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3.pptxTHE CONCEPT OF HRM
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Human resource management (HRM) is concerned with all aspects of how people are employed and managed in organizations.
It covers activities such as strategic HRM, human capital management, knowledge management, corporate social responsibility, organization development, resourcing (human resource planning, recruitment and selection, and talent management), learning and development, performance and reward management, employee relations, employee wellbeing and the provision of employee services.
HRM as conceived in the 1980s had a conceptual framework consisting of a philosophy underpinned by a number of theories drawn from the behavioural sciences and from the fields of strategic management, human capital and industrial relations.
The HRM philosophy was heavily criticized in the 1990s by academics but this criticism has subsided, perhaps because it became increasingly evident that the term ‘HRM’ was being used as a synonym for what used to be called ‘personnel management’.
HRM practice is no longer governed by the original philosophy if it ever was. HRM today is simply what HR people do. Few references are made to the HRM conceptual framework. This is a pity – an appreciation of the philosophy and underpinning theories of HRM provides a sound basis for understanding and developing HR practice.
HRM DEFINED
Human resource management (HRM) is a strategic, integrated and coherent approach to the employment, development and wellbeing of the people working in organizations
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HRM was defined pragmatically by Boxall and Purcell (2003: 1) as ‘all those activities associated with the management of employment relationships in the firm’.
DEVELOPMENT OF THE HRM CONCEPT
The Harvard framework – Beer Best Fit (Contingency)
The matching model – Fombrum
Best Practice Approach – Pfeffer
Resource Based Approach
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The Harvard framework, Beer et al (1984)
‘Human resource management (HRM) involves all management decisions and actions that affect the nature of the relationship between the organization and employees – its human resources’.
‘Today … many pressures are demanding a broader, more comprehensive and more strategic perspective with regard to the organization's human resources’.
It is necessary to adopt ‘a longer-term perspective in managing people and consideration of people as a potential asset rather than merely a variable cost’.
HRM had two characteristic features: 1) line managers accept more responsibility for ensuring the alignment of competitive strategy and HR policies, 2) HR has the mission of setting policies that govern how HR activities are developed and implemented in ways that make them more mutually reinforcing.
The matching model , Fombrun et al (1984)
HR systems and the organization structure should be managed in a way that is congruent with organizational strategy. ‘The critical management task is to align the formal structure and human resource systems so that they drive the strategic objectives of the organization’,
UK contribution
Summed up by Hendry and Pettigrew (1990) who observed that:
HRM was ‘heavily normative from the start: it provided a diagnosis and proposed solutions’.
‘What HRM did at this point was to provide a label to wrap around some of the observable changes, while providing a focus for challenging deficiencies - in attitudes, scope, coherence, and direction - of existing personnel management’.
THE GOALS OF HRM
Objectives
People
Employment relationship
Ethics
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The goals of HRM are to:
support the organization in achieving its objectives by developing and implementing human resource (HR) strategies that are integrated with the business strategy (strategic HRM);
ensure that the organization has the talented, skilled, and engaged people it needs;
contribute to the creation of a positive employment relationship between management and employees and a climate of mutual trust;
encourage the application of an ethical approach to people management.
HRM is delivered in most organizations by HR specialists working in partnership with line managers.
DIVERSITY OF HRM
HRM practice varies
Hard and soft HRM - Storey
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Diversity
Dyer and Holder (1998) pointed out that HRM goals vary according to competitive choices, technologies, characteristics of employees (eg could be different for managers) and the state of the labour market.
Boxall (2007) observed that: ‘Human resource management covers a vast array of activities and shows a huge range of variations across occupations, organizational levels, business units, firms, industries and societies’.
Hard HRM
The focus is on the quantitative, calculative and business-strategic aspects of managing human resources in as 'rational' a way as for any other economic factor.
Soft HRM
Employees treated as valued assets, a source of competitive advantage through their commitment, adaptability and high quality
But the distinction between hard and soft HRM is not precise.
THE PHILOSOPHY OF HRM
The human resource gives competitive edge
The aim is to enhance employee commitment
HR decisions are of strategic importance
HR policies should be integrated into the business strategy. (Storey, 2001)
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Karen Legge (1989) identified the following common HRM themes:
Human resource policies should be integrated with strategic business planning and used to reinforce an appropriate (or change an inappropriate) organizational culture.
Human resources are valuable and a source of competitive advantage.
Human resources may be tapped most effectively by mutually consistent policies that promote commitment and which, as a consequence, foster a willingness in employees to act flexibly in the interests of the ‘adaptive organization's’ pursuit of excellence.
UNDERPINNING THEORIES OF HRM
Commitment
Organizational behaviour
Motivation
AMO
Resource dependence
Resource-based
Institutional
Transaction costs
Human capital
Agency
Contingency
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Commitment
Eliciting commitment – and providing the environment in which it can flourish – pays tangible dividends for the individual and for the company (Walton, 1985).
Organizational behaviour
Describes how people within their organizations act individually or in groups and how organizations function in terms of their structure, processes and culture.
Motivation
Explains the factors that affect goal-directed behaviour.
AMO
Performance is a function of Ability + Motivation + Opportunity to Participate.
Resource dependence
Groups and organizations gain power over each other by controlling valued resources.
Resource-based
Competitive advantage is achieved if a firm’s resources are valuable, rare and costly-to-imitate.
Institutional
Organizations conform to internal and external environmental pressures in order to gain legitimacy and acceptance.
Transaction costs
Transaction costs economics assumes that businesses develop organizational structures and systems which economise the costs of the transactions (interrelated exchange activities) that take place during the course of their operations.
Human capital
Concerned with how people in an organization contribute their knowledge, skills and abilities to enhancing organizational capability.
Agency
The role of the managers of a business is to act on behalf of the owners of the business as their agents. But there is a separation between the owners (the principals) and the agents (the managers) and the principals may not have complete control over their agents. The latter may therefore act in ways that are against the interests of those principals.
Contingency
HRM practices are dependent on the organization’s environment and circumstances.
STRATEGIC HUMAN RESOURCE MANAGEMENT
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Strategic human resource management (SHRM) is an approach to the development and implementation of HR strategies that are integrated with business strategies and enable the organization to achieve its goals. Schuler and Jackson (2007) stated that SHRM is fundamentally about ‘systematically linking people with the firm’.
THE ESSENCE OF STRATEGIC HRM
Achieve integration or ‘fit’ between HR and business strategies is achieved
Take a longer-term view of where HR should be going and how to get there
Decide how coherent and mutually supporting HR strategies should be developed and implemented
How members of HR function should adopt a strategic approach
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Baird and Meshoulam (1988) pointed out that: ‘Business objectives are accomplished when human resource practices, procedures and systems are developed and implemented based on organizational needs; that is, when a strategic perspective to human resource management is adopted’.
Wright and McMahan (1992) explained that the field of human resource management has ‘sought to become integrated with the strategic management process through the development of a new discipline referred to as strategic human resource management’.
Boxall (1996) described strategic HRM as the interface between HRM and strategic management.
KEY CONCEPTS OF STRATEGIC HRM
The resource-based view
Strategic fit
Best Practice
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The resource-based view
This states that it is the range of resources in an organization, including its human resources, that produces its unique character and creates competitive advantage.
Competitive advantage will be achieved if the organization’s resources are valuable, rare, inimitable, and non-substitutable.
‘The resource-based view of the firm provides a conceptual basis, if we needed one, for asserting that key human resources are sources of competitive advantage’ (Boxall, 1996).
Strategic fit
Wright and Snell (1998) wrote that: ‘The primary role of strategic HRM should be to promote a fit with the demands of the competitive environment’.
Schuler (1992:18) stated that: ‘Strategic human resource management is largely about integration and adaptation. Its concern is to ensure that: (1) human resources (HR) management is fully integrated with the strategy and strategic needs of the firm (vertical fit); (2) HR policies cohere both across policy areas and across hierarchies (horizontal fit); and (3) HR practices are adjusted, accepted and used by line managers and employees as part of their everyday work’.
BEST PRACTICE
It is assumed that there is a set of best HRM practices that are universal in the sense that they are best in any situation
This is questionable
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A number of lists of ‘best practices’ have been produced, the best known being by Pfeffer (1998):
Employment security
Selective hiring
Self-managed teams
High compensation contingent on performance
Training to provide a skilled and motivated workforce
Reduction of status differentials
Sharing information
The notion of best practice incorrectly assumes that there are universally effective HR practices that can readily be transferred. The ‘best practice’ rubric has been attacked by a number of commentators. Cappelli and Crocker-Hefter (1996) commented that the notion of a single set of best practices has been over-stated: ‘There are examples in virtually every industry of firms that have very distinctive management practices … Distinctive human resource practices shape the core competencies that determine how firms compete’.
BEST FIT
The best fit approach emphasizes that HR strategies should be congruent with the context and circumstances of the organization
Best fit involves vertical integration or alignment between the organization’s business and HR strategies
There are three models: lifecycle, competitive strategy, and strategic configuration
Often said that ‘best fit is better than best practice’ but best fit models can be unrealistic.
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The best fit approach is in line with contingency theory.
The lifecycle model
The lifecycle model is based on the theory that the development of a firm takes place in four stages: start-up, growth, maturity and decline.
Competitive strategies
Three strategies aimed at achieving competitive advantage were identified by Porter (1985):
Innovation - being the unique producer.
Quality - delivering high quality goods and services to customers.
Cost leadership - the planned result of policies aimed at 'managing away’ expense.
It was argued by Schuler and Jackson (1987) that to achieve the maximum effect it is necessary to match the role characteristics of people in an organization with the preferred strategy.
Strategic configuration
Organizations will be more effective if they adopt a policy of strategic configuration (Delery and Doty, 1996) by matching their strategy to one of the ideal types defined by theories such as those produced by Miles and Snow (1978) whose typology listed prospectors, defenders, analysers and reactors.
Comment
Best fit models tend to be static and don’t take account of the processes of change.
They neglect the fact that institutional forces shape HRM.
It cannot be assumed that employers are free agents able to make independent decisions.
It is often said that best fit is better than best practice but this statement can only be accepted with reservations.
DELIVERING HRM
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The framework for delivering HRM is provided by the HR architecture of an organization, which consists of the HR system, HR practices and the HR delivery model adopted by the HR function.
Within that framework HRM is delivered by the HR function and the HR professionals who are members of the function and, importantly, line managers.
HR ARCHITECTURE
HR architecture consists of the HR systems, processes and structure as well as employee behaviours
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The HR architecture is a comprehensive representation of all that is involved in HRM, not simply the structure of the HR function.
As explained by Becker et al (2001: 12): ‘We use the term HR architecture to broadly describe the continuum from the HR professionals within the HR function, to the system of HR related policies and practices, through the competencies, motivation and associated behaviours of the firm’s employees’.
It was noted by Hird et al (2010: 25) that: ‘this architecture is seen as a unique combination of the HR function’s structure and delivery model, the HR practices and system, and the strategic employee behaviours that these create’.
Purcell (1999: 38) suggested that the focus should be on ‘appropriate HR architecture and the processes that contribute to organizational performance’.
Becker and Huselid (2006: 899) stated that: ‘It is the fit between the HR architecture and the strategic capabilities and business processes that implement strategy that is the basis of HR’s contribution to competitive advantage.’
THE HR DELIVERY MODEL
The HR delivery model describes how HR services are provided
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The most celebrated delivery model was produced by Dave Ulrich (1998:124). He wrote that: ‘HR should not be defined by what it does but by what it delivers – results that enrich the organization's value to customers, investors, and employees’.
More specifically he suggested that HR can deliver in four ways: as a strategic partner, an administrative expert, an employee champion and a change agent.
This first model was later modified by Ulrich and Brockbank (2005) who defined the four roles as employee advocate, human capital developer, functional expert and strategic partner.
HR ACTIVITIES
Transformational (strategic)
Transactional
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Transformational (strategic) activities are concerned with developing organizational effectiveness and the alignment and implementation of HR and business strategies.
Transactional activities cover the main areas of HR service delivery - resourcing, learning and development, reward and employee relations.
THE THREE-LEGGED STOOL MODEL
HR is delivered through three major areas:
Centres of expertise
Business partners
Shared service centres
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The three legs:
Centres of expertise – these specialize in the provision of high level advice and services on key HR activities.
Strategic business partners – these work with line managers to help them reach their goals through effective strategy formulation and execution. They are often ‘embedded’ in business units or departments.
Shared service centres – these handle all the routine ‘transactional’ services across the business, including such activities as recruitment, absence monitoring and advice on dealing with employee issues like discipline and absenteeism.
But the model can lead to fragmentation of HR services and boundary problems.
EVALUATING THE HR FUNCTION
It is necessary to evaluate the contribution of the HR function to ensure that it is effective:
at the strategic level
in terms of service delivery and support
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Research conducted by the Institute of Employment Studies (Hirsh, 2008) discovered that the factors that correlated most strongly with line managers’ and employees’ satisfaction with HR were:
being well supported in times of change;
HR giving good advice to employees;
being well supported when dealing with difficult people or situations;
HR getting the basics right.
THE ROLE OF HR PROFESSIONALS
Can act as:
business partners
strategists
innovators
change agents
internal consultants
change agents
facilitators
coaches
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HR professionals can play a proactive role, contributing to the formulation of corporate strategy, developing integrated HR strategies and volunteering guidance on matters related to upholding core values and ethical principles.
They are involved in business issues and working with line managers to deliver performance targets but they are also concerned with people issues.
They help to improve organizational capability – the capacity of the organization to perform effectively and thus reach its goals.
HR COMPETENCIES
Personal credibility
Ability to manage change
Ability to manage culture
Delivery of human resource practices
Understanding of the business
Brockbank et al (1999)
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Personal credibility: Live the firm’s values, maintain relationships founded on trust, act with an ‘attitude’ (a point of view about how the business can win, backing up opinion with evidence).
Ability to manage change: Understanding of the business drive for change: ability to diagnose problems, build relationships with clients, articulate a vision, set a leadership agenda, solve problems, and implement goals.
Ability to manage culture: Act as ‘keepers of the culture’, identify the culture required to meet the firm’s business strategy, frame culture in a way that excites employees, translate desired culture into specific behaviours, encourage executives to behave consistently with the desired culture.
Delivery of human resource practices: Expert in the speciality, able to deliver state-of-the-art innovative HR practices in such areas as recruitment, employee development, compensation and communication.
Understanding of the business: Strategy, organization, competitors, finance, marketing, sales, operations and IT.
PROFESSIONALISM IN HR
Professionalism in HR is the conduct exhibited by people who are providing advice and services that require expertise and meet defined or generally accepted standards of behaviour
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HR specialists should function in accordance with a professional ethos. Fletcher (2004) stated that this is characterized by the following ingredients:
the possession of specialized knowledge and skills;
power and status based on expertise;
self-discipline and adherence to some aspirational performance standards;
the opportunity to display high levels of autonomy;
the ability to apply some independence of judgement;
operating, and being guided by, a code of ethics;
HR professionals are required to uphold the standards laid down by their professional body the CIPD but they must also adhere to their own ethical values. Additionally, they are bound by organizational codes of conduct expressed formally or accepted and understood as core values (the basic values adopted by an organization that set out what is believed to be important about how people and the organizations should behave).
THE HR ROLE OF LINE MANAGERS
HR can initiate new policies and practices but it is line managers who have the main responsibility for implementing them
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If line managers are not inclined favourably towards what HR wants them to do they won’t do it or, if compelled to, they will be half-hearted about it.
On the basis of their research, Guest and King (2004: 421) noted that ‘better HR depended not so much on better procedures but better implementation and ownership of implementation by line managers’.
HRM AND PERFORMANCE
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All organizations are under an obligation to their stakeholders to perform well. To do this they depend on the quality, dedication, enthusiasm, expertise and skill of the people working in them at all levels.
The message of the resource-based view is that HRM delivers added value and helps to achieve sustainable competitive advantage through the strategic development of the organization’s rare, hard-to-imitate and hard-to-substitute human resources.
As Guest (1997: 269) argued: ‘The distinctive feature of HRM is its assumption that improved performance is achieved through the people in the organization’. If, therefore, appropriate HR policies and practices are introduced, it can also be assumed that HRM will impact on firm performance.
THE IMPACT OF HR
Much research has been carried out showing that good HRM practice and firm performance are correlated, for example in the UK:
Patterson et al (1997)
Guest et al (2000a)
Thompson (2002)
West et al (2002)
Purcell et al (2003)
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Patterson et all (1997)
HR practices explained significant variations in profitability and productivity (19% and 18% respectively). Two HR practices were particularly significant: (1) the acquisition and development of employee skills and (2) job design including flexibility, responsibility and variety.
Guest et al (2000a)
A strong association exists between HRM and both employee attitudes and workplace performance.
Thompson (2002)
The number of HR practices and the proportion of the workforce covered appeared to be the key differentiating factor between more and less successful firms.
West et al (2002)
An association between certain HR practices and lower mortality rates was identified. As noted by West: ‘If you have HR practices that focus on effort and skill; develop people’s skills; encourage co-operation, collaboration, innovation and synergy in teams for most, if not all employees, the whole system functions and performs better’.
Purcell et al (2003)
The most successful companies had ‘the big idea’. They had a clear vision and a set of integrated values. They were concerned with sustaining performance and flexibility. Clear evidence existed between positive attitudes towards HR policies and practices, levels of satisfaction, motivation and commitment, and operational performance. Policy and practice implementation (not the number of HR practices adopted) is the vital ingredient in linking people management to business performance and this is primarily the task of line managers.
HOW HRM MAKES AN IMPACT
Hard to be certain because of:
Causal ambiguity
Contingency factors
The ‘black box’ phenomenon
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Causal ambiguity
The term refers to the numerous, subtle and often hidden interconnections between the factors influencing cause and effect.
Contingency factors
Causation will additionally be affected by the organization’s context, the internal and external environmental factors that influence what happens within the organization.
The ‘black box’ phenomenon
Causal ambiguity also stems from the black box phenomenon as illustrated in the next slide. This is the situation in which while it may be possible to observe HRM inputs in the form of HR practices and measure firm performance outputs, it may be difficult or hard to be certain through research about what happened in between – what the HRM outcomes were that converted the input of HR practices into firm performance outputs.
IMPACT OF HRM
Business
strategy
HRM
strategy
HRM
practices
HRM
outcomes
Business
outcomes
Financial
performance
Contingency variables: Internal context - size, sector, technology, employees, culture
External context – competition, economic, social
Reversed causality
MODEL OF HR PERFORMANCE LINK
Based on Paauwe (2004)
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This model of the impact of HRM takes into account the following propositions:
HR practices can make a direct impact on employee characteristics such as engagement, commitment, motivation and skill;
if employees have these characteristics it is probable that organizational performance in terms of productivity, quality and the delivery of high levels of customer service will improve;
if such aspects of organizational performance improve, the financial results achieved by the organization will improve.
These propositions highlight the existence of an intermediate factor between HRM and financial performance: HRM outcomes in the shape of employee characteristics affected by HR practices. HRM does not therefore make a direct impact.
The model also takes into account the influence of contingency factors and the possibility of reverse causation.
HIGH-PERFORMANCE CULTURE
One in which the achievement of high levels of performance is a way of life
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Characteristics of a high-performance culture
Management defines what it requires in the shape of performance improvements, sets goals for success and monitors performance to ensure that the goals are achieved.
Alternative work practices are adopted such as job redesign, autonomous work teams, improvement groups, team briefing and flexible working.
People know what's expected of them – they understand their goals and accountabilities.
People feel that their job is worth doing, and there is a strong fit between the job and their capabilities.
People are empowered to maximize their contribution.
There is strong leadership from the top that engenders a shared belief in the importance of continuing improvement.
There is a focus on promoting positive attitudes that result in an engaged, committed and motivated workforce.
Performance management processes are aligned to business goals to ensure that people are engaged in achieving agreed objectives and standards.
Capacities of people are developed through learning at all levels to support performance improvement and are provided with opportunities to make full use of their skills and abilities.
A pool of talent ensures a continuous supply of high performers in key roles.
People are valued and rewarded according to their contribution.
People are involved in developing high performance practices.
There is a climate of trust and teamwork, aimed at delivering a distinctive service to the customer.
A clear line of sight exists between the strategic aims of the organization and those of its departments and its staff at all levels.
PERFORMANCE MANAGEMENT
Performance management can contribute to the development of a high-performance culture by delivering the message that high performance is important
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The management of organizational performance is the continuing responsibility of top management who, with the help and advice of HR, plan, organize, monitor and control activities and provide leadership to achieve strategic objectives and satisfy the needs and requirements of stakeholders.
Performance management at organizational, team and individual level defines what high performance is and how managers and their teams should achieve it. It explains how performance should be measured and the steps that should be taken to monitor results in comparison with expectations.
The means of achieving high performance are provided by defining the performance expectations implicit in the psychological contract, creating high levels of engagement, motivating people and enhancing skills and competencies through feedback, coaching and personal development planning.
INTERNATIONAL HRM
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It has been stated by Brewster et al (2005: 949) that: ‘A critical challenge for organizations from both the public and private sectors in the twenty-first century is the need to operate across national boundaries.’ They identified five distinct, but linked, organizational drivers of international HRM: efficiency orientation, global service provision, information exchange, core business processes and localization of decision making.
INTERNATIONAL HRM DEFINED
The process of managing people across international boundaries by multinational companies
It involves the worldwide management of people, not just the management of expatriates
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Companies that function globally comprise international and multinational firms.
International firms are those where operations take place in subsidiaries overseas that rely on the business expertise or manufacturing capacity of the parent company; they may be highly centralized with tight controls.
Multinational firms are ones in which a number of businesses in different countries are managed as a whole from the centre; the degree of autonomy they have will vary.
ISSUES IN INTERNATIONAL HRM
Globalization
Environmental differences
Cultural differences
Convergence and divergence
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Globalization: The process of international economic integration in worldwide markets. It involves the development of single international markets for goods or services accompanied by an accelerated growth in world trade. Globalized HRM exploits the new technologies available in order to manage all the company’s staff around the world in the same way that it has traditionally managed staff in the home country (Brewster and Sparrow, 2007).
Environmental differences: environmental differences between countries have to be taken into account in managing globally. These include ‘differences in the centrality of markets, institutions, regulations, collective bargaining and labour-force characteristics.
Cultural differences: national culture differences can be critical and insensitivity to national culture differences can and does result in business failure (as well as failure and career consequences for individual. But Stiles (2007) observed that ‘while national cultural differences were not unimportant, organizational culture actually had more influence on HR practice’.
Convergence and divergence: the effectiveness of global HRM depends on the ability to judge the extent to which an organization should implement similar practices across the world (convergence) or adapt them to suit local conditions (divergence). The dilemma facing all multinational corporations is that of achieving a balance between international consistency and local autonomy.
GLOBAL HR POLICIES AND PRACTICES
Research conducted by Brewster et al (2005) identified three processes that constitute global HRM:
Talent management/employee branding
International assignments management
Managing an international workforce
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It was established by the Global HR Research Alliance study (Stiles, 2007) that global HR policies and practices were widespread in the areas of maintaining global performance standards, the use of common evaluation processes, common approaches to rewards, the development of senior managers, the application of competency frameworks and the use of common performance management criteria.
Generally the research has indicated that while global HR policies in such areas as talent management, performance management and reward may be developed, communicated and supported by centres of excellence, often through global networking, a fair degree of freedom has frequently been allowed to local management to adopt their own practices in accordance with the local context as long as in principle these are consistent with global policies.
MANAGING EXPATRIATES
The management of expatriates is a major factor in determining success or failure in an international business
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Expatriates are people working overseas on long- or short-term contracts who can be nationals of the parent company or ‘third country nationals’ (TCNs) – nationals of countries other than the parent company who work abroad in subsidiaries of that company.
Expatriates are expensive; they can cost three or four times as much as employing the same individual at home.
They can be difficult to manage because of the problems associated with adapting to and working in unfamiliar environments, concerns about their development and careers, difficulties encountered when they re-enter their parent company after an overseas assignment, and how they should be remunerated.
HUMAN CAPITAL MANAGEMENT
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As defined by Baron and Armstrong (2007: 20) human capital management (HCM) is concerned with obtaining, analysing and reporting on data that inform the direction of value-adding people management, strategic, investment and operational decisions at corporate level and at the level of front line management.
It is, as emphasized by Kearns (2005), ultimately about value.
THE NATURE OF HUMAN CAPITAL MANAGEMENT
HCM involves the systematic analysis, measurement and evaluation of how people policies and practices create value
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The defining characteristic of HCM is the use of metrics to guide an approach to managing people that regards them as assets and emphasizes that competitive advantage is achieved by strategic investments in those assets through employee engagement and retention, talent management and learning and development programmes.
HCM provides a bridge between HR and business strategy.
The concept of HCM is underpinned by the concept of human capital.
INTELLECTUAL CAPITAL
The stocks and flows of knowledge available to an organization
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The stocks and flows of knowledge available to an organization can be regarded as the intangible resources associated with people which, together with tangible resources (money and physical assets), comprise the market or total value of a business.
SOCIAL CAPITAL
The knowledge derived from networks of relationships within and outside the organization
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The concept of social capital has been defined by Putnam (1996: 34) as ‘the features of social life – networks, norms and trust – that enable participants to act together more effectively to pursue shared objectives’.
It is important to take into account social capital considerations, that is, the ways in which knowledge is developed through interaction between people.
Bontis et al (1999) point out that it is flows as well as stocks that matter. Intellectual capital develops and changes over time and a significant part is played in these processes by people acting together.
ORGANIZATIONAL CAPITAL
The institutionalized knowledge possessed by an organization that is stored in databases, manuals, etc
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Organizational capital is often called ‘structural capital’ (Edvinson and Malone, 1997), but the term ‘organizational capital’ is preferred by Youndt (2000) because, he argues, it conveys more clearly that this is the knowledge that the organization actually owns.
APPROACHES TO PEOPLE MANAGEMENT RAISED BY HUMAN CAPITAL THEORY
What are the key performance drivers that create value?
What skills do we have?
What skills do we need now and in the future
How are we going to attract, develop and retain these skills?
How can we develop a culture and environment in which organizational and individual learning takes place?
How can we provide for both the explicit and tacit knowledge created in our organization to be captured, recorded and used effectively?
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KNOWLEDGE MANAGEMENT
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There is nothing new about knowledge management. Hansen et al (1999: 106) remark that: ‘For hundreds of years, owners of family businesses have passed on their commercial wisdom to children, master craftsmen have painstakingly taught their trades to apprentices, and workers have exchanged ideas and know-how on the job.’ But they also comment that: ‘As the foundation of industrialized economies has shifted from natural resources to intellectual assets, executives have been compelled to examine the knowledge underlying their business and how that knowledge is used’ (ibid: 106).
Knowledge management is more concerned with people and how they acquire, exchange and disseminate knowledge than it is about information technology. That is why it has become an important area for HR practitioners who are in a strong position to exert influence in this aspect of people management.
KNOWLEDGE MANAGEMENT DEFINED
Knowledge management is concerned with storing and sharing the wisdom, understanding and expertise accumulated in an organization about its processes, techniques and operations
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Knowledge management involves transforming knowledge resources by identifying relevant information and then disseminating it so that learning can take place.
Knowledge management strategies promote the sharing of knowledge by linking people with people and by linking them to information so that they learn from documented experiences.
KNOWLEDGE DEFINED
What people understand about things, concepts, ideas, theories, procedures, practices and ‘the way we do things around here’
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Knowledge can be described as ‘know-how’ or, when it is specific, expertise.
Knowledge is held either by individuals or collectively.
Embodied or embraced knowledge is individual and embedded, and cultural knowledge is collective.
DATA, INFORMATION AND KNOWLEDGE
A distinction can be made between data, information and knowledge
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Data consists of the basic facts – the building blocks – for information and knowledge.
Information is data that have been processed in a way that is meaningful to individuals; it is available to anyone entitled to gain access to it. As Drucker (1988:46) wrote, ‘information is data endowed with meaning and purpose’.
Knowledge is information put to productive use; it is personal and often intangible and it can be elusive – the task of tying it down, encoding it and distributing it is tricky.
THE PURPOSE OF KNOWLEDGE MANAGEMENT
Knowledge management is about getting knowledge from those who have it to those who need it in order to improve organizational effectiveness
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The purpose of knowledge management is to capture a company’s collective expertise and distribute it to wherever it can achieve the biggest payoff. This is in accordance with the resource-based view of the firm, which suggests that the source of competitive advantage lies within the firm (ie in its people and their knowledge), not in how it positions itself in the market. A successful company is a knowledge-creating company.
In the information age, knowledge rather than physical assets or financial resources is the key to competitiveness.
WAYS IN WHICH HR CAN CONTRIBUTE TO KNOWLEDGE MANAGEMENT
By providing advice and services dealing with culture management and organization development and design
By developing learning and communication programmes and systems
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The following are 10 specific ways in which HR can contribute:
Help to develop an open culture in which the values and norms emphasize the importance of sharing knowledge.
Promote a climate of commitment and trust.
Advise on the design and development of organizations that facilitate knowledge sharing through networks, teamwork and communities of practice (groups of people who share common interests in certain aspects of their work).
Advise on resourcing policies and provide resourcing services that ensure that valued employees who can contribute to knowledge creation and sharing are attracted and retained.
Advise on methods of motivating people to share knowledge and rewarding those who do so.
Help in the development of performance management processes that focus on the development and sharing of knowledge.
Develop processes of organizational and individual learning that will generate and assist in disseminating knowledge.
Set up and organize workshops, conferences, seminars, communities of practice and symposia that enable knowledge to be shared on a person-to-person basis.
In conjunction with IT, develop systems for capturing and, as far as possible, codifying explicit and tacit knowledge.
Generally, promote the cause of knowledge management with senior managers to encourage them to exert leadership and support knowledge management initiatives.
COMPETENCY-BASED HRM
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Competency-based HRM is about using the notion of competency and the results of competency analysis to inform and improve the processes of recruitment and selection, learning and development and performance and reward management. It therefore has an important part to play in a number of major HR activities.
COMPETENCY FRAMEWORKS
Contain definitions of the behavioural competencies used for all employees in an organization or for specific members of staff such as managers
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Competency frameworks provide the basis for the use of competencies in areas such as recruitment and selection.
Competency and Emotional Intelligence Survey (2006/7) established that the 49 frameworks reviewed had a total of 553 competency headings. Presumably, many of these overlapped.
The typical number of competencies was seven, rising to eight where the frameworks apply solely to managers.
COMPETENCY HEADINGS
The most common competencies in frameworks are people skills, although outcome-based skills such as focusing on results and solving problems are also popular
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In order, the 10 most popular headings are:
Team orientation
Communication
People management
Customer focus
Results orientation
Problem solving
Planning and organizing
Technical skills
Leadership
Business awareness
Competency heading
Manage continuous improvement
Competency definition
Constantly seeking ways of improving the quality of services,
the relevance and appeal of those services to the needs of
customers and clients, and their effectiveness
Encourages the development of new ideas and methods
especially those concerned with the provision of quality
Conscious of the factors that enable change to take place smoothly
Discusses ideas with colleagues and customers and formulates
views on how to improve services and processes.
Competency requirement
Set targets for improvement.
Develop and implement programmes for managing change
Contribute to the development of quality assurance and
control processes and ensure that they are implemented
Positive indicators
Doesn’t try anything that hasn’t been done before
Complacent, believes that there is no room for improvement
Follows previous practices without considering whether there is any
need to change
Negative indicators
EXAMPLE OF A COMPETENCY DEFINITION WITH BEHAVIOURAL INDICATORS
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APPLICATIONS OF COMPETENCY-BASED HRM
The top three areas in which competencies are applied are:
Learning and development
Performance management
Recruitment and selection
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The Competency and Emotional Intelligence Survey (2006/7) found that 95 per cent of respondents used behavioural competencies and 66 per cent used technical competencies. It was noted that because the latter deal with specific activities and tasks they inevitably result in different sets of competencies for groups of related roles, functions or activities.
The three top areas where competencies were applied are:
Learning and development – 82 per cent
Performance management – 76 per cent
Recruitment and selection – 85 per cent
THE ETHICAL DIMENSION OF HRM
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The theme of this session is that there is an ethical dimension to human resource management. As Boxall et al (2007: 5) pointed out: ‘While HRM does need to support commercial outcomes (often called “the business case”), it also exists to serve organizational needs for social legitimacy.’ This means exercising social responsibility, ie being concerned for the interests (wellbeing) of employees and acting ethically with regard to the needs of people in the organization and the community.
To grasp this ethical dimension it is necessary to understand the nature and principles of ethics, the ethical role of HR and the ethical guidelines they can use. It is also necessary to know about approaches to resolving ethical dilemmas.
THE MEANING OF ETHICS
Ethics is concerned with making judgements and decisions about what is the right course of action to take
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Patrick and Quinn (1997) wrote that ethics ‘is the study of individual and collective moral awareness, judgement, character and conduct’.
Hamlin et al (2001) noted that ethics is concerned with rules or principles that help us to distinguish right and wrong.
Ethics and morality are sometimes treated as being synonymous, although Beauchamp and Bowie (1983) suggested that they are different: ‘Whereas morality is a social institution with a history and code of learnable rules, ethical theory refers to the philosophical study of the nature of ethical principles, decisions and problems.’
Clearly, ethics is concerned with matters of right and wrong and therefore involves moral judgements. Even if they are not the same, the two are closely linked.
As Clegg et al (2007: 111) put it: ‘We understand ethics as the social organizing of morality.’
Simplistically, ethics could be described as being about behaviour while morality is about beliefs.
ETHICAL CONCEPTS
The ethical concepts of equity, justice and fair dealing complement ethical theories by providing specific guidance on ethical behaviour
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Equity: Equity theory, as formulated by Adams (1965), is concerned with the perceptions people have about how they are being treated as compared with others. To be dealt with equitably is to be treated fairly in comparison with another group of people (a reference group) or a relevant other person.
Justice: Justice is the process of treating people in a ways which is inherently fair, right and proper. There are four types of justice:
Social justice means relating to employees generally in ways which recognize their natural rights to be treated justly, equitably and with respect.
Natural justice means that employees should know the standards they are expected to achieve and the rules to which they are expected to conform, they should be given a clear indication of where they are failing or what rules have been broken and, except in cases of gross misconduct, they should be given a chance to improve before disciplinary action is taken.
Procedural justice involves treating people in ways which are fair, consistent, transparent and properly consider their views and needs.
Distributive justice means ensuring that people are rewarded equitably in comparison with others in the organization and in accordance with their contribution, and that they receive what was promised to them.
Fair-dealing: Fair-dealing occurs when people are treated according to the principles of social, natural, procedural and distributive justice, and when the decisions or policies that affect them are transparent in the sense that they are known, understood, clear and applied consistently.
ETHICAL HRM
In very general terms, I would suggest that the experience of HRM is more likely (but not necessarily) to be viewed positively if its underlying principles are ethical (Karen Legge, 1998)
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HR professionals:
have a special responsibility for guarding and promoting core values in the organization on how people should be managed and treated generally;
are particularly concerned with values relating to just and fair treatment;
need to take a deontological stance that emphasizes that some actions are right or wrong irrespective of their consequences and that all people should be respected and treated as ends in themselves, not as the means to an end;
should do whatever they can to embed the consistent application of ethical values in the organization so that they can become values in use rather than simply professed values.
DEALING WITH ETHICAL DILEMMAS
There is no ‘one right way’ to deal with an ethical dilemma, but an approach based on systematic questioning, analysis and diagnosis to get at the facts and establish the issues involved using a checklist (see notes) is more likely to produce a reasonably satisfactory outcome than one relying purely on ‘gut feeling’
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Checklist for dealing with ethical dilemmas
What are the known facts about the situation and is it possible that there are facts or circumstances that have not come to light, and if so what can be done to uncover them?
In disciplinary or conduct cases, to what extent does the conduct contravene the organization’s code of ethical conduct (if one exists) or any other relevant organizational policy guidelines and rules?
Have different versions or interpretations of the facts and circumstances been offered and if so, what steps can be taken to obtain the true and full picture?
Is the proposed action in line with both the letter and the spirit of the law?
Is the proposed action and any investigations leading to it consistent with the principles of natural, procedural or distributive justice?
Will the proposed action benefit the organization and if so how?
Is there any risk of the proposed action doing harm to the organization’s reputation for fair-dealing?
Will the proposed action be harmful to the individual affected or to employees generally in any way and if so how?
Do the facts as established and confirmed justify the proposed action?
Are there any mitigating circumstances (in disciplinary cases)?
CORPORATE SOCIAL RESPONSIBILITY
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The notion that businesses should act in a socially responsible way by practising corporate social responsibility (CSR) has been around for some time.
The aim of this session is to explore what it means as a concept and a strategy.
HR professionals have an important role to play in furthering CSR because of the ethical dimension of their function.
CSR was justified by the CIPD (2009:1) as a relevant and important HR activity because: ‘CSR needs to be embedded in an organisation’s culture to make a change to actions and attitudes, and the support of the top team is critical to success. HR already works at communicating and implementing ideas, policies, cultural and behavioural change across organisations. Its role in influencing attitudes and links with line managers and the top team mean it is ideally placed to do the same with CSR.’
CORPORATE SOCIAL RESPONSIBILITY (CSR) DEFINED
Corporate social responsibility (CSR) is exercised by organizations when they conduct their business in an ethical way, taking account of the social, environmental and economic impact of how they operate, and going beyond compliance
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Wood (1991: 695) stated that: ‘The basic idea of corporate social responsibility is that business and society are interwoven rather than distinct entities; therefore, society has certain expectations for appropriate business behaviour and outcomes.’
As Baron (2001: 11) noted, CSR involves ‘providing to others benefits beyond those generated by economic transactions with the firm or required by law’.
As defined by McWilliams et al (2006: 1) CSR refers to the actions taken by businesses ‘that further some social good beyond the interests of the firm and that which is required by law’.
CSR is concerned generally with how companies function and this includes how they manage their people. The CIPD (2003: 5) emphasized that ‘the way a company treats its employees will contribute directly to the picture of a company that is willing to accept its wider responsibilities’.
CSR ACTIVITIES
Incorporating social characteristics or features into products and manufacturing processes
Adopting progressive human resource management practices
Achieving higher levels of environmental performance through recycling and pollution abatement
Advancing the goals of community organizations
(McWilliams et al, 2006)
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RATIONALE FOR CSR
There is a moral imperative for businesses to ‘do the right thing’ without regard to how such decisions affect firm performance (the social issues argument)
Firms can achieve competitive advantage by tying CSR activities to primary stakeholders (the stakeholders argument)
(Hillman and Keim, 2001)
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Research by Hillman and Keim (2001) in 500 firms implied that investing in stakeholder management may be complementary to shareholder value creation and could indeed provide a basis for competitive advantage as important resources and capabilities are created that differentiate a firm from its competitors. However, participating in social issues beyond the direct stakeholders may adversely affect a firm’s ability to create shareholder wealth.
Arguments supporting CSR (Porter and Kramer, 2006):
The moral appeal.
Sustainability – an emphasis on environmental and community stewardship.
Licence to operate – every company needs tacit or explicit permission from government, communities and other stakeholders to do business.
4. Reputation – CSR initiatives can be justified because they improve a company’s image, strengthen its brand, enliven morale and even raise the value of its stock.
THE OPPOSING VIEW
The adoption of CSR policies diverts a firm from its essential purpose, that of making money
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‘The essence of free enterprise is to go after profit in any way that is consistent with its own survival as an economic system’ (Levitt, 1958).
‘The social responsibility of business is to maximize profits within the bounds of the law’ (Friedman,1970).
BENEFITS OF CSR
Offering distinctive positioning in the market place, protecting reputation
Building credibility and trust with customers and employees
Redefining corporate purpose or mission
Securing the company’s licence to operate
(CIPD, 2003)
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Russo and Fouts (1997) found that there was a positive relationship between environmental performance and financial performance.
Hillman and Keim (2001) found that if the socially responsible activity were directly related to primary stakeholders, then investments may benefit not only stakeholders but also result in increased shareholder wealth. However, participation in social issues beyond the direct stakeholders may adversely affect a firm’s ability to create such wealth.
THE BASIS FOR DEVELOPING A CSR STRATEGY
Understanding society
Building capacity
Questioning business as usual
Stakeholder relations
Strategic view
Harnessing diversity
(CSR Academy, 2006)
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The basis for developing a CSR strategy is provided by the following competency framework of the CSR Academy (2006), which is made up of six characteristics:
Understanding society – understanding how business operates in the broader context and knowing the social and environmental impact that the business has on society.
Building capacity – building the capacity of others to help manage the business effectively. For example, suppliers understand the business’s approach to the environment and employees can apply social and environmental concerns in their day-to-day roles.
Questioning business as usual – individuals continually questioning the business in relation to a more sustainable future and being open to improving the quality of life and the environment.
Stakeholder relations – understanding who the key stakeholders are and the risks and opportunities they present. Working with them through consultation and taking their views into account.
Strategic view – ensuring that social and environmental views are included in the business strategy so that they are integral to the way the business operates.
Harnessing diversity – respecting that people are different, which is reflected in fair and transparent business practices.
DEVELOPING AND IMPLEMENTING A CSR STRATEGY
Understand the business and social environment
Understand the business and HR strategies
Know who the stakeholders are
Produce and deliver persuasive arguments in favour of CSR
Identify the areas in which CSR activities might take place
Prioritize as necessary
Draw up the strategy
Obtain approval for the CSR strategy
Communicate information on the strategy
Provide training
Measure and evaluate the effectiveness of CSR
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To develop and implement a CSR strategy based on these principles it is necessary to:
understand the business and social environment in which the firm operates;
understand the business and HR strategies and how the CSR strategy should be aligned to them;
know who the stakeholders are (including top management) and find out their views and expectations on CSR;
produce and deliver persuasive arguments in favour of CSR, if all else fails suggest that there is room for enlightened self-interest that involves doing well by doing good;
identify the areas in which CSR activities might take place by reference to their relevance in the business context of the organization and an evaluation of their significance to stakeholders;
prioritize as necessary on the basis of an assessment of the relevance and significance of CSR to the organization and its stakeholders and the practicalities of introducing the activity or practice;
draw up the strategy and make the business case for it to top management and the stakeholders;
obtain approval for the CSR strategy from top management and key stakeholders;
communicate information on the whys and wherefores of the strategy comprehensively and regularly;
provide training to employees on the skills they need in implementing the CSR strategy;
measure and evaluate the effectiveness of CSR.
