selfconfidence
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, nonverbal 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


knowhow and skill. The eleven qualities are:
1.

command of basic facts such as goals and plans of the


organisation, and product knowledge

2.

relevant professional understanding technical, marketing and


financial knowledge

3.

continuing sensitivity to events and being open to information

4.

analytical, problemsolving, decisionmaking skills

5.

social skills and abilities interpersonal skills

6.

emotional resilience and the ability to cope with stress

7.

proactivity the inclination to respond purposefully to events

8.

creativity: being able to come up with unique responses to


situations

9.

mental agility, grasping problems quickly

10.

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

11.

selfknowledge the skill of introspection.

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 decisionmaking. 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 decisionmaking. 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, decisionmaking, motivation, personal
strength and analysis.

Test
This is best for assessing decisionmaking 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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ACTIVITYFEEDBACK
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
competencybased 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 noncompetence 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 competencebased 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 selfawareness, selfregulation, 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
socalled 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 soughtafter skills. The use of
flexible employment strategies such as homeworking and teleworking
has allowed new labour markets to be opened up, and parttime 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 nontraditional 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.

Broadening channels of recruitment

2.

Changing recruitment behaviour

3.

Changing recruitment measures.

ACTIVITYFEEDBACK
You might have included the following:

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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 nontraditional sources of labour
We have already mentioned ethnic groups and distance workers. We
could also add the targeting of underrepresented 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 selfselection.

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 35hour week in France,
or UK workers choosing parttime or distance working
options.

Better recruitment data and screening of candidates the


use of previews assists more selfselection.

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
shortlisting and preselection 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.
erecruitment
There are two facets to erecruitment: the use of the Internet as a
recruitment and media channel, and eassessment 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 eprocurement and eHR 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.

ACTIVITYFEEDBACK
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. eAssessments 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 eassessment 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 4550% 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.

ACTIVITYFEEDBACK
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:

Womenonly engineering careers.


Sponsoring school leavers paid work experience/care
fees.

Adopt a school campaign and schools liaison and


cadetship.

Scholars combining inhome 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: candidatefriendliness to secure employee
commitment professionalism to improve project management,
evaluation and the 'market' offer to potential recruits. We have
endeavoured to assess how erecruitment 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 decisionmaking. 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?

2.

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:

- 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.)

ACTIVITYFEEDBACK
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 competencebased
information is requested.

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Through careful behavioural event interviewing.


Competencebased 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 prebriefing 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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ACTIVITYFEEDBACK
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.

ACTIVITYFEEDBACK
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.

Shortlisting 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'.

Jobrelated 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 shortlisting 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
underrepresented in professional/management jobs in particular, and
in many cases employment generally, and overrepresented 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, nonstrategy.


Oneway linkage a flow of information down from
corporate planning to allow HR decisions to be made.

Twoway 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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ACTIVITYFEEDBACK
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.

CASESTUDY
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
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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.

2.

Each strategy should at least address the following key elements:-

- 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?

CASESTUDYFEEDBACK
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
performancebased 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 multitask operation and a multioccupational
teambased 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

Assessment

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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
- parttime/outsourced staff to fulltime 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.

ACTIVITYFEEDBACK
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
badlyfounded 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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REVIEWACTIVITY
Now answer the following questions to refresh your knowledge of this unit:
1.

Why is Human Resource Planning becoming of strategic importance


within organisations?

2.

Identify three tactical and three strategic methods of improving labour


supply.

3.

Identify three key areas of competence developments for yourself


using one of the models provided in the unit.

4.

What other Human Resource Systems can competence models


support and assist with the decision making process?

5.

Identify the main steps to HR strategy formulation and implementation.

6.

Outline the main strategic approach to recruitment.

7.

How can organisations improve the reliability and validity of


recruitment?

8.

What are the internal/external resourcing strategies that organisations


can use to enhance recruitment and retention?

REVIEWACTIVITYFEEDBACK
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. 2024.
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. 53101.
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 eProcurement, 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. 3235.
Hiltops, J. and Despres, C. (1994) Benchmarking the performance of
human resource management, LongRange Planning, 27(6) pp. 4347.
Kandola, B. and Whiddett, S. (2000) Fit for the job?, People Management,
25 May, pp. 3038.
Kaplan, R.S. and Norton, D.P. (1992) The Balanced ScoreMeasures that
Drive Performance, Harvard Business Review, JanuaryFebruary.
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.
286310.
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. 2629.
Yeung, A.K. and Berman, B. (1997) Adding Value through Human
Resources : Reorientating Human Resource Management to Drive
Business Performance, Human Resource Management Journal 36(3), pp.
32135.

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Unit 4

Performance Management
LEARNINGOUTCOMES
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.

READINGACTIVITY
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 longterm 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 businessled 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 decisionmaking 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.

objective setting

2.

ongoing review of objectives

3.

the development of personal improvement plans linked to


training and development

4.

formal appraisal with feedback

5.

pay review

6.

a competencebased 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.

ACTIVITYFEEDBACK
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

Step Two

Step Three

Personal/job
improvement plan
Ongoing
review

Formal
appraisal

Career
development plan
Training
plan

Organisation
capability
review

Step Four

Performance
rating

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 resourcesbased 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


jobbased 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.
Performancerelated 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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CASESTUDY
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

Unit 4 Performance Management

THE PEOPLE APPROACH

eht gnisylana yb deruces tseb si ecnamrofrep hgiH

hguorht ylno deveihca eb nac ecnamrofrep hgiH

a eveihca ot enod eb ot sdeen hcihw krow

eht rof detceles era elpoep thgir eht fi ,oS .elpoep

eht gningised neht dna ,tluser denimretederp

deniart era yeht fi ,srebmun thgir eht ni sboj thgir

krow fo dohtem ro ecneuqes tneiciffe tsom

ylevitceffe era yeht fi dna ,slliks etairporppa eht ni

.yaw tseb eno eht dnif ot ,trohs nI .seitivitca

krow ylbativeni lliw yeht neht ,detavitom dna del

wollof lliw seeyolpme taht noitpmussa na si erehT

,egral dna yb ;taht noitpmussa na si erehT .llew

lacigol yllacitylana na morf ,esuaceb dohtem siht

nwo rieht evlove lliw elpoep detavitom ,tnetepmoc

tseb eht si ti taht suoivbo yltnetap si ti ,tniopweiv

.gnikrow fo sdohtem tseb

.gnikrow fo yaw

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


HCAORPPA SSECORP EHT

HCAORPPA ELPOEP EHT

yduts kroW

seuqinhcet tset noitceleS

sisylana htap lacitirC

sisylana sdeen gniniarT

hcraeser lanoitarepO

seuqinhcet gniniarT
noitatlusnoc tnioJ
ycarcomed lairtsudnI

M&O
)weiver dna gninnalp( RBPP
sisylana tifeneb tsoC

gnitar tireM

noitaulave boJ

selcric ytilauQ

gninnalp rewopnam lacitsitatS

gninnalp ecruoser namuH

)OBM( sevitcejbo yb tnemeganaM

yap detaler-ecnamrofreP

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.

3.

182

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

PMS

metsys degakcaP

smetsys edam-roliaT

sreganam ot deilppA

ffats lla ot deilppA

sevitcejbo laudividni no sisahpmE

seulav dna slaog etaroproc no sisahpmE

serusaem ecnamrofrep deifitnauq no sisahpmE

srotacidni ecnamrofrep evitatilauq fo noisulcnI

)sARK( saera stluser yek otni dedivid sboJ

seitilibatnuocca lapicnirp otni dedivid sboJ

ARK hcae rof tes sevitcejbO

ytilibatnuocca hcae rof tes sevitcejbO

serusaem ecnamrofreP

srotacidni ecnamrofreP

slaog lanosrep dna ksaT

slaog lanosrep dna ksaT

slaog wen fo noissucsid gnidulcni lasiarppa launnA

slaog wen fo noissucsid gnidulcni lasiarppa launnA

krowrepap xelpmoc desu semehcs tsoM

krowrepap xelpmoc evah semehcs emoS

stsilaiceps yb denwo semehcS

tnemeganam enil yb denwo semehcS

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.

What does Fowler identify as the problems with MBO?

2.

What does he identify as the problems with PMS?

3.

What aspects does he think merit greater attention?

CASESTUDYFEEDBACK
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 depersonalised 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

Example 2

Example 3

gnittes evitcejbo eht si lamrof woH


?ssecorp
?dedeen sevitcejbo desab-maet erA
?nwod pot eht morf wolf sevitcejbo oD
smetsys lasiarppa eht era lamrof woH
?gninnalp detaler dna
lasiarppa fo elyts eht si tahW
?kcabdeef dna snoissucsid
?metsys yap eht ot deknil yeht erA
dna slliks tnemeganam tahW
?dedeen era spihsnoitaler

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ACTIVITYFEEDBACK
Check your responses against ours below:
Example 1

Example 2

Example 3

lamrof ylriaF

lamrofnI

seY

ylbaborP

seY

ylirassecen toN

lamrof ylriaF

lamrofnI

lamrof ylriaF

lamrofnI

oN

seY

seY

tnemeganam eniL

yreV

gnittes evitcejbo eht si lamrof woH


?ssecorp

oN
seY
ylhgiH

?dedeen sevitcejbo desab-maet erA


?nwod pot eht morf wolf sevitcejbo oD
smetsys lasiarppa eht era lamrof woH
?gninnalp detaler dna

lamrof ylbaborP

lasiarppa fo elyts eht si tahW


?kcabdeef dna snoissucsid

dna gnikrowmaeT

dna gnikrowmaeT

tnemeganam maet

tnemeganam maet

dedeen slliks

dedeen slliks

lamrof slliks

?metsys yap eht ot deknil yeht erA


dna slliks tnemeganam tahW
?dedeen era spihsnoitaler

snoitautis

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 noninteraction 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 allround feedback on performance (internal and
external customer feedback 360degree 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 processoriented 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.

ACTIVITYFEEDBACK
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 welldefined 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?

ACTIVITYFEEDBACK
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, jobrelated, and personrelated.

Productivity/output related objectives


These are measurable and quantifiable output targets, for example:

Reducing costs.
Achieving sales targets.
Meeting preset 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.

ACTIVITYFEEDBACK
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 highperformance 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 resourcebased 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
personrelated objectives with corporate culture. Organisational culture
can be reflected in personrelated objectives and thus bring about
cultural change or culture reinforcement. Thus, an organisation wishing
to nurture a knowledgeworking 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 teamworking and collaboration. A young entrepreneurial or
startup 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 personrelated objectives we highlighted the
importance of teamworking in organisational cultures. Increasingly
organisations are building work around teambased structures. Teams
are seen to hold the key to achieving collaborative, knowledgebased
working. Therefore, there is a trend away from the highly
individualised PMS of the 1980s and early 1990s that emphasised
performancerelated pay and appraisal, and a move towards a more
collaborative and cooperative 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
selfinterest rather than teamwork and the wider organisational
objectives. Therefore, objectives are now more often expressed on
behalf of teams and rewards linked to teambased outcomes, as we
noted in the section above on personrelated objectives.

READINGACTIVITY
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.

ACTIVITYFEEDBACK
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 commitmentoriented 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.

CASESTUDY
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.)

CASESTUDYFEEDBACK
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.

2.

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.

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
workemphasise performance improvement, develop
longterm 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

Assistance
User
satisfaction

Quality

Financial

Efficiency
and
productivity

Flexibility

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 crossfunctional business
processes succeed in achieving appropriate delivery deadlines, waste
reduction and coordinated 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.

ACTIVITYFEEDBACK
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.

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

slaudividni fo ,erutuf dna tneserp htob ,laitnetop krow revocsid ot

Auditing

noitarepo otni tup eb ot alumrof sdrawer a elbane ot

Evaluating performance

smaet dna
elbane ot sdohtem krow gninialpxe dna gnitcudnoc ,no gnisivda

Developing individuals

sevitcejbo dna sdradnats no kcabdeef reffo dna yfiralc ot

Motivating staff

gniniart lamrof yb dellif eb ot spag gniyfitnedi

Discovering training needs

gninnalp tnemecalper etaroproc rof

Constructing succession plans

,ecnamrofrep nwo rieht rof ytilibisnopser ekat ot slaudividni


hguorht spihsnoitaler gnikrow dna ,tnempoleved dna gniniart
gnirahs noitamrofni dna eugolaid ,kcabdeef

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 daytoday
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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 nonmanagement 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 bottomup, 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 cooperative 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 onetoone
relationship between manager and employee. It is also a highly skilled
counselling approach that not all managers are wellequipped
attitudinally to adopt.

CASESTUDY
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

HP/Shell

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Nuclear Electric

BA

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CASESTUDYFEEDBACK
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?

2.

How does culture and business strategy seem to influence these


appraisal systems?

3.

Which of the systems emphasise control and which development?

4.

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?

ACTIVITYFEEDBACK
1.

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.

3.

212

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.

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.

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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:

Topdown schemes.
Selfappraisal.
Upward appraisal.
Peer appraisal.
Multidirectional 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 topdown appraisal to help remove potential
bias.

Self-appraisal
Selfappraisal is rarely used, as are independent forms of appraisal. It
encourages greater ownership and participation in the appraisal
scheme through selfreflection 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 topdown 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 topdown control incorporating


selfappraisal 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.

ACTIVITYFEEDBACK
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 decisionmaking, 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 nonhierarchical integrated HR systems.

Multi-directional appraisal
Also called 360degree appraisal, there are key similarities here with
peer appraisal. However, the key difference is that multidirectional
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.

READINGACTIVITY
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 360degree 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.

CASESTUDY
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?

CASESTUDYFEEDBACK
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 360degree 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 360degree 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 selfevaluation 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 360degree appraisal and groupbased
performance increases the possibility of wider
organisational team structures and feedback that can run
in parallel with other stakeholdermaintained 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, selfappraisal, upward,
peer and multidirectional 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 selfassessment questions before going on to the
next unit.

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Unit 4 Performance Management

REVIEWACTIVITY
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.

REVIEWACTIVITYFEEDBACK
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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Unit 4 Performance Management

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 360degree feedback , People
Management, 17 Feb, pp. 5052.
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. 1160.

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Unit 5

Reward Management
LEARNINGOUTCOMES
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 nonpay 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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READINGACTIVITY
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 ninepoint 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
longerterm 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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Unit 5 Reward Management

Centralised versus decentralised 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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Unit 5 Reward Management

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external market comparisons or internal comparisons through job


evaluation of task performance.
Increasingly, the emphasis on performancerelated pay is based upon
individual contribution within a job. Personcentred 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

Example organisation

Job based reward


erehw snoitasinagro regral yb deifipyt netfO
ralucitrap fo si sedarg boj neewteb ytiuqe lanretni
tsixe seilimaf boj egral erehw dna ecnatropmi
.sredloh boj elpitlum htiw

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235
seigetarts ytilibixelf
lanoitcnuf fo tnemhsilbatse eht dna gnilliks-itlum
gnisserdda snoitasinagro
.sessecorp
noitcudorp ro stcudorp wen nopu desab
snoitasinagro gnireenigne dna gnirutcafunam

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.ecitcarp ecalpkrow otni detnemelpmi
yltcerid dna dessessa eb nac taht gniniart
fo stinu dna seludom denifed dnuora desab
esaercni mret-trohs a sa desu netfO .dradnats eht
evres ot secivres dna stcudorp ot noisiver rojam
a ecudortni ro lliks-er ot gnitpmetta snoitasinagrO

Skill based reward


.secrof tekram ot dnopser
yeht sa sessecorp ssenisub ot tnemevorpmi
ro tuptuo decnahne drawot ffats esivitnecni ot

snoitutitsni laicnanif
yrtsudni aidem dna TI
sEMS

nosrep dna boj ecnalab ot ,laudividni eb ot drawer


eht fo trap gniwolla era taht snoitasinagro regral
ni dnuof eb nac siht ,ylevitanretlA .laudividni
eb ot sah yap dna noitpircsed boj evitcnitsid a sah
erehw ,snoitasinagro rellams htiw detaicossa netfO

dna yticirtcele ,sag ;seitilitu ecivres desitavirp

boj hcae erehw ro tsixe sboj fo rebmun llams a

retaw

snoitasinagro gnirutcafunam

Person based reward


sredloh boj elpitlum htiw
tsixe seilimaf boj egral erehw dna ecnatropmi
erehw snoitasinagro regral yb deifipyt netfO

stnemtraped tnemnrevog lacol

ralucitrap fo si sedarg boj neewteb ytiuqe lanretni

seicnega cilbup

slatipsoh

Job based reward

Our examples are as follows:

ACTIVITYFEEDBACK
.ecitcarp ecalpkrow otni detnemelpmi

yltcerid dna dessessa eb nac taht gniniart


fo stinu dna seludom denifed dnuora desab
esaercni mret-trohs a sa desu netfO .dradnats eht
evres ot secivres dna stcudorp ot noisiver rojam
a ecudortni ro lliks-er ot gnitpmetta snoitasinagrO

Skill based reward


.secrof tekram ot dnopser
yeht sa sessecorp ssenisub ot tnemevorpmi
ro tuptuo decnahne drawot ffats esivitnecni ot
nosrep dna boj ecnalab ot ,laudividni eb ot drawer
eht fo trap gniwolla era taht snoitasinagro regral
ni dnuof eb nac siht ,ylevitanretlA .laudividni
eb ot sah yap dna noitpircsed boj evitcnitsid a sah
boj hcae erehw ro tsixe sboj fo rebmun llams a
erehw ,snoitasinagro rellams htiw detaicossa netfO

Person based reward


Strategic Management of Human Resources

Unit 5 Reward Management

Unit 5 Reward Management

Strategic Management of Human Resources

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 addons 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

Impact on employee

Impact on management

Individual bonuses

Positive

Positive

Negative

Negative

lanoitidda :

evoba fo tnemeveihca rof yap


.krow egareva
.tes airetirc cificeps-noN

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Profit related pay

Unit 5 Reward Management

Positive

Positive

Negative

Negative

yllamron :

tes-erp fo tnemeveihca no desab


a ,erugif tiforp xat retfa
detacolla si tiforp fo noitroporp
.ffats ot kcab

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.seeyolpme ot
kcab diap si gnivas fo noitroporp
tes A .stsoc fo oitar eht ybereht
dna gnikrow fo ycneiciffe
lanretni eht gnivorpmi rof

Incentive

Impact on employee

Impact on management

Performance related pay (PRP)


schemes

Positive

Positive

Negative

Negative

Positive

Positive

Negative

Negative

Positive

Positive

Negative

Negative

Positive

Positive

Negative

Negative

sisab eht eb nac hcihw demrof


si oitar A .emocni selas eht dna
secivres dna sdoog gnicudorp
fo tsoc eht gnivlovni noitauqe
na nopu desab :

Added value-organisation wide


incentives
.airetirc
ecnamrofrep detaler-emit
ro tsoc ,emulov ni )snoitasinagro
ecnarusni ni ycarucca
dna ycneiciffe gnissecorp .g.e(
secivres ro stcudorp lanoitidda
gnisahcrup no desab :

Piece work measured day


output and time related pay
systems
.ynapmoc eht

ni serahs fo drawa eht ro ,etar


laitnereferp a no desab ,etad
erutuf a ta serahs yub ot snoitpo
fo drawa :

Share option schemes


.sevitcejbo lanoitcnuf

dna laudividni ot deknil yllamron


sevitcejbo teserp fo tnemeveihca
eht nopu desab :

Unit 5 Reward Management

Strategic Management of Human Resources

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239
.raelc yltneiciffus

yaw emos era semoctuo tiforP

laudividni no sucof ton seoD

lanosrep nwo ruoy morf

;stegrat eseht ot noitubirtnoc

.ytivitca drawer/tceffe

ton semoctuo/sevitcejbo

Negative

Negative

.ecnamrofrep
.tseretni redlohekats
dna ecnamrofrep lanoitasinagro

ni tseretni lanoitasinagro
dna ruoy fo tnemngila
dna pihsrenwo fo esnes weN

Positive

fo ssenerawa setomorp ylraelC

.ffats ot kcab
detacolla si tiforp fo noitroporp
a ,erugif tiforp xat retfa
teserp fo tnemeveihca no desab
yllamron

Profit related pay:

Positive

.seugaelloc
dna uoy neewteb ylworran
oot deilppa fi evisivid eb dluoC
.ecnamrofrep evorpmi nac yeht
.knil
ecnamrofrep mret-gnol elttiL

woh wonk ton od seeyolpme sa


,tceffe mret-gnol elttil si erehT

.evitisop si tceffe mret-trohs ehT

.ecivres doog rof

Negative

Negative
.llib yralas eht ni gnirrucer-non
dna evitceffe-tsoc ylevitaleR

uoy knaht a ,erutseg lliw doog


a ,tifeneb ffo eno sa nees netfO

.tes airetirc cificeps-noN

.sisab coh da na no tnemeganam


morf tfig a yllaitnesse si sihT

.krow egareva
evoba fo tnemeveihca rof yap
lanoitidda :

Incentive

Impact on employee

Impact on management

Individual bonuses

Positive

Positive

Our thoughts are as follows:

ACTIVITYFEEDBACK
Strategic Management of Human Resources

Unit 5 Reward Management

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.secruoser yap fo noitubirtsid
riafnu fo sisab eht dna lortnoc
fo mrof a sa srotces esoht
ni nees si ti yllareneG .secivres
desitavirp dna stsurt htlaeh
,tnemnrevog lacol .g.e ,ytilauq
tcudorp dna ecivres remotsuc
devorpmi drawot sedutitta
eeyolpme tfihs dna erutluc
egnahc ot gnikees snoitasinagro
ni yllaisrevortnoc desU
.yranoitalfni sa nees netfo si PRP
sa tnatropmi osla si ecnamrofrep
lanoitasinagro no tcapmi ehT
.sgninrae fo %05-02 ot etauqe
netfo nac stnemyap ecnamrofrep
erehw ,stnemnorivne
tnemeganam roines dna

taht leef yam uoY .sevitcejbo

lanoitavitom eht setulid suht dna

era sevitcejbo selpoep rehto

si siht hguohtla ,semoctuo

.eveihca ot reisae ro tnetsisnocni

lanoisseforp ynam ni gnignahc

ro tuoba raelcnu eb thgim uoY

ot detubirtta thgiew ro tcapmI

esoht gniteem morf detneverp

llams netfo si yap ecnamrofrep

.ecnereffid

.tnatropmi yllacigetarts ylraelc

Negative

Negative
.noititepmoc dna
secrof tekram ot erom deraeg
era ohw dna SMP deificeps-llew
a depoleved evah taht
snoitasinagro ni lufsseccus eroM
si semoctuo elbarusaem dna
denifed ot yap gnitegraT .krow
fo sdradnats ecudortni ot epocs
sreffo dna demrofrep krow
fo ytilauq dna tnuoma eht revo
lortnoc fo mrof a sa nees netfO

a ekam nac uoy leef thgim


uoY .semoctuo yap ot deknil
,sevitcejbo lanoitasinagro rediw
ot sknil etomorp semehcs retteb
dna ,edam eb nac sevitcejbo
lanosrep ruoy fo esnes reraelC

.sevitcejbo lanoitcnuf
dna laudividni ot deknil yllamron
sevitcejbo teserp fo tnemeveihca
eht nopu desab :

Incentive

Impact on employee

Impact on management

Performance related pay (PRP)


schemes

Positive

Positive

Unit 5 Reward Management

Strategic Management of Human Resources

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241
.eulav erahs
stceffa ecnamrofrep ruoy woh
ees ot tluciffiD .spihsnoitaler
lanoitcasnart ni yksir
dna derrefed era taht sdrawa

dna yksir era secirp erahS

erutuf eht erehw evitceffe sseL

ton yam uoY .egnahc seulav

dna gnizisnwod sevlovni

dna sdrawa hsac-non eulav

.gnirutcurtser

Negative

Negative

.noitasinagro
eht htiw yats ot denilcni
erom leef thgim uoY .gniod
si noitasinagro eht llew woh ot
denutta erom eb yam uoY .slaog
lanoitasinagro ot tnemngila
dna tnemtimmoc setomorP
.stekram ruobal evititepmoc dna
.ygetarts
noitneter dooG .tnemtimmoc
dna eulav erahs gnitomorp
dna sseccus snoitasinagro

elitalov htiw snoitasinagro nihtiw


seigetarts noitneter gnitroppus
sa nees netfO .noitasinagro
eht ot tnemegagne mret-regnol
ot muidem a setaerC

Positive

fo weiv mret-regnol setomorP

.ynapmoc eht
ni serahs fo drawa eht ro ,etar
laitnereferp a no desab ,etad
erutuf a ta serahs yub ot snoitpo
fo drawa :

Share option schemes

Positive

Strategic Management of Human Resources

Unit 5 Reward Management

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U n iv ersity of
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.atad
ecnamrofrep noitatneserper
erusne ot sweiver shtnom
xis dna doirep setar esaB
.troffe sraey 2-1 .g.e ,llams
si stroffe eeyolpme fo ycaidemmi

.emehcs eht ni ecnedifnoc

sessenisub lla rof tnaveler

ecnamrofrep eht ,yllareneG

ro tcudorp rojam gniogrednu

eht erofereht ,yhtgnel si doirep

.egnahc ecivres

a evah yam serusserp lanretxe

ssenisub eht tuoba noitamrofni

hcihw tcapmi etanoitroporpsid

lacirotsih eht tub ,ffats rof

dna tnemtimmoc ruoy secuder

eb ton yam stsoc fo gnisab

ro segnahc ngised .g.e ,lortnoc

fo ycnerapsnart etomorp

tupni fo noitauqe eht ,revewoH

eb nac secruoser ynam taerg A

xelpmoc a si selas dna stsoc

,soitar eht gnirusaem ni pu deit

dna esicrexe ycnatnuocca

gninialpxe dna noitacinummoc

ruoy edistuo srotcaf sedulcni

semehcs hcuS .stluser eht

Negative

Negative

.stsoc
dna sevitcejbo lanoitasinagro
rediw no sucof uoY
.erutluc )RPB( gnireenigne-er
ssecorP ssenisuB dna
MQT eht stroppus tI .maet a ni
.cte ,RPB ,MQT .g.e ,noitatneiro
tnemevorpmi siht ni etapicitrap
ot ffats wolla taht ecalp
ni era smetsys troppus evitceffe
ni tnemevorpmi tuoba gnirb naC

krow ot uoy selbane tI .devorpmi


eb nac sksat gnitelpmoc
rof sessecorp lanoitasinagro
rediw woh osla tub
,od uoy tahw ylno ton gnivorpmi
no sucof ot uoy selbanE

Positive

gnidivorp stsoc ssecorp ssenisub

.seeyolpme ot
kcab diap si gnivas fo noitroporp
tes A .stsoc fo oitar eht ybereht
dna gnikrow fo ycneiciffe
lanretni eht gnivorpmi rof
sisab eht eb nac hcihw demrof
si oitar A .emocni selas eht dna
secivres dna sdoog gnicudorp
fo tsoc eht gnivlovni noitauqe
na nopu desab :

Added value-organisation wide


incentives

Positive

.secivres
lanoisseforp yllaicepse krow
fo smrof ynam ni noitubirtnoc
ruoy elgnatnesid ot tluciffiD
.tnemeriuqer seihposolihp )MQT(
tnemeganaM ytilauQ latoT rediw
.nopu derusaem
era yeht tahw no ylelos
etartnecnoc ffatS .tem ylisae ton
era slaog ediw-noitasinagro ot
laudividni gnitaler fo sucof rediW

dna krowmaet ot yrartnoc snuR


.sessecorp ssenisub gnivorpmi
sa hcus slaog ecnamrofrep
rediw tifeneb yam hcihw ,cihte
citsilaudividni etomorp ot sdneT

Negative

Negative

.drawer lanoitidda
.erutluc semoctuo na etaerc nac
dna tnemevorpmi elbarusaem

ot sdael troffe ruoy woh


ees nac uoY .noitavitom stsissa

.airetirc
ecnamrofrep detaler-emit
ro tsoc ,emulov ni )snoitasinagro
ecnarusni ni ycarucca
dna ycneiciffe gnissecorp .g.e(
secivres ro stcudorp lanoitidda
gnisahcrup no desab :

Incentive

Impact on employee

Impact on management

Piece work measured day


output and time related pay
systems

Positive

Positive

laer rof detatneiro si yaP

hcihw ,knil drawer/troffe raelC

Unit 5 Reward Management

Strategic Management of Human Resources

Strategic Management of Human Resources

Unit 5 Reward Management

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.

Shortrun incentive and cash versus longerterm


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 startup, 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 selforganisation.

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

ACTIVITYFEEDBACK
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.)

246

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247

esu
dna poleved
elpoep
slliks ro
secnetepmoc
eht
htiw deknil
noissergorp
yaP

Competence/
skill-related
pay

ecnamrofrep
fo sgnitar
no desab
tnemyaP

Performancerelated pay

etareneg
yeht selas eht
fo egatnecrep
a no desab
elpoep selas
rof stnemyaP

Commission

mus pmul a sa
diap sseccus
rof sdraweR

Bonus

yap
cisab ot dedda
stegrat fo
tnemeveihca
ot detaler
stnemyaP

lliks/
ytilibixelF

ecnetepmoC

krowmaeT

ytilauQ

egnahc
larutluC

tnem
-timmoC

Individual Incentive

noit
-avitoM

NOITINIFED

EPYT

TCAPMI

Effect of different types of variable pay


Strategic Management of Human Resources

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248

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Our responses are given in the table that follows:

ACTIVITYFEEDBACK
ecirp rehgih

ta erutuf
ni lles ot
ytinutroppo
htiw serahs

fo noitacollA

Share option

segatnavda
xat
htiw tiforp
ot deknil
si yap hcihw
ni emehcs
derosnopstnemnrevoG

Profit-related
Pay

sesaercni
eulav dedda
ot detaler
seeyolpme
ot sesunob
hsac
fo stnemyaP

Gain-sharing

stiforp
ynapmoc
ot detaler
serahs
ro hsac
fo stnemyaP

Organisational Profit- sharing

stegrat fo
tnemeveihca
ot detaler
smaet ffats
ot stnemyaP

Team pay

nekat emit
ro tuptuo
ot detaler
stnemyap
roolfpohS

lliks/
ecnetepmoC

egnahc
krowmaeT

ytilauQ

larutluC

Group bonus

ytilibixelF

Team

tnem
-timmoC

noitavitoM

NOITINIFED

EPYT

TCAPMI

Unit 5 Reward Management

Strategic Management of Human Resources

U n iversity of
Su n derlan d

249
ecirp rehgih
ta erutuf
ni lles ot
ytinutroppo

htiw serahs
fo noitacollA

Share option

segatnavda
xat
htiw tiforp
ot deknil
si yap hcihw
ni emehcs

derosnops
-tnemnrevoG

Profit-related
Pay

sesaercni
eulav dedda
ot detaler
seeyolpme ot
sesunob hsac

fo stnemyaP

Gain-sharing

stiforp
ynapmoc
ot detaler
serahs

ro hsac
fo stnemyaP

Organisational Profitsharing

stegrat fo
tnemeveihca
ot detaler

smaet ffats
ot stnemyaP

Team pay

nekat emit
ro tuptuO
ot detaler
stnemyap
roolfpohS

Group bonus

Team

esu
dna poleved
elpoep
slliks ro
secnetepmoc
eht
htiw deknil
noissergorp

yaP

Competence/
skill-related
pay

ecnamrofrep
fo sgnitar
no desab

tnemyaP

Performancerelated pay

etareneg
yeht
selas eht fo
egatnecrep
a no desab

elpoep selas

rof stnemyaP

Commission

mus
pmul a sa

diap sseccus

rof sdraweR

Bonus

yap cisab
ot dedda
stegrat fo
tnemeveihca

lliks/

ot detaler

ecnetepmoC

stnemyaP

Incentive

ytilibixelF

Individual

egnahc
krowmaeT

ytilauQ

larutluC

tnemtimmoC

noitavitoM

NOITINIFED

EPYT

TCAPMI

Strategic Management of Human Resources

Unit 5 Reward Management

Unit 5 Reward Management

Strategic Management of Human Resources

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 decisionmaking?
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, personbased 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 costeffective 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?

2.

What type of data would you need to collect?

3.

Where might you get the information from?

ACTIVITYFEEDBACK
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 decisionmaking 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 decisionmaking.

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?

CASESTUDY
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.

Why is a club better than other proprietary sources?

2.

What do we mean by data compatibility?

3.

How would you build confidence and support for the exercise?

CASESTUDYFEEDBACK
1.

256

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.

U n iv ersity of
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Strategic Management of Human Resources

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.

Unit 5 Reward Management

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
5

052
081

002

521

051

521

051

003

002
041
001
001

002

051
051
021
57
57

052

001
001
08
05
05

003

05
05
04
52
52

Factors
.1

sllikS & egdelwonK

.2

seitilibisnopseR

.3

gnikaM noisiceD

.4

ytixelpmoC

.5

tnetnoC

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?

ACTIVITYFEEDBACK
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 23% 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 tradeoffs 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
performancerelated 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 systemsbased
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 minimummaximum scale, with


progression based on individual performance.

Skilled or professionally qualified staff: a


minimummaximum 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 nonpay 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?

ACTIVITYFEEDBACK
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.

Jobs are allocated a salary grade based upon an assessment of the


three criteria above contribution, market and job complexity.

2.

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
marketpoint at the midrange and a percentage range between
the top and the bottom. Employees would need to obtain
promotion to move from one grade to another.

3.

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.

4.

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.

ACTIVITY
What would you assess the advantages and disadvantages of graded structures
to be?

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ACTIVITYFEEDBACK
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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tcartnoc dnoyeb gniog fo erutluc

metsys tnerapsnart ssel/diulf

seitivitaler gnignahc ,cimanyd

noitatneiro evitcelloc
ytivitaler yap raelc
metsys tnerapsnart/desidradnats
metsys dna sdradnats fo erutluc

gnikam-noisiced rof seiradnuob raelc

noitatneiro laudividni

seiradnuob fo ytilibixelf

lortnoc tsoc

weiv dertnec boj

weiv dertnec noisiced

New Paradigm
noitavonni/tnempoleved

Old Paradigm

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.

ACTIVITYFEEDBACK
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 socalled 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 nonfinancial 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 costeffective 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:

rehtieN
eerga
ylgnortS
5

ylgnortS

ron

eergasid

eergasid

eerga

1
cisab rewol a tpecca ot deraperp eb dluow I
morf deniag yap llarevo rehgih eveihca ot emocni
.sevitnecni ecnamrofrep
I woh ot sa seciohc lanosrep gnikam ni eveileb I
eht referp dluow erofereht dna emocni ym dneps
peek dna stnemyap hsac esimixam ot ynapmoc
.muminim a ot nwod stifeneb
sedivorp taht ynapmoc a rof krow ot referp I
eb dluow dna ,ylimaf dna flesym rof noitcetorp
wolla ot hsac llarevo decuder tpecca ot deraperp
.eseht edivorp ot noitasinagro eht

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ACTIVITYFEEDBACK
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

Strategic intent: options/outcome

eeyolpme ot egatnavda xaT

hsac naelc ,elpmaxe rof ,elanoitar nevird tsoC

krow fo ytilauq evorpmI

sevitnecni ytivitcudorp dna ytilauq ecnahnE

ffats tcarttA

snoitaler mret-gnol gniruces dna tnemtimmoc dertnec eeyolpmE

msilanretap dna ytlayol egaruocnE

tcartnoc lacigolohcysP

noitarapes dna noitanimret tsissA

ylrae dna ycnadnuder ;ytilibixelf dertnec eeyolpme dna reyolpmE


stifeneb tnemeriter

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.

ACTIVITYFEEDBACK
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 selfdevelopment, 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.

CASESTUDY
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.

CASESTUDYFEEDBACK
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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CASESTUDY
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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CASESTUDYFEEDBACK
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.

CASESTUDY
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

2.

identifying needs for individual training and career development, and


agreeing what supportive action is required.

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.

the retail price index and average earnings index

2.

the trends of competitors salaries

3.

individual performance.

Salaries for all below the Chief Executive are set, however, within three broad
salary bands, which in January 1991 were:
1.

operational staff: 8,500 18,500

2.

senior professional/supervisory staff: 17,000 25,000

3.

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.

What are the major components of the reward system at MPL?

2.

To what extent does the reward strategy reflect the organisational


structure?

3.

To what extent does the reward strategy integrate with the culture of
the organisation?

4.

Critically evaluate the reward strategy at MPL

CASESTUDYFEEDBACK
1.

2.

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.

3.

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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 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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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

Performance
management processes

Financial reward process

Base pay

Job evaluation

Employee benefits

Non-financial reward process

Recognition, responsibility,
achievement, development,
growth

Variable pay

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 nonpay 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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REVIEWACTIVITY
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.

REVIEWACTIVITYFEEDBACK
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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Unit 6

Human Resource Development


Strategies
LEARNINGOUTCOMES
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 highperformance 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.

READINGACTIVITY
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 interrelated 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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2.

Using HRD as a catalyst for change. This broadens the narrower,


vocational perspective of HRD.

3.

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.

4.

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
socalled learning organisation, where a range of
selfdevelopment, teambased activities are utilised with the
specific intention of enabling the organisation to challenge and
improve work processes and outputs.

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.

2.

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.

ACTIVITYFEEDBACK
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 longstanding set of principles for evaluation. An
approach to HRD is strategic if it follows these principles:

1.

Investment in VET and HRD contributes to the achievement of


organisational objectives.

2.

Line managers are actively involved in the diagnosis of training


needs and the monitoring of development activities of staff.

3.

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.

Learning and development is matched to organisational learning


objectives and the learner groups.

5.

Employees are involved in, and own, the outcomes of the HRD
needs analysis. Activities are relevant to their work.

6.

Senior managers participate in, and promote, learning activities


to establish a learning climate.

7.

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 IN 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 IT 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 RE S OU RCE 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 broadbased 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.

ACTIVITYFEEDBACK
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
governmentsupported 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


Evidence
ebircsed nac tnemeganam poT

dettimmoc si noitasinagro ehT .1


tnempoleved eht gnitroppus ot
.elpoep sti fo

tnempoleved eht troppus ot ecalp


eht evorpmi ot redro ni elpoep fo

Commitment

Indicators

ni tup evah yeht taht seigetarts

Principles

si elpoeP ni rotsevnI nA
ot dettimmoc ylluf
ni elpoep sti gnipoleved
smia sti eveihca ot redro

.ecnamrofrep snoitasinagro

.sevitcejbo dna

cificeps ebircsed nac sreganaM


era dna nekat evah yeht taht snoitca
eht troppus ot gnikat yltnerruc
nac elpoeP .elpoep fo tnempoleved
seigetarts cificeps eht taht mrifnoc
pot yb debircsed snoitca dna
ekat sreganam dna tnemeganam
eht eveileb elpoeP .ecalp
yleniuneg si noitasinagro
rieht gnitroppus ot dettimmoc
.tnempoleved

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.noitasinagro
eht dna meht rof htob ,eveihca
dluohs seitivitca tnempoleved rieht
tahw dnatsrednu ylraelc elpoeP .level
laudividni dna maet ,noitasinagro
ta sevitcejbo dna smia sti ot

.sevitcejbo dna
ni si elpoep fo tnempoleved ehT .6

seitiroirp raelc sah noitasinagro ehT

smia snoitasinagro eht htiw enil

elpoep fo tnempoleved eht knil taht

.sevitcejbo
dna smia snoitasinagro eht tuoba
detlusnoc era spuorg evitatneserpeR

tahw dna sevitcejbo sti

eht fo sevitcejbo dna smia

ot od ot deen elpoep sti

ot etairporppa level a ta noitasinagro

.meht eveihca

.elor rieht

hcihw sevitcejbo dna smia raelc

.sevitcejbo dna smia raelc

.enoyreve yb dootsrednu era

eht nialpxe yltnetsisnoc nac elpoeP

htiw nalp a sah noitasinagro ehT

htiw nalp a sah noitasinagro ehT .5

dna smia sti tuoba raelc


si elpoeP ni rotsevnI nA

Planning

.elpoep fo tnempoleved
eht ni ytinutroppo fo ytilauqe
gnirusne ot dettimmoc yleniuneg
si noitasinagro eht eveileb elpoeP
.spuorg tnereffid
fo sdeen eht esingocer dna ecalp
ekat sreganam dna tnemeganam pot
yb debircsed snoitca dna seigetarts
cificeps eht taht mrifnoc elpoeP
.elpoep
fo tnempoleved eht ni ytinutroppo
fo ytilauqe erusne ot gnikat
yltnerruc era dna nekat evah yeht
taht snoitca cificeps ebircsed nac
sreganaM .elpoep fo tnempoleved eht
ytinutroppo fo ytilauqe gnirusne

ecalp ni tup evah yeht taht seigetarts

.elpoep sti fo tnempoleved eht ni

ni ytinutroppo fo ytilauqe erusne ot


ebircsed nac tnemeganam poT

ot dettimmoc si noitasinagro ehT .4

.sisab
raluger dna ylemit a no kcabdeef
evitcurtsnoc dna etairporppa
eviecer elpoeP .desingocer
si noitasinagro eht ot noitubirtnoc
rieht taht eveileb elpoeP .desingocer
si noitasinagro eht ot noitubirtnoc
rieht woh ebircsed nac elpoeP
.ecnamrofrep selpoep rehto evorpmi
ot degaruocne neeb evah yeht
woh fo selpmaxe evig nac elpoeP

.desingocer si noitasinagro eht ot


noitubirtnoc rieht eveileb elpoeP .3

selpoep rehto dna nwo rieht

ot degaruocne neeb evah yeht

.ecnamrofrep

.ecnamrofrep nwo rieht evorpmi

Indicators

Evidence

evorpmi ot degaruocne era elpoeP .2

woh fo selpmaxe evig nac elpoeP

Principles

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.sevitcejbo
eht gniveihca ot etubirtnoc

eht gniveihca ot etubirtnoc

dna smia snoitasinagro

.sevitcejbo dna smia snoitasinagro


yeht woh nialpxe nac elpoeP

yeht woh dnatsrednu elpoeP .7

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A U.K. Strategic Model for Staff Development The IiP Standard (April
2000).
.seitivitca tnempoleved ot edam neeb
evah taht stnemevorpmi ylemit dna
tnaveler fo selpmaxe evig nac elpoeP

.elpoep sti gnipoleved


ta retteb steg noitasinagro ehT.21

.elohw a sa noitasinagro eht dna


maet rieht fo ecnamrofrep eht dna
,ecnamrofrep rieht no tnempoleved
rieht fo tcapmi eht nialpxe nac elpoeP

eht no elpoep fo tnempoleved eht

eht fo stifeneb dna stsoc llarevo

,noitasinagro eht fo ecnamrofrep

tcapmi sti dna elpoep fo tnempoleved

.slaudividni dna smaet

.ecnamrofrep no

eht sdnatsrednu tnemeganam poT

fo tcapmi eht dnatsrednu elpoeP.11


.ecnamrofrep
sti no elpoep

eht fo ecnamrofrep eht sevorpmi

devorpmi sah elpoep fo tnempoleved

dna smaet ,noitasinagro

,noitasinagro eht fo ecnamrofrep eht

.slaudividni

.slaudividni dna smaet

eht taht wohs nac noitasinagro ehT

elpoep fo tnempoleved ehT.01

ni tnemtsevni sti fo
tcapmi eht sdnatsrednu
elpoeP ni rotsevnI nA

Evaluation

.etairporppa erehw ,)htob ro(


sdradnats ro snoitacifilauq lanretxe
tnaveler ot deknil si tnempoleveD
.seitivitca
tnempoleved morf )edutitta dna slliks
,egdelwonk( tnrael evah yeht tahw
fo selpmaxe evig nac elpoeP .tluser a
sa od ot detcepxe era yeht tahw dna
seitivitca tnempoleved nekatrednu
evah yeht yhw dnatsrednu elpoeP
.ylevitceffe poleved dna nrael elpoep
taht wohs nac noitasinagro ehT
.noitcudni evitceffe na
deviecer evah yeht taht mrifnoc nac
,boj a ot wen esoht dna ,noitasinagro
eht ot wen era ohw elpoeP

.ylevitceffe
poleved dna nrael elpoeP .9

.tnempoleved rieht
gnitroppus ni evitceffe era sreganam
rieht woh ebircsed nac elpoeP
.elpoep fo tnempoleved eht troppus
ot gnikat yltnerruc era dna nekat
evah yeht taht snoitca fo selpmaxe
evig nac slevel lla ta sreganaM
.tnempoleved rieht
troppus ot gniod eb dluohs reganam
rieht tahw dnatsrednu elpoeP
.elpoep fo tnempoleved
sti evorpmi

dnatsrednu slevel lla ta sreganaM

.ecnamrofrep

eht troppus ot od ot deen yeht tahw

ot redro ni ylevitceffe

.elpoep
fo tnempoleved eht gnitroppus

dna egdelwonk eht evah sreganam

.elpoep

rieht poleved ot deen yeht slliks

elpoep sti spoleved


elpoeP ni rotsevnI nA

ni evitceffe era sreganaM .8

Indicators

taht erus sekam noitasinagro ehT

Action
Principles

Strategic Management of Human Resources

Evidence
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Strategic Management of Human Resources

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.

CASESTUDY
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.
IiP

.desserdda era spag sllikS

Shepherd principle

7-5 ,3-1

HRD Principle

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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 broadbased planned approach is fundamental to
organisational development processes.
.tnempoleved reerac ,maet tcejorp ,maet
tidua ,erutcurts lanoitasinagro ,lasiarppa

Shepherd principle

IiP

7-5 ,3-1

21 ,01-8

7 dna 6

9-6 ,2

9 ,1

21-9 ,7-6

7-5 ,3 ,1

5 dna 2

9 ,7 ,2

flesti ledoM

21-8 ,5-4 ,1

8 ,4 ,1

3 dna 1

11,01

11-01 ,7-6

:sessecorp RH rehto htiw noitargetni si erehT

.noitisoporp eulav remotsuc tnempoleved


ecnetepmoc lanoitasinagro stroppus DRH
.tnemevlovni reganam enil si erehT

.pot
eht morf evird tnemeganam roines si erehT

.ytivitca
gniniart lamrof dnoyeb seog hcihw ,troffe
egnahc detargetni na fo ertnec eht ta si DRH

.tnempoleved fles dna gninrael


nwo rof ytilibisnopser ekat slaudividnI

.tem era sevitcejbo gniniart rehtehw fo


noitaulave eht ot dna kcabdeef ecnamrofrep
hcir ot lacitirc si hcaorppa eerged-063 ehT

.egnahc edutitta dna ecnamrofrep ta demia


emmargorp tnempoleved lanoitasinagro
na si dlroW weN eht ni gninniW

.slliks pihsredael
wen fo tnempoleved lamrof si erehT

.etamilc gninrael a etomorp ot dna


erutluc dna sedutitta egnahc ot emmargorp
DRH na si emmargorp tsrif elpoep ehT

.erutluc
dna elyts lanoitasinagro fo tnemngila
eht dna regrem eht htiw stsissa DRH
.desserdda era spag sllikS

HRD Principle

The case clearly reveals the relationship of HRD to the achievement of strategic
change. HRD is used in the following ways:

CASESTUDYFEEDBACK
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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 highperformance 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 highperformance 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 interdisciplinary teamwork and crossfunctional 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 longterm effort to improve the organisation's visioning,
empowerment, learning and problemsolving 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 lifelong learning, not least, because of the rapidly changing global
business environment that we operate in. Furthermore, the adoption of
integrated working and knowledgebased practices requires
organisationwide 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.

READINGACTIVITY
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 underinvestment 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 24% 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 shortterm 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.
Strategicallythinking 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 teambased 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, knowledgebased
collaboration and reuse 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.

CASESTUDY
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.

CASESTUDYFEEDBACK
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 threequarters 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 upskilling 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
longterm 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 interrelationship 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
redefine 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


selfdevelopment.

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 policymaking 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

T he
L ear ning
Company

Reward flexibility

Enabling structure

S t r uct ur es

Boundary workers as
environmental sources
L ook ing out
Inter-company law

Learning climate
L ear ni ng 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.

Unit 6 Human Resource Development Strategies

All members of the


company take part
in policy and
strategy formation.

Policy and strategy


formation structured as
learning processes.

2.Participativepolicymaking

1.Thelearningapproach

Commitment to
airing differences
and working
through conflicts.

Business plans are evolved


Managerial acts

Appraisal and career


planning discussions
often generate visions
that contribute to strategy
and policy.
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.

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.

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.

5.Internalexchange
Departments
speak freely and
candidly with
each other, both
to challenge and
to give help.

Managers facilitate
communication, negotiation and
contracting, rather than exerting
topdown control.

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Departments, sections
and units are able to act
on their own initiatives.

Company policies
reflect the values of
all members, not just
those of top
management.

Systems of accounting,
budgeting and reporting
are structured to assist
learning.

3.Informating
You can get feedback
on how your section or
department is doing at
any time by pressing a
button.

Policies are significantly


influenced by the views
of stakeholders.

Everyone feels part


of a department or
unit responsible for
its own resources.

4.Formativeaccounting
Accountants and
finance people act as
consultants and
advisers as well as
Control systems
scorekeepers and
are designed and
bean counters.
run to delight their
customers.
The financial system

The basic assumptions


and values underpinning
reward systems are
explored and shared.

The nature of
reward is
examined in
depth.

6.Rewardflexibility
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.

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Roles and careers are


flexibly structuredto allow
forexperimentation,
growthand adaptation.

Appraisals aregeared
more tolearning and
development thanto
rewardand punishment.

7. Enablingstructure
We have rules and

Departmental and
other boundaries are
seen as temporary
structures that can
flex in response to
changes.

Weexperiment with new


forms of structures

Weregularly meet
withour competitors
to shareideas and
information.

People from the company


goonattachments to our
business partners, including
suppliers, customers and
competitors.

9.Intercompanylearning
We participate injoint
learning events with our
suppliers, customers and
otherstakeholders.
Weengagein joint
ventures with our
suppliers, customers
and competitors, to
develop new products
and markets.

Weusebenchmarking inorder
to learn fromthe best practicein
other industries.

Strategic Management of Human Resources

It is part of the work of all staff to


collect, bring back, and report
information about whats going on
outsidethe company.

All meetings in the


company regularly
includea review of
whats goingonin
8.Boundaryworkers our business
environment.

We meet regularly with


representative groups of
customers, suppliers,
community members andso
ontofindout whats important
tothem.
There aresystems and
procedures forreceiving,
collatingand sharing
information from outside
thecompany.

If something goes
wrongaround here
youcanexpect
help, support, and
interest in learning
lessons from it.

We receive regular
intelligencereports on
the economy, markets,
technological
developments, socio
political events and
worldtrends and
examinehowthese
may affect our
business.

People make timeto


question theirown
practice, to analyse,
discuss andlearn
from what happens.

10.Learningclimate
Thereis ageneral
attitude of continuous
improvement always
tryingtolearn anddo
better

Differences of all sorts, between


young and old, womenand men,
black andwhite, etc. are
recognizedand positively valued
as essential to learningand
creativity.

When youdont
know something,
its normal to ask
arounduntil you
get the required
help or
information.

People here have


11.Selfdevelopment
There arelots of opportunities, materials and
their own self
resources available for learning on an open
development
access basis around the company.
budgets they
decidewhat
Selfdevelopment resources
training and
are available to external
The exploration of an individuals
development they
stakeholders.
learning needs is thecentral focus of
want, andwhat to
With appropriate guidance people are
appraisal andcareer planning.
pay for it.
encouraged to takeresponsibility.

Source: Pedlar M. et al (1991). The Learning Company: A Strategy for


Sustainable Development, 2nd edition. McCraw Hill Publishing
Company. Pp 2627.

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ACTIVITYFEEDBACK
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)

ACTIVITYFEEDBACK
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 workbased 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.

There is a concrete experience for the learner, a work experience


or task performance.

2.

The learner observes and reflects upon this experience.

3.

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
longerterm 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 openended discussions. They are
essentially practical, downtoearth 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 computeraided


design (CAD) packages.

Selfdevelopment for example, in broader project


management roles.
The arrow indicates the spectrum from more instrumental categories at
the lefthand 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

Action learning
Job rotation

Business simulations

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/trainercentred, while the experiential policies
are learnercentred.

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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.
Table 6.1: Characteristics of the two policies of learning. Source: based on Handy (1976)
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Unit 6 Human Resource Development Strategies

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.

CASESTUDY
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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CASESTUDYFEEDBACK
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.

ACTIVITYFEEDBACK
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
procedurebased 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

Strategic Management of Human Resources

Pattern 1

Pattern 2

Pattern 3

Intermittent

Institutional

Integrated

Level of visible
training and
development

High

Line manager/employee commitment to development


Figure 6.5: Patterns of development of strategic HRD policy. Source: Mabey C. Salaman G, Storey J. (1992)

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, nonstrategically 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 subdivided into a more
operational, situationspecific pattern (formalised) and a more strategic
pattern (focused).

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DRH seod nehW 5

Process
egatnavda
evititepmoc
dna noitavitom
,noitavonni
ecnahne

srotitepmoc

lanosreP

gnippat fo yaw A

tnempoleved

laudividni

tem sdeen

ot ytivitaerc

fo daeha yats ot
nopaew laitnesse
na sa neeS

?detcepxe
deggulp
pag slliks A

era semoctuo
DRH tahW 4

htworg

fo yaw a sa neeS

gnitaerc fo yaw A

gnitavitluc

ytilatnem a

egnahc lanidutitta

hcae yberehw

ot pihsredael dna

ssenisub snosrep

etatilicaf

elohw eht si

lanoitasinagro

ssenisub

deknil
si ti hcihw htiw
scitcat larutcurts
dna stnempoleved
rehto fo
rebmun a fo enO

lartnec naht rehtar


larehpirep sa neeS

?dedrager
DRH si woH 3

stegdub
nwo rieht

decnanif

latnempoleved

ylgnidrocca

na sa neeS

nevowretni si DRH

dna tnemtsevni

yadyreve htiw

yrrac stnemtraped

dna ecneirepxe

semit drah
tegdub gniniart
lartnec a morf

ni detanimile
ot ;tsoc a sa neeS

Fully Integrated

rediw troppus oT

ot etubirtnoc oT

lanoitasinagro

eht yaw eht

dna ygetarts

smrof noitasinagro

gnikam-noisiced

stnemelpmi dna

dib stnemtrapeD

ro kcab tuc eb

?dednuf

slaog

ycilop sti

Focused

DRH si woH 2

lanoitasinagro ot
snalp
ecruoser namuh
rediw deef oT

knil yrassecen oN
.smelborp cificeps
sserdda oT

?detaitini
DRH si yhW 1

Purpose
Fragmented

Formalised

HRD audit
checklist
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?deviecrep
DRH si woH 31

Prevailing culture
semmargorp

fo esu eroM

sdohtem fo egnaR

esab-noitasinagro

sedulcni

.g.e( lairetam d

ecnatsid/nepo

esac ynapmoc

dna gninrael

)seiduts

tnempoleved-fles

seuqinhcet dna
sloot cimedaca
esu ot ycnedneT

tnetnoC )c(

egnahc laicifeneb
ecudortni ot

sesruoc

a tpoda sreniarT

a slevel lla tA

RH sa elor rediw

hcraes sselesaec

stnatlusnoc

sgniht evorpmi ot

fo egnar redaorb
a ni slliks erom
eriuqer sreniarT

gnittes moorssalc
ni reviled sreniarT

ffatS )b(

egdelwonk
yreviled lamrof

rof sselnu

sdohtem

gniriuqca

fo egnar rediW

yllareneG

selyts gniniart

evitcerid-non

gnisu evitcerid
si gniniarT

elytS )a(
?dereviled
DRH si woH 21

seitinutroppo
gninrael
fo sisylana

si gninrael

sa sekatsim

noitca otni denrut

sisahpme retaerG

degaruocne elpoeP

a sa gninrael no

ekat ot

htiw ,ssecorp

sksir evitcurtsnoc

desisahpme osla
gniniart lliks htiw
,desab-egdelwonK

desab egdelwonk
yllaicepse ,sesruoc
no sisahpmE

?fo tsisnoc
DRH seod tahW 11

detset
saedi wen dna
nward snoisulcnoc

tnuoma gnisaercnI

yadyrevE

boj-eht-no fo

si ecneirepxe

tnempoleved

,no detcelfer

boj-eht-no emos
htiw ,boj-eht-ffo
ylniam gniniarT

tnemnorivne krow
eht fo tuo ecalp
sekat gniniarT

?neppah DRH
seod erehW 01

Programme
tnempoleved
srehto
dna nwo rieht rof

devlovninu

ytilibisnopser niaM

lanoitcnuf yrevE

tnempoleved rof

a si reganam

enil htiw seil

reganam lareneg

reganam

elbisnopser dna ...

metsys gniniart
deef slasiarppa
reganam enil
;reviled sreniarT

ylegral sreganam
enil ;reviled
)lanretxe ro
lanretni( sreniarT

?DRH
sretsinimda ohW 9

hcaoc/rotnem htiw

ni tnemevlovnI

egdelwonk ,sllikS

htiw ,seitivitca

edutitta dna

gnieb gninrael

boj ni deriuqca

dna deggol

elbisividni elor

deweiver ylbissop

DRH morf

dehsilbatse
ylsuoiverp
slaog gninrael
htiw ecnadnettA

)serusserp krow
ot eud dellecnac
netfo( esruoc
no ecnadnettA

?etapicitrap
yeht od woH 8

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link into the organisational goal.

Their ability to show how their own development goals


development linked to strategy.

Their knowledge of broad organisational goals for


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:
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?

ACTIVITY
Source: Willie, 1990, pp. 85-8
.cte ,lairetam
srotitepmoc dna

tnemtiurcer

ni serutaef DRH

noitasinagrO

snoitasinagro

a sa dedrager

fo tnemetats

gniniart cissalc

noissim/slaog

stiurcer yb dnuorg

noitasinagro
eht yb
dedrawer seirots
sseccus gniniarT

,slanruoj lanretni
,yticilbup ynapmoc
ni noitnem
lanoisaccO

?DRH no decalp
si eulav tahW 41

tnemnorivne
lanretxe

sdeen

dna lanretni

lanoitasinagro

htworg lanosreP

nees noitasinagrO

gniniart eht

ylralucitrap ,deulav

gninrael a sa

eb ot tlef metsys

ot noitubirtnoc sti

,ynapmoc

ro etelosbo

gnillifluf

yltnatsnoc

ot tnavelerri

snoitasinagro

dna gnirotinom

slaog

sti morf gninrael

/laudividni

lacitpecs eroM

tsrow ta yenom
fo etsaw a ro tseb
ta yruxul a sa neeS

ylediw eroM )b(

laudividni eht
fo tnempoleved
lufpleh
.laudividni eht

sa tsrow ta emit

tlef noitasinagrO

trap elbaulavni nA

decneirepxe nehw

hguorht tifeneb ot

gninrael boj eht fo

lufpleh sa

fo tnempoleved

deviecrep lleW

fo etsaw a ro tseb
ta drawer a sa
deviecrep gniniarT

seeniart yB )a(

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Unit 6 Human Resource Development Strategies

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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 elearning.

Trends in Organisational Development &


Learning: e-learning
Let us begin with a case study

CASESTUDY
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.

CASESTUDYFEEDBACK
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 selfdevelopment and elearning initiatives to


be successful in an organisation, individuals should be motivated and
encouraged to the see the value and benefits of selfinitiated and
constant learning. This, in itself, may involve a culture change. It is
therefore critical to have management support for elearning as a
vehicle for professional development in the organisation. Unlike the
more conventional forms of facetoface training (where there is an
instructor and an assessment of learning on completion), elearning
programmes are selfdriven. 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


allembracing 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 elearning 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 policymaking 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.

REVIEWACTIVITY
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?

REVIEWACTIVITYFEEDBACK
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,
AddisonWesley.
Burgoyne J (1999) Manager Learning Development BACIE Journal. Vol. 3
No. 9. Oct. pp. 15860.)
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 & Reorientation: An
Empirical Exploration. Strategic Management Journal 13, pp 385 608.

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Strategic Management of Human Resources

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, McGrawHill.
Pedler M, Boydell T & Burgoyne J (1988) The Learning Company
Maidenhead, McGrawHill
Pedler M, Burgoyne J &Boydell T (1991) The Learning Company: a
Strategy for Sustainable Development London, McGrawHill
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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Unit 7

Managing Employee Relations:


A Strategic Approach
LEARNINGOUTCOMES
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 deemphasise IR as a strategic


variable that dominated boardroom thinking or to introduce the term
employee relations (ER) into the agenda as a managementled function
rather than a union or employeeled function.
ER was suggested as a more sophisticated and strategyled 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.

READINGACTIVITY
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 nonunion
employees. The emphasis shifts from a concentration on the collective
bargaining process with all its formalisation, to a wider diversity of
managementemployee 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 bypassing 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 longterm job security, have been willing to support
multilevel 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 alltime
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 cooperatively 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 largescale 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 twentyfive 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
fulltime and parttime 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:

Parttime 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 pre1980.
Increasingly EU directives impact employment matters in the UK.
These span a number of areas including regulation of working time,
equal employee rights for parttime and fulltime 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 familyfriendly 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 workingage benefits and some data sharing provisions.
HR professionals need to be aware of wideranging 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.

2.

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What do you consider to be the benefits and disadvantages of trade


union membership?
What is your impression of trade unions?

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ACTIVITYFEEDBACK
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?

ACTIVITYFEEDBACK
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 socalled 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 setup 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 parttime 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
shortterm and fixed term working. Only 50% of European workers
(CRANET 1999/2000) have fulltime 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 managementled 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 rebalance 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.

Effect on management/employee relations or


management/union relations

noinu gninioj fo doohilekil ssel ;krow fo noitatnemgarF

fo noitacol eht dna ezis :noitasinagrO


krow

seeyolpme fo noitalosi laicos dna

ot sdael ytilibom reerac dna gnikrow-emoH

Features

RE fo noitasilaudividni
ni egnahc :erutcurts cimonocE
htworg EMS ,esab lairtsudni
txetnoc lagel dna lacitiloP
:ecnereferp laudividni dna laicoS
snoinu nioj ot ytisneporp
noitasilabolG

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367
skcolb
edart ssorca sthgir eeyolpme dna ruobal lasrevinu
fo ytilibissop eht setinu noitasinagrO edarT dlroW

gniniagrab
evitcelloc dna noitatlusnoc evisnetxe otno erusserp
stup evisnopser tekram dna remotsuc eb ot erusserP

srecudorp tsoc wol ot etats noitan detatneiro-noinu


morf yawa latipac tfihs ot CNM fo rewoP
noitavonni/tsoc ni serusserp ssenisub gnisaercnI
)CNM( ecnanimod etaroproc lanoitanitluM

noitasilabolG

seiradnuob
lautriv dna lanoitan ssorca seeyolpme fo noitasinagrO
snoinu fo egarevoc aidem dna egamI
seiteicos remusnoc desilaudividnI

snoinu nioj ot ytisneporp


:ecnereferp laudividni dna laicoS

seinapmoc lanoitanitlum
lortnoc ot setats noitan dna UE nihtiw snoinu fo rewoP
sthgir gniruces ni elor tnemnrevoG UE dna elor noinU
sthgir tnemyolpme dna namuh fo smroftalp lageL
pihsrentrap laicos rof troppus UE
sthgir tnemyolpme dna noinu rof troppuS

txetnoc lagel dna lacitiloP

stsoc ecuder ot srecudorp


pihsrebmem noinu wol/tsoc wol morf erusserP

tnemevom
noinu fo noitasilanoitanretni dna noitasilabolG

rewop reyolpme decnahne dna ruobal fo noitartnecnoc


sessenisub labolg egral fo rebmun rellams ot evoM

ruobal
esinagro ot ytiliba ssel sessenisub rellams ot evoM

htworg EMS ,esab lairtsudni

ni egnahc :erutcurts cimonocE

RE fo noitasilaudividni
ot sdael ytilibom reerac dna gnikrow-emoH

seeyolpme fo noitalosi laicos dna

krow

noinu gninioj fo doohilekil ssel ;krow fo noitatnemgarF

fo noitacol eht dna ezis :noitasinagrO

Features

Effect on management/employee relations or


management/union relations

You might have noted the following, which is not an exhaustive list:

ACTIVITYFEEDBACK
Strategic Management of Human Resources

Unit 7 Managing Employee Relations

Unit 7 Managing Employee Relations

Strategic Management of Human Resources

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
decisionmaking 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.
Multinational organisations with global products may seek to take a
more companyled approach.
Figure 7.1 takes the level of analysis further by looking at the internal
decisionmaking 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 deemphasise 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

ER
practice

Legal
environment

Organisational size

Production and labour market, e.g. globalisation

Systems perspective

Outer and
inner context

Employment
Relation
Institution

Management
strategy

Collective
Bargaining

Conflict
resolution
and
negotiation
process

Works
councils
Communication
frameworks

T.U.
strategies

Employment
Relation
Practice

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
.g.e ,level lairtsudnI

lanretni gnortS

ynamreG

,gniniagrab evitcelloc

Highly regulated

Internally determined
rules

droF .g.e
noitatlusnoC
tnemeganaM
g.e ,evitagorerp

dna smret muminiM

Minimally regulated

gnidliub g.e ,snoitidnoc


yrtsudni

MBI ,recnepS & skraM

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.

ACTIVITYFEEDBACK
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 contingencybased 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 longerterm 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
(directionempowering),
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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ACTIVITYFEEDBACK
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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selfmanaging 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.

CASESTUDY
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?

CASESTUDYFEEDBACK
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

ACTIVITYFEEDBACK
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

Characteristics

lanoitidarT

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tsilanretaP

,metsys tnemeganam ecnamrofrep/tnemtimmoc hgih ,yrassecennu snoinu


sevitcejbo ssenisub htiw seeyolpme fo tnemngila
tnemtimmoc gniruces rof sisab a sa noitatlusnoc noinu ,noitingocer noinu

evitatlusnoC

RE ot RI morf evom ,devreserp eganam ot thgir ;ffats fo


evitcelloc hguorht desimitigel si tnemtimmoc erehw ecitcarp RI

lanoitutitsnoC

no sisahpme hgih ,snoisiced tnemeganam otev yam noinu ;stnemeerga


serudecorp dna selur
dna noitasinagro fo elcyc efil ot gnidrocca seirav ;hcaorppa nommoc on

citsinutroppO

cigetarts-non ;sreganam dna snoinu neewteb rewop gnitfihs eht

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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Sophisticated
human relations

Individualism

Paternalism

Sophisticated
consultation

B ar gained
Const it ut ional

Modern
paternalism

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 27points model comprising socalled 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 nonrecognition 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 socalled New Industrial
Relations (NIR), was started in regions such as the North East of
England. In such regions, inwardinvesting 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
semiskilled 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.

Broadbased 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


socalled 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 socalled 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 interunion
consensus. Multiple union conflict had been a major problem of the
1970s and 1980s. These agreements were the subject of wide
experimentation in UKowned 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 multiskilled
cellular teamworking with nonunion 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
startup 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.

CASESTUDY
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?

3.

Evaluate how employers are attempting to secure more effective union


relations without alienating or turning non-union employees towards
trade unions.

4.

What are the adversarial trends that are developing to defy the new
legal provision?

5.

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?

CASESTUDYFEEDBACK
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.

2.

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.

3.

396

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.

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

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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.

5.

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.

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 welldefined 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 twofold shift:

First from multiemployer to single employer bargaining.


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Then from multiestablishment (company) to single


establishment bargaining.
Examples of this decisionmaking 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 multinational 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 UKwide bargaining, Ford
based upon a World Car Manufacturing strategy.
We need to look at the merits of decentralised bargaining:

At the location/company level.


Multiemployer, 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.

ACTIVITYFEEDBACK
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 multiemployer 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 multiemployer
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 coexist 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 cooperate 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.


Cooperative: 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 learningbased 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
cooperative 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
27points 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
welldefined, 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
managementled, 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
macrolevel 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, worklevel 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 marketled
economies. Managers felt constrained in decisionmaking, unions felt
uncomfortable in being incorporated into management functions,
whilst the whole process became a largely bureaucratic extension to
companywide 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 knowledgebased 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 cooperative 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 multinational 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 nonunion
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.

2.

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.

3.

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.

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.

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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 customerfocused 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 case