You are on page 1of 12

European Management Journal Vol. 14, No. 3, pp.

243-254, 1996
~ )



Copyright 1996 Elsevier Science Ltd

Printed in Great Britain. All rights reserved
0263-2373/96 $15.00 + 0.00

A Framework for
Diagnosing Human
Resource Management
JEAN-MARIE HILTROP, Senior Partner, InterCultural Consulting, Geneva

Current debate in the area of human resource

management is focusing on explanatory links
between certain HRM practices and orgarfisational
performance, asking such questions as: what are the
key HR activities that increase organisational

Jean-Marie Hiltrop of InterCultural Consulting,

Geneva, presents a framework to analyse the wide
range of HR practices found in organisations, which
assists in answering such questions. He suggests ten
factors or 'dimensions' which underlie the different
approaches to HRM found in organisations. These
can be used as a checklist for evaluating the
effectiveness of HR practices and of those who
implement them. Copyright 1996 Elsevier Science

and Lake, 1990; Pfeffer, 1994). As a result, the 'new'

debate became:
~ what are the key HR activities that increase
organisational performance?
1 to what extent can the HR practices of the
organisation help to create and sustain 'competitive
o:o what are the implications of these theories and
models for the HR function?

For many years, academics and practitioners have
debated how to ensure that the 'human resources' of
an organisation '... are used in such a way that the
employer obtains the greatest possible benefit from their
abilities and the employees obtain both material and
psychological rewards from their work' (Graham, 1978).
This debate has to led to the formulation of a number of
theories or models of 'strategic' human resource
management (HRM) which link the HR policies and
practices of the organisation with the overall business
strategy of the firm (Walker, 1980; Fombrun, 1984;
Miles and Snow, 1984). In recent years, however, much
of the debate in the area of HRM has shifted attention
away from the linkage between HRM and business
strategy towards the formulation of various theories and
models that postulate explanatory links between certain
HRM practices and organisational performance (Ulrich
European ManagementJournalVo114 No 3 June 1996

2 43


Answers to such questions require a framework within

which to analyse and discuss the wide range of human
resource practices found in organisations (Iles and
Mabey, 1992). As Ulrich and Lake point out:
'Having a framework in which to discuss management
practices helps avoid the problem of randomly discussing
policies and procedures. With it managers are able to assess
practices on an ongoing basis. Having a framework also
ensures that when organizational strategies are implemented
or changes are attempted, the entire set of management
practices may be examined, not merely one practice in
This article offers a practical framework that managers
may use for categorising and assessing their HRM
policies and practices. The framework is based on the
assumption that there are a limited number of factors or
'dimensions' that underlie the different approaches to
HRM found in organisations (Kravetz, 1988; Ulrich and
Lake, 1990; Pfeffer, 1994). Exhibit 1 lists ten such
dimensions. Clearly, these dimensions are interrelated
and their exact number and their labels are somewhat
arbitrary. However, taken together, they describe the
types of management policies and practices that have
been identified in recent studies of what effective
organisations do with people and can therefore be used
as a checklist for evaluating the effectiveness of HR
practices and those who implement them. Let us consider
each dimension in turn.

The Reliance on Internal Labour

The first challenge of any business is to find and recruit
the people necessary to meet its present and future skill
requirements. As a rule, the preferred source of recruitment for an organisation may be internal, in which case
job vacancies are primarily filled from the internal labour
pool at all but the lowest levels; or it may be external, in
which case the organisation is at least as likely to hire
talent from outside the company as it is to promote
people from within at all levels.
It has been suggested that firms which focus on internal
recruitment tend to think of people as valuable assets,
with long-term developmental potential, rather than
fixed costs, which carry an annual expense (Sonnenfeld et
a/., 1988). These companies hire from outside only at
entry level and expect a large proportion of their
employees to stay through to retirement by developing
firm-specific skills and, in many cases, a deep-seated
loyalty in their employees. In contrast, organisations
which focus on external recruitment are open to external
labour markets at all levels, and seek out those employees who will make the largest individual contribulions. Recruitment and promotion here behave more
along the lines of human capital theory, derived from
neo-classical economics, which suggests that employees
increase their own market value (and attractiveness to


Reliance on internal recruitment and promotion

Emphasis on teamwork
Strategic career systems
Openness and information sharing
Decentralisation and delegation of authority
Concern for people in the management philosophy
Recognition and reward for high performance
Rewards for skills and competencies
Training and development of employees.
A longer-term focus of HR decisions

Exhibit I

Ten Dimensions of HR M a n a g e m e n t

employers) through education and training (Becket,

1964; Wachter, I974). The critical human resource
function in the external recruitment firms is employee
attraction and selection (to keep the firm fully staffed),
rather than retention and development (to keep the staff
fully skilled and performing).
Internal recruitment is often viewed to be easier to
control and most of the HRM models described in the
(predominantly American) literature assume the workings of an internal labour market. In addition, relying on
an internal labour market tends to lead to the following
benefits (Sparrow and Hiltrop, 1994):
:" It improves morale, commitment and job security of
:" It provides for more opportunity to assess the
abilities of employees accurately given the accrued
knowledge gathered over the employment
:, It is a less expensive way of resourcing labour than
external recruitment and selection.
:" It concentrates external recruitment activities on
entry levels (typically school leavers and graduates),
allowing for more specialisation of skill in the HR
"- It affords more opportunity to control salary levels
(because there is less need to accommodate external
The disadvantages are higher levels of 'political'
behaviour associated with advancement and the dangers
of complacency, conformity and resistance to change as
a single mindset besets the organisation (Mathis and
Jackson, 1992). It can also lead to the development of
work,forces ill-suited to technological and market
demands because old ways of doing things become
perpetuated. Finally, it often means that changes to
HRM systems have to be conducted at the macro-level bringing about alterations in the whole training and
development system
whereas external recruitment
may afford a more immediate and localised solution.

Emphasis on Teamwork
Increasingly, teamwork is seen as one of the main
building blocks of successful organisations and much
EuropeanManagementJournalVo114 No 3 June 1996


time, effort and resources a r e being invested in

developing and managing cohesive teams (Katzenbach
and Smith, 1994) The potential benefits of these
investments are numerous and diverse. Perhaps the
greatest is the achievement of organisational synergy
where the output of the whole team becomes greater
than the sum of the individual contributors and in so
doing boosts the productivity and creativity of their
units and functions. In addition, teamwork can benefit
the company and its members in the following ways
(Wilson, 1994):
: It can be an ideal mechanism for releasing the talents
and energies of people to solve problems.
: It affords for team members to feed on each other's
ideas and to accomplish tasks that are too large or
complex for individuals to handle on their own.
:o Many tasks, problems and solutions are multidisciplinary in nature, involving a variety of skills
and knowledge that no one person possesses.
~ It can free the organisation by opening channels of
communication, breaking down barriers between
functions and departments and generally creating a
situation where change and new ideas are more
rapidly accepted.
oi- In good teams, there is a sense of belonging and not
being alone. There is a common aim, which all
members share and strive for. Decisions are arrived
at by consensus; members have fun together; team
roles are operated flexibly; and weaker members are
helped and supported in times of difficulty.
Teamwork can therefore create loyalty and
commitment to the task and organisation.
However, there are disadvantages as well as benefits.
One is that relying on teamwork may reduce the
individuals' sense of urgency, personal responsibility,
and contribution to organisational performance. It also
may impact upon the image and power of people in the
organisation, leading to the rejection of new methods of
assessing and rewarding performance and the resistance
to change. The conditions which are most likely to bring
about this type of behaviour include:
:o The need for teamwork is not recognised by those
affected by it.
o:o There is an increase in the level of uncertainty
relating to the future of jobs, rewards, power and
status of individuals.
4 The structure and composition of teams fail to take
sufficiently into account the conditions under which
people work together and learn from each other
within the context of cultural change (Williams,
Therefore, when deciding to introduce more teamwork
into the organisation, careful attention needs to be given
to the criteria by which people are assigned, rewarded
and promoted. If the benefits of teamwork are very
difficult to achieve, the organisation may choose to focus
primarily on gaining competitive advantage through
individual performance, rather than through teams.
European Management Journal Vo114 No 3 June 1996

Strategic Career Systems

So far the discussion has focused on two dimensions of
HRM: the main source of recruitment used to staff the
organisation and the degree of emphasis on teamwork in
the corporate culture. Combining these two dimensions
of HRM into one model produces the four types of
careers systems proposed by Sonnenfeld, et al . For
instance, companies with strong internal labour markets
and reward systems primarily based on team
contribution have a career system that evoke the image
of a 'Club'. These companies are characterised by internal
promotion, low membership turnover and, in many
cases, a deep-seated loyalty in their employees. Their
concem is more with maintaining seniority, commitment,
status and equal treatment than with innovation and
profitability. In contrast, firms with weak internal labour
markets and reward systems based on individual
performance behave more like 'Baseball Teams'. They
are open to external recruitment at all levels, and seek
out those people who will make the largest individual
contribution to organisational performance. Like
professional athletes, employees in these firms are more
loyal to their profession than to the organisation and sell
their skills to the highest bidder. The other two types of
career systems identified by Sonnenfeld et al. (1988) are
called ~Fortresses' and 'Academies'. Their distinctly
different features are shown in Exhibit 2.

Internal labour markets.
Reward systems based on individual contribution.
Recruitment from the outside only at entry levels.
Low employee turnover.
The key HR function is development.
Typical industries include consumer products and


'C/ubs '

Internal labour markets.

Rewards and promotions based on group factors.
High concern with seniority, status and equal
treatment of members.
The key HR function is employee retention.
Typical industries include utilities, government
agencies, insurance.



'Baseball Teams'
Open to all external labour markets at all levels.
Seek out people who make the largest individual
The major HR function is recruitment.
Typical industries are consulting, advertising, and
investment banking.
Preoccupation with survival.
Group factors dominate the choice of promotions
and layoffs.
Primary emphasis on retrenchment.
Typical industries include textiles and retailing.

Source: Sonnenfeld eta/. (1988)

Exhibit 2

A Careers Systems Typology



Interestingly, Sonnenfeld et al. (1988) argue there is a
strategic parallel between this typology and the four
strategic types proposed by Miles and Snow (1978). For
example, they suggest that companies which are acting
as 'defenders' in their product-market domains tend to
have a 'club' career system. Their leaders seek mastery
over a narrowly defined organisation. Their focus is on
stability and reliability; thus they must develop loyal
members committed to maintaining the institution over
the long term (Sonnenfeld et aL, 1988). By contrast, the
'prospector' strategy of Miles and Snow (1978) tends to
be associated with a 'baseball team' approach to career
management because it includes an implicit decision to
"buy' rather than 'make' talent. The 'analyser' strategy of
many electronics and pharmaceutical firms also leads
them to buy talent in order to bring in new blood and
stay in the competitive forefront, although as 'academies'
they rarely hire from outside beyond the entry level.
Finally, Sonnenfeld et aL, (I988) suggest that 'reactor'
firms typically have a 'fortress' approach to career
management, which means they not only buy but often
sell talent into the outside market through layoffs, early
retirements and the like.

Openness and Information Sharing

For most people in organisations today, openness is
perceived as a vital characteristic which isn't even worth
dwelling on. Yet, as Senge (1990) points out, openness is
a complex and subtle concept, which can easily be
misunderstood as telling the boss what he wants to hear,
or simply playing a new, more advanced political game.
This, he suggests, is because there are two different
aspects of openness: participative and reflective. Participative openness entails the freedom to speak one's mind.
It is the most commonly recognised aspect of openness
because the theory of 'participative management'
(involving people more in decision making) is widely
espoused. Reflective openness starts with the willingness
to challenge our own thinking, to recognise that any
certainty we ever have is, at best, a hypothesis about the
world. It involves not just expressing facts and ideas, but
examining our own and others' thinking. According to
Senge, these two forms of openness are needed. Unless
the two are integrated, the behaviour of being more
open will not produce real challenge and change.
If openness is a complex and subtle concept, then
building an organisational culture characterised by
openness may be one of the most difficult tasks of
managers. No matter how committed managers are to
honesty and forthrightness in all communications, many
people are steeped in the habits of political game playing
and never see the point of breaking the vicious circles
supporting traditional political behaviours. In many
ways, however, organisations unintentionally encourage
people to choose to withhold information they have, to
be cautious and to see openness as a device for
manipulating people rather than as a tool for improving
human interactions. As Block (1991) says:

'In some organisations people can't have a meeting unless their

ideas are outlined on overhead transparencies. Some of this is
useful and does facilitate communication. In many cases
though, it is overdone and tends to create such structure and
formality in a dialogue that real communication, especially
about sensitive issues, hardly has a chance. When our need to
look good overrides our need for honest communication, then
our deeper purpose of building an organisation of our own
choosing has been deflected'.

The other side of the coin is that if managers want their

people to be more open and honest in their communication, they need to make sure that there is a high
degree of consistency between what is said and done.
Consistency is critical to create a culture of mutual trust.
This is true at every level. Yet, more than one
organisation involved in a recent study of European
HR practices (Hiltrop, 1991b) pointed to the continued
existence of individualised reward systems when
corporate strategy demanded more teamwork, and there
were several instances where career management policies
had so far failed to recognise that lifetime employment
was no longer guaranteed.
If people are to be a source of competitive advantage,
clearly they must have the information necessary to do
what is required to be successful. Unfortunately,
managers are very often reluctant to do so. One reason
sometimes given for not disclosing information about
productivity, profitability and any other aspects of the
operation to large numbers of employees is that it may
leak to competitors. Numerous studies have shown that
this is less of a problem than is sometimes thought. Like
Ulrich and Lake (1990), I would not argue that all
information should be publicly shared, but it is clear that
many managers have a misplaced fear of sharing too
much information with their employees. Especially when
jobs are at stake, information is too often marked
confidential and shared with only a few of the people
whose work it will affect. Typically, the only people in
the dark are the firm's own employees (Pfeffer, 1994).
The consequences can be disastrous. With too little
information, employees tend to create and act on
rumours and without accurate information, they often
attribute unintended meaning to the scanty information
they have received. Clearly, then, one of the most
important decisions managers must make in all
organisations concerns how open to be with employees.

Decentralisation and Delegation of

For many organisations, decentralisation and delegation
have been central features of their new management
philosophy. Current thinking leads to the removal of as
many levels as possible in an attempt to rid the
organisation of bureaucracy. This is expected to provide
faster communication both up and down the
organisation with less chance of distortion. Another
benefit of delayerin8 is that individuals and groups can
EuropeanManagementJournalVo114No 3 June



be more autonomous and responsive to customer needs

(Wilson, 1994). Within the general policy guidelines of
the organisation, employees at the customer interface are
'empowered' to make decisions that previously would
have to be referred to higher levels.
Empowerment, however, is a much broader concept
which entails examining and changing many of the
policies, practices and systems that govern the design
and allocation of work in the organisation. As Wilson
(1994) points out:
'real empowerment is not achieved through management
decrees or directives, but through reconsidering how people are
treated and managed. For empowerment to be effective,
organisations and all managers must adopt a style that
encourages and reinforces individual growth and teamwork
processes. Managers have to set standards, give directions and
then allow people freedom to do their work in the way they
consider most effective. Managerial control is kept to a
minimum while skills such as coaching, facilitation,
counselling and mentoring become important. Managers
concentrate on assisting people to achieve their objectives
rather than telling them what to do and how to do it'.

For many companies and managers, this is a complete

reversal of how they have operated in the past.
Traditionally, rank and longevity gave the right to
command and control subordinates and most people
acted in response to this hierarchy. Under the
empowerment philosophy, responsibility and authority
are delegated to the lowest possible level and management authority is based on personal skills and competency to achieve the aims of the business. These
changes to the roles and responsibilities of managers are
not taking place without pain. As Mike Arthur - the
personnel planning manager at Rover's engine, gearbox
and transmission manufacturing plant in the UK explains:
'Many managers were recruited or promoted at a time when a
more directive and autocratic style was demanded from them.
Other managers associate 'letting go' with loss of discipline
and control. Some worry about whether they will still have a
job when their subordinates do what they do now. Most,
however, have made, or have started to make the transition
and we know of no case where a manager has 'let go' to the
team and has then had to revert to the hierarchical structure'.

The evidence is that empowerment works best when it is

coupled with rewards for the increased performance
decentralisation and delegation can bring as well as
training in the skills necessary to take true responsibility
for one's own work process (Pfeffer, 1994). And where
the management style needs changing, appropriate
training and development should be provided to
managers. Enhanced communication skills will be
particularly critical. After the training is completed,
ongoing reinforcement of the suggested management
skills and style is needed. Managers should be evaluated,
for example, on how well they develop and coach their
team and how well they foster initiative and creativity.
European ManagementJournalVo114 No 3 June 1996

Finally, organisations need to review their recruiting

criteria and techniques to get the right kind of people
and skills. At Rover, they now invite people in for two
pre-recruitment clays after vetting them to see if they are
suitable. Once that process is complete, new recruits go
through an intensive induction programme to understand the new corporate culture and who the customers
are. No one goes near a job until day four, when they
start their own job-specific training. This is radically
different from what the Rover Group did in the past. As
their production manager puts it: 'In the past we just
used to go out there and find people. We didn't really
measure their calibre; we just used to get in warm bodies,
and with an hour's training they'd be on the line building
vehicles'. Clearly, wholly new ways of attracting,
selecting, evaluating and rewarding people is needed if
the benefits of decentralisation and delegation are to be
fully attained.

Concern for 'People' in the

Management Philosophy
People are often described as 'our most important asset'
in annual reports and company value statements. For
some organisations, those are merely empty words that
sound nice but are not translated into practice. Other
companies however have a culture that clearly makes
people the most important asset of the organisation.
How? According to Kravetz (1988), such a culture can be
built in a variety of ways. For example, companies that
demonstrate a strong concern for the personal needs of
people typically do the following things:
o:o They make a substantial investment in developing
o:o Show respect for the individual's dignity, self-worth,
personal needs and culture.
o:o Openly share important information with
o:o Regularly survey the opinions of employees about
the work climate.
o:o Act upon important issues and concerns identified
by workers.
o:o Emphasise faimess and ethics in dealing with both
employees and outsiders.
Kravetz's study of 150 Forbes 500 companies showed
that companies that had such policies and practices were
financially more successful than those that did not. Of
those companies high in annual sales and profits, a total
of 90 per cent had a culture that strongly emphasised
concern for people. Only 20 per cent of the less
successful companies had such a culture.
However, showing concern for people goes beyond the
practices outlined by Kravetz. For example, Levering et
al (1984) who investigated 'The 100 Best Companies To
Work for in America' found that most of these
companies shared six characteristics, which they
described as.
2,4 7


*~* Making people feel that they are part of a team or,
in some cases, a family.
," Informing people of new developments and encouraging them to offer suggestions and complaints.
*:* Letting employees bid for vacant jobs before hiring
,'* Enabling people to feel pride in the products or
services they are producing.
'* Allowing employees to share in the profits, through
profit sharing or stock ownership or both.
The biggest impact on employee satisfaction was made
however by reducing status and salary differences
between the top management and those in entry-level
jobs. A number of writers have referred to this practice
as the clan approach (Ouchi, 1981; Beer et aL, 1984). This
term means to imply that the organisation works as a
social entity based on shared values, shared risks, and
shared rewards, and orientated towards a joint or
collective achievement. The close relationships and ties
among all members of the 'clan' are contrasted to the
typical formal and impersonal relationships in
bureaucratic organisations.
Although certain aspects of the clan approach would
seem easy to implement, the elimination of status
symbols is often one of the most difficult things for an
organisation to do (Pfeffer, 1994). This is particularly the
case in countries with non-egalitarian cultures such as
Belgium and France. Hofstede's (1980) work showed that
in such cultures, bosses have much more power than
their subordinates, power-holders are entitled to
privileges, and workers consider bosses as a different
kind of person. At a financial institution in Brussels, a
strike broke out when top management announced they
planned to close the executive dining room. Middle
managers claimed that they had reached a level that
entitled them to have a separate restaurant, complete
with good wine lists, candlesticks and walls covered with
original paintings.
Even in these countries, however, the elimination of
status symbols is increasingly seen as a key component
of creating a more people-orientated culture. This is
largely because of the growth of professional jobs and
the substantial investment that large companies are
making in hiring and training highly skilled employees.
In many businesses, professional know-how is the only
product or service the organisation provides. To
generate and sell this know-how, companies have to
take care of the people who have the ability to do so.
This means there must be culture that manifests the idea
that people are an important asset. In an era in which
layoffs and cutbacks are becoming a way of life, this is
not an easy requirement. Yet, several leading US
companies examined by Kravetz and other researchers
during the 1980s were making vigorous efforts to build
and maintain a culture that strongly emphasises concern
for people. These efforts were often reflected in greater
financial success for these companies as well as lower
employee turnover rates.

Recognition and Rewards for High

The management of rewards and compensation was
once a relatively straightforward process. Salary and job
level went hand in hand. Year upon year, employees
would climb the corporate ladder, receive a higher
salary, collect more benefits and develop a growing
sense of job security and career entitlement. For the
employer, this system assured that the employee would
be loyal to the company, serve with long-term
commitment and perform the tasks requested by
management. Pay was seen more as a fixed cost than
an investment.
In recent years, however, the pressures of increased
competition, slow growth, and volatile markets have
turned these quiet waters into a continually churning
whirlpool of change, rendering traditional approaches to
rewards and compensation ineffective or even
counterproductive (Berger, 1991). For instance, Kanter
(1994) states that 'traditional pay systems are under
attack for being neither cost effective nor motivating
people to do more'. Similarly, a recent review of research
findings by Beer et al. (1984) concluded that:
'despite the enormous amount spent on wages, commissions,
cost of living increases, bonuses, and stock options, many
studies have shown that in most organisatians 50 percent or
more of the employees are dissatisfied with pay, and that this
percentage is increasing'.

These findings are particularly disturbing when one

considers that pay has been consistently found to be one
of the most important job factors to individuals. It is
usually ranked first or second among all levels of
employees. Apparently, many employees come to work
each day believing that their wages are unfair, that pay
increases are unfair, and that any improvement in their
performance is unlikely to result in better pay.
Denis Crowe (1992), a consultant specialising in reward
systems, argues that there are two key reasons for this
unfortunate situation:


The failure to design reward systems that underpin

and reinforce business strategies.
The failure of reward systems based on job
evaluation techniques to reward people for
individual performance and for contribution to
group results.

In addition, Crowe (1992) suggests that many pay

systems, both old and new, fail because of poor
communications. As he puts it:
'Too often, employees are left to interpret the meaning and
intent of changes in the compensation system on their own.
Where major cultural change is intended, it is necessary to
communicate both the rationale for the changes and the
impact that these will have on the staff concerned. Although
EuropeanManagementJournalVo114 No 3 June 1996


companies of a certain size may well have written statements

on a range of pay-related matters, it is rare to find a document
which encapsulates the underlying philosophy that drives the
remuneration policy'.

To comprehend just what has happened to pay and

benefits in Europe and what it means for the future
management of human resources, a research team at the
Cranfield School of Management surveyed companies in
all major West European countries during the 1980s.
Their findings suggest that product market pressures and
the need to remain competitive in the labour market
have exerted a considerable influence on the reward
policies and practices of European organisations. The
four main trends identified in the study are summarised
in Exhibit 3.
By far the most marked development has been the move
away from rigid towards flexible pay systems by linking
the employees' pay increases more closely to the
company's financial performance. This move appears to
fulfil two objectives. Some organisations are trying to
use pay-for-performance - largely through the introduction of bonuses and extra rewards for exceptional
performance - to reinforce their strategy and motivate
their employees to devote greater attention and energy
to some activities than to others. Others are exploring
how increases in variable pay can contribute to their cost
reduction programmes.
People, however, are motivated by more than cash.
Things like recognition, challenging work assignments
and opportunities for self-development matter a great
deal for many employees. The Cranfield survey showed
that an increasing number of companies are relying on
non-financial types of rewards to attract and retain
workers (see Exhibit 4). Some employers see the creative
use of such rewards as an important feature of
competitive reward packages, at a time when they need
tax-effective ways to attract key professional and
technical staff. Not all companies consider such schemes
appropriate. For instance, in the words of Sun Alliance's
staff relations manager: "We concentrate on payment in
the form of cash rather than gimmicks.'
At the same time, flexible benefit plans (also known as
'cafeteria systems'), which allow employees to decide
which elements they want in their compensation
package and in what amounts, has received much
interest in recent years (Sparrow and Hiltrop, 1994).
Employees are thus free, up to an agreed cash ceiling, to
make up their own reward packages to fit their needs
and desires. Clearly, there are wide individual differences
in the preference of people for cash and fringe benefits.
There are also differences in the kinds of fringe benefits
individuals prefer. Thus, a standardised mix of cash and
benefits is unlikely to be attractive to all individuals, so
that it may be more effective to allow employees to
select individually from a (limited) list of mixed packages
until they have spent the total allowable compensation
European ManagementJournalVo114 No 3 June 1996


Employers are moving away from rigid pay

structures. Variable pay packages are on the
increase in all countries, particularly in Sweden and
2. Pay in some countries is increasingly determined by
company policy rather than national or regional pay
agreements, one-to-one negotiations with individuals are also on the increase, mostly for managers
and professional staff.
3. Fringe benefits are an increasingly important part of
reward packages in most countries except France.
4. Profit-sharing is readily available, mostly to
managers and professional workers. Bonuses,
whether group or individual, and performancerelated pay are popular in all countries. Share
options are still predominantly a British benefit.
Source: The Price Waterhouse Cranfield Project on
International Strategic Human Resource Management,
Report 1990

Exhibit :l





Changing Pay Practices In Europe

British Telecom offers luxury gift items as part of its

'Living our values' initiative to enable managers to
show gratitude to employees for such things as
continuous improvement and team-work.
Teams from British Aerospace receive gold pens,
watches, ties and scarves for innovation and
creativity. The company says that one idea alone
saved them around 30,000.
ICL makes around 2,500 gifts each year to
particularly in customer care. Since 1984 the
company has adopted three levels of award which
reflect the employee's level of contribution. Those
who rise to gold level, the international tier, are
presented with their prize in a European city.
Abbey Life's top performers are given the
opportunity to attend conventions in exotic foreign
locations. The location and length of stay depends
on performance.

Source: Hilton (1992)

Exhibit 4

British Examples of Non-financial

Rewarding Skills and Competencies

In addition to linking pay to performance, an increasing
number of companies have relied on alternative criteria
for evaluating and compensating workers. One of the
most recent criteria, particularly for non-manual workers,
is the type of skill or competencies required to achieve
certain outcomes within a job.
In skill-based pay systems, employees receive
compensation for the range, depth, and types of skills
they possess. They are paid for the skills they are


capable of using, not for the jobs they are performing at
a particular point in time. (Ledford, 1991). This is
fundamentally different from the conventional system of
job-based pay, where employees are paid for the jobs
they are performing, not for their ability to perform
certain tasks.
Among the firms which first introduced skill-based pay
were a few North American pioneers, such as Honeywell
Ammunition, Northem Telecom, AT&T, and Polaroid.
Recently, however, skill-based pay has spread to
European organisations in such industries as insurance,
telecommunications, banking, and transport. In Britain,
for instance, the National Westminster Bank uses a
system of 11 competencies which they feel relate
strongly to management performance in a turbulent
business environment.
One potential advantage of this approach to compensation is that individuals will no longer be rewarded
simply for moving up a hierarchy but will be encouraged
to extend their skills, and should they choose to do so,
be rewarded for the additional skills they have acquired
through increased pay. In addition, as Beer et al (1984)
point out, skill-based payment systems might encourage
good specialists to stay in these roles rather than to seek
management jobs which pay more but for which they
may not have talent.
However, this approach is based on an assumption that
an organisation can identify and measure the behaviours
people need to display in order to do the job effectively
and these behaviours can form the basis of reward
packages which encourage the development and use of
previously underdeveloped and underused skills within a
job. In a European context this will increasingly mean
designing performance evaluation systems appropriate
to the employee with pan-European responsibilities.
Traditionally, these employees have been mainly
executives, professional staff and technical specialists.
Increasingly, they also include skilled craftsmen and

Training and Development

Historically, employee training and development (ETD)
in many organisations have had the relatively short-term
aim of enhancing current on-the-job performance, with
the important exception of succession planning
arrangements for the potential senior managers of the
future (Beaumont, 1993). Increasingly, however, organisations realise that ETD forms an important part of the
company's overall business strategy and dramatic
changes in corporate culture and performance can be
achieved by integrating ETD with this strategy. In fact,
the results of the Cranfield survey mentioned earlier
showed that across Europe more than 60 per cent of
employers have increased their investment in managerial
and professional training during the last decade.

Over and above the development of managers and

professional staff, the ETD of non-managerial staff have
also become very prominent in recent years because of
their importance for the introduction of new technology
and the need for such employees to develop new skills
or knowledge in response to new operations, job designs
or work flows (Bernardin and Russell, 1993). Changes in
organisational structure and strategy also have created
the need for organisations to train and develop their
non-managerial staff. Witness, for example, the emphasis
on extending the range of skills possessed by employees
(multi-skilling) in quality improvement programmes and
other initiatives to improve individual, team and
corporate performance in terms of output, speed, and
The growing importance of ETD in recent years has
been linked to the adoption by companies of a more
strategic approach towards HRM. This approach implies
that the organisation takes a long-term view of what
skills, knowledge and levels of competence employees
need and treat their employees as an important resource
that needs to be trained and developed. As Keep (1989)
'The use of the word 'resource', as opposed to commodity or
cost, implies investment therein. The word management, for
its part, implies that strategies aimed at motivation,
development and deployment of this resource and its
associated investment will be directed in such a way as to
maximise its potential. Training is a prime investment in
human resources that plays a vital goal in securing these
goals. Companies that, for whatever reasons, are inclined to
treat their employees simply as a cost or commodity, and who
hence fail to invest in training and development activity
cannot meaningfully be said to be practising human resource

If ETD activities represent a vital component of strategic

HRM, then it is best approached as part of a wider
business strategy to align the organisation's corporate
mission and goals with the capabilities of its people, and
vice versa. This implies that these activities may form
part of a systematic process which, as shown in Exhibit
5, consists of the following stages:
Identify and define ETD needs
This involves analysing corporate, team, occupational
and individual needs to acquire new skills or knowledge
or to improve existing competencies. Such a needs
analysis is partly concerned with defining the gap
between what exists and what is required. However, it is
important to avoid falling into the trap of only putting
things right that are missing or lacking. Strategic ETD is
much more pro-active than fixing today's (or even
yesterday's) problems. It is, or should be, more
concerned with identifying and satisfying ETD needs
for creating and managing the organisation of the future.
Define the learning required
It is necessary to define as dearly as possible what skills
and knowledge have to be learned by employees at
EuropeanManagementJournalVo114 No 3 June 1996


every level or stage and what attitudes need to be

developed. Learning objectives are set which define not
only what needs to be learned but also what employees
must be able to do better.

Plan the required ETD activities

These must meet the needs and objectives by using the
fight combination of methods and techniques to enable
employees to acquire the skills, knowledge and attitudes
they need. Decisions are made at this stage on the extent
to which method or activity is the best and most costeffective way to satisfy the specific ETD needs of the
people and the organisation.
Implement the planned ETD activities
Ensure that the plan is adhered to and sufficient emphasis
is placed on the responsibilities of both managers and
employees for making ETD successful.
Evaluate each activity and amend it as necessary
The effectiveness of each ETD plan or activity is
assessed to determine the extent to which it contributes
towards improved attitudes, competency and performance. This is different from interpreting end-of-course
evaluations. As Ulrich and Lake (1991) state:
'.4 successful program is measured not by 'smile sheets' at the
end of a session but by the ability of the participants to
identify and implement changes in their areas of responsibility
that will put the firm in a stronger competitive position'.

'In the typical Western organisation the compensation of

executives and managers is closely tied into short-term
profitability. Some top executives have their annual bonuses
tied almost entirely to single-year profitability, and these
bonuses may represent two-thirds or more of their total
compensation. By contrasL most Japanese managers have
their annual compensation determined on the basis of how
profitable the company was over a span of at least five or ten
years. And their performance evaluation includes an assessment of their ability to generate high levels of commitment,
understanding, motivation and morale in the organisation.
The Japanese assume that these personal characteristics are the
basic building blocks for long term performance and
profitability, along, of course, with careful attention to
strategic planning and control'.
The advantage of the Japanese approach to reward and
performance evaluation is that high levels of commitment, understanding and motivation are likely to be
substantially more effective and more difficult to duplicate than other sources of competitiveness. Unfortunately, getting commitment and motivation takes time
and, once achieved, these characteristics can easily be
lost. By comparison, a piece of new equipment or
management information system can be quickly installed,
and, once installed, cannot be easily destroyed.
Under the current economic climate, it is almost inconceivable that an organisation facing high pressures for
immediate cost cutting and improved ROI would decide
to abandon short-term objectives or embark on activities
that would fail to meet a specific organisation need. As
Pfeffer (1994) says,

A Long-term Focus
Another important dimension of HRM is the extent to
which the organisation's HR policies and practices
encourage managers to take a long-term perspective.
As Schuster (1986) points out,
Identify training]

Define learning
requirements I




Source: Armstrong, 1993
Exhibit 5

T h e P r o o e ~ of P l a n n e d T r a i n i n g

EuropeanManagementJournalVo114No 3 June 1996

'In the short term, laying off people is probably more

profitable compared to trying to maintain employment
security; cutting training is a quick way to maintain shortterm profits; and cross-training and cross-utilisation may
provide insights and innovation in time; but initially, the
organisation foregoes the advantages of more narrow
specialisation and the immediate proficiency achieved thereby'.
The role of the HR function in these types of situations
is to challenge line managers to think more pro-actively,
to question the wisdom of certain actions that have only
short-term benefits and to suggest solutions that may be
more acceptable to the work force. These interventions
may avoid falling into the trap of taking actions that
produce immediate productivity and profit advantages,
but are damaging the long term. However, questioning
the effectiveness of managerial actions is not sufficient
on its own. Often, there needs to be further analysis in
light of the planned business strategy to determine the
answers to the following questions:

What sort of people, in terms of numbers, skills and

capabilities, do we need in the future?
What organisation structure, culture and values do
we need in order to support our business strategy?
In the light of the assessment of our present internal
situation and the external environment, what types
of HR policies and practices do we need to get the
2,5 1


people, structure and culture identified in our
answers to questions 1 and 21


This type of analysis emphasises the need for a common

understanding of the strategic goals of the business and
the means to accomplish them. It also promotes the use
of HR practices as tools to create sustained competitive
advantage, rather than ends in themselves.

Openness and disdosure of information about
corporate goals, outcomes and intentions.
Proactive personnel planning and strategic HRM.

It can be seen that Company A scores low on several HR

dimensions, including the amount of career development, autonomy, and teamwork offered to employees.
Very low scores appear also for openness and the extent
to which employees are rewarded and recognised for
high performance. In contrast, high scores appear for the
extent to which the company offers job security and
promotes people from within.

Using the Framework

Overall, the eleven dimensions suggested in this article
provide a simple checklist for describing the wide variety
of policies and practices employed by companies to
attract and retain employees. They may also serve as a
framework for diagnosing or benchmarking the human
resource activities of a firm. For example, Exhibit 6
shows the profiles of two European airline companies
that were compared in terms of their human resource
policies and practices, including the extent to which each
company offered the following set of benefits to its
employees: z

Company B deafly has a different profile. High scores

appear for many of the dimensions, induding the degree
of autonomy, recognition, teamwork, openness and
career development that is offered to employees. Like
their counterparts in company A, managers in B prefer to
recruit from within, as is indicated by the high score on
'internal promotion'. However, unlike its competitor,
Company B does not offer much job security to its
The criteria for recruitment, rewards and promotion in
these two companies were also very different. As shown
in Exhibit 7, Company A scores above the overall mean
for the emphasis placed on status and seniority. But very
low scores appear for achievement, commitment and
intemational experience. In contrast, in Company B it
appears that promotions and rewards are based more on
performance, commitment, and international experience
than on status and seniority.

1. Employment security.
2. Opportunities for training and skill development.
3. Internal recruitment and promotion from within.
4. Career development and guidance.
5. Opportunities for skill development and
6. Autonomy and decentralisation of decisionmaking.
7. Opportunities for teamwork and participation.
8. Comparative equality of benefits and access to
perquisites for all the employees.
9. Extra rewards and recognition for superior

The differences between these two airline companies

support the notion that every organisation has a unique
approach to HRM, thereby making firm-to-firm corn-

II Company A I






Promotion Development
Exhibit 6



H R M P r o f i l e s of T w o A i r l i n e C o m p a n i e s

European ManagementJournalVo114 No 3 June 1996



Exhibit 7

Criteria for R e c r u i t m e n t and Promotion in Two Airline Companies

parisons difficult, even impossible. However, this does

not necessarily mean that the underlying principles (or
dimensions) on which these practices are based are
wrong and useless. Indeed, what is so striking is how
stable the basic principles of how to manage people have
been over time (Pfeffer, 1994). From this perspective, the
ten dimensions of HRM presented in this paper offer a
simple framework for comparing the different responses
of organisations (or business units) to the economic and
social pressures that are affecting their performance. For
example, there is little empirical information on the HR
practices organisations use to create a learning organisation. As Wick and L~on (1995) point out, discussions of
learning organisations too often end up intangible and
obscure. Their research suggests that at least five
elements are essential for companies to become learning
organisations. Together, these elements provide a
formula for creating an organisation that 'continually
improves by rapidly creating and refining the capabilities
needed for future success'. By closely examining each
element within that formula, managers can measure and
increase the rate of learning within their firm. The
framework put forward in this paper could provide the
structure for such an examination.
Finally, another application of the framework presented
in this paper would be to investigate the relative
influence of so-called 'best practices' on different
organisational outcomes. Many of the HRM practices
identified in the recent literature seem like fads because
they often are implemented without much understanding
of the underlying principles of human behaviour as well
as a tendency to do whatever is popular at the moment,
regardless of whether it makes sense in the specific
setting or organisation (Pfeffer, 1994). It is this
trendiness that makes the task of measuring and
demonstrating the effective contribution of HR policies
and practices of organisations so difficult. Yet, for many
line managers, it is the ability to show that HR adds
value, not the rhetoric, that forms the basis of policy
EuropeanManagementJournalVo114 No 3 June 1996

making and which gives HR its place on company

boards. If the HR policies and practices are misaligned, or
no attempt is made to provide line managers with a
framework to assess practices on an ongoing basis, the
credibility and influence of the HR function will suffer.
The framework put forward in this article may help to
avoid these mistakes.


The profiling was done by surveying the views of a

representative group of employees within each

Armstrong, M. (1993) A Handbook of Human Resources
Management, London: Kogan Page.
BeaumonL P. (1993) Human Resource Management: Key Concepts
and Skills, London: Sage.
Becket, G. (1964)Human Capital, New York: Columbia University
Beer, M., Spector, B., Lawrence, P., Mills, Q. and Walton, R.
(1984), Managing Haman Assets, New York: The Free Press.
Berger, L. (1991) Trends and issues for the 90s: Creating a Viable
Framework for Compensation Designs. In Rock M. and
Berger L. (eds) The Compensation Handbook, New York:
Bemardin, H.J. and Russell,J. (1993) Human ResourceManagement:
An F.~perimentalApproach, London: McGraw-HilL
Block, P. (1991) The EmpoweredManager: Positive PoliticalSkills at
Work. San Francisco: Jossey-Bass.
Crowe, D. (1992) A New Approach to Reward Management. In
Armstrong, M. (ed). Strategies for Human Resource
Management. London: Kogan Page.
Fombrun, C. (1984) The Extemal Context of Human Resource
Management, in Fombrun, C., Tichy, N. and Devanna, M.A.
(eds), Strategic Human Resource ManagemenL New York:
John Wiley and Sons.
Graham, H., Human Resource Management, (2nd ed.), Plymouth:
MacDonald & Evans, 1978.
Hilton, P. (1992) Using Incentives to Reward and Motivate
Employees. PersonnelManagement, 24, 9, 49-52.
Hiltrop, J.M. (1991b) Human ResourcePractices of Multinational


Organizations in Belgium. European Management ]ournal, 9,

4, 404-11.
Hofstede, G. (1980) Culture's Consequences:International Differences
in Work-related Values, Beverly-Hills:Sage. Reprinted 1984.
Iles, P. and Mabey, C. (1992) Personnel Strategies. In Salaman G.
(ed.) Human Resource Strategies. London Sage.
Kanter, R. (1994) Change in the Global Economy: An Interview
with Rosabeth Moss Kanter, European Management ]ourna[,
12, 1, 1-9.

Katzenbach, J. and Smith, D.(1994) The Wisdom of Teams, Boston:

Harvard Business School Press.
Keep, E. (1989) Corporate Training Strategies: The Vital
Component? In Storey, J. (ed.) New Perspectives on Human
Resource Management. London: Routledge.
Kravetz, D. (1988) The Human Resources Revolution San Francisco:
Ledford, G. (1991) The Design of Skill-based Pay Plans. In Rock
M. and Berger L. (eds) The Compensation Handbook, New
York: McGraw-Hill.
Levering, R., Moskowitz, M. and Katz, M. (1984) The 100 Best
Companies to Work for in America. Reading, Mass.: AddisonWesley.
Marchington, (1995) M. Fairy Tales and Magic Wands: New
Employment Practices in Perspective, Employee Relations,
17, 1, p. 51--67.
Mathis, R.L. and Jackson, J.H. (1992) Personnel: Contemporary

Perspectives and Applications, (Sth ed.), St. Paul, Minn.: West

Miles, R. and C. Snow, (1978) Organizational Strategy, Structure,
and Process. Tokyo: McGraw-Hill Kogakusha.
Miles, R. and C. Snow. (1984) Designing Strategic Human
Resource Systems. Organizational Dynamics, 12, 2, 36-52.
Ouchi, W. (1981) Theory Z, Reading, Mass.: Addison-Wesley.
Pfeffer, J. (1994) Competitive Advantage Through People. Boston:
Harvard Business School Press.
Schuster, F. (1986) The Schuster Report. NewYork: John Wiley &
Senge, P. (1990) The Fifth Discipline. New York: Doubleday
Sonne~eld, J., Peiperl, M. and Kotter, J. (1988) Strategic
Determinants of Managerial Labor Markets: A Career
Systems View. Human ResourceManagement 2 7,4, 369--388.
Sparrow, P. and Hiltrop, J. (1994) European Human Resource
Management in Transition. London: Prentice Hall.
Ulrich, D. and Lake, D. (1990) Organizational Capability:
Competing From the Inside Out, New York: John Wiley &
Ulrich, D. and Lake, D. (1991) Organizational Capability:
Creating Competitive Advantage. Academy of Management
Executive, 5, 1.


Wachter, M.L. (1974) 'Primary and Secondary Labor Markets: A

Critique of the Dual Approach', BrookingsPaperson Economic
Activity, 3: 637-93.
Walker, J. (1980) Human Resource Planning, New York: McGrawHill.
Wick, C. and L~on, L. (1995) From Ideas to Action: Creating a
Learning Organization, Human ResourceManagemenL 34, 2,
Williams, P. (1991) Strategy anc[ Objectives. In Neale, F.
Handbook of PerformanceManagement. Wimbledon: Institute
of Personnel Management.
Wilson, T. (1994) A Manual for Change. Aldershot : Gower.


Beernaertstraat 24, 8400

Oostende, Belgium.
Jean M. Hiltrop is a
specialist in the area of
human resource
management. Previously a
Professor at the University
of Leuven in Belgium and
at the International
Institute for Management
Development (IMD) in Switzerland, he has been
involved in executive education for many years. He
has published numerous articles and books in the area
of international human resource management and
negotiation, including European Human Resource
Management in Transition (1994), The Essence of
Negotiation {1995) and The Accidental Manager:
Surviving the Transition from Manager to
Professional (1996). He also works as a Senior
Partner for InterCultural Consulting in Geneva and
has conducted numerous workshops and projects for
corporate clients in Europe, Asia and the United
States. He is currently leading an international
research project, which examines the impact of
national culture on human resource practices and the
effectiveness of transnational organisations.

European ManagementJournalVo114 No 3 June 1996