Business Management

Study Manuals

Advanced Diploma in
Business Management

STRATEGIC HUMAN
RESOURCE
MANAGEMENT

The Association of Business Executives

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Advanced Diploma in Business Management

STRATEGIC HUMAN RESOURCE MANAGEMENT

Contents

Unit Title Page

1 Introduction to Strategic Human Resource Management 1

Introduction 2
What is Strategy? 3
What is Strategic HRM? 6
How is Strategic HRM Different from Other Aspects of HRM? 12
How Does Research Show that Strategic HRM Adds Value to an
Organisation? 15
How Does Strategic HRM Support the Management of Change? 18
Who Holds the Responsibility for Strategic HRM? 19
When is it Appropriate to Create a Dedicated HR Function? 19

2 Vertical Integration and Human Resources Strategy 23

Introduction 25
What are the Benefits of Vertical Integration? 31
How do we Promote the Vertical Integration of Our HR Strategy? 31
What is Horizontal Integration? 31
Bundling and Best Fit 36
Resource Based View (RBV) 39
What are the Benefits of Horizontal Integration? 43
What Different Approaches Can Be Taken to Achieve Strategic
Alignment? 43
Putting Strategy into Practice 47
Barriers to Implementation of HR Strategy 48

3 The Alternatives to Strategic Human Resource Management 49

Introduction 50
What is High Performance Working? 51
What is High Commitment Management? 54
What is High Involvement Management? 54
Which Model is RIght? 55
What Other Approaches Are There? 55

4 Designing Strategic Human Resource Management 59

Introduction 61
HRM Strategy - Design Principles 62
What is the External Context for a HRM Strategy? 64
What is the Internal Context for a HRM Strategy? 65
Developments in Human Resources 72
HRM Strategy and Lifecycle Stage 82
What if the Organisation is going through Structural Change? 85
Implications of Globalisation 85
Skills Needed to Implement Strategic Human Resource Management 86
Unit Title Page

5 Evaluating Strategic Human Resource Management 95

Introduction 96
How Easy is it to Link Cause and Effect? 97
How Can you Measure the Impact of Strategic Human Resource
Management? 97
Tools Available to help Measure Strategic Human Resource
Management 99

6 The Ethical Implications of Strategic Human Resource Management 103

Introduction 104
Main Ethical Issues in People Management and Development 105
Equality and Diversity 108
Advantages of an Ethical Approach to People Management and
Development 115
Promoting and Enforcing Ethical Behaviour 117
'Hard' and 'Soft' Human Resource Strategies 117

7 The Strategic Approach to People Resourcing 119

Introduction 121
Employment Flexibility 122
Human Resource Planning 127
How Do We Take a Strategic Approach to Recruitment? 130
What Does it Mean to be an 'Employer of Choice'? 132
How Do We Take a Strategic Approach to Staff Selection? 133
How Do We Take a Strategic Approach to Staff Deployment? 135
How Do We Take a Strategic Approach to Staff Retention? 141
How Do We Take a Strategic Approach to Performance Management? 143

8 The Strategic Approach to Learning and Development 149

Introduction 150
How Do We Take a Strategic Approach to Staff Induction? 151
How Do We Take a Strategic Approach to Training and Development? 153
How Do We Create a Learning Organisation? 160
How Do We Take a Strategic Approach to Appraisal? 161
How Do We Take a Strategic Approach to Management Development? 162

9 The Strategic Approach to Employee Relations 167

Introduction 168
What are the Different Strategic Approaches to Employee Relations? 169
What can be Gained from Partnership Working? 174
How do we Promote Employee Engagement? 175
How do we Increase Discretionary Behaviour? 178
How do we Take a Strategic Approach to Communicating with
Employees? 180

10 The Strategic Approach to Reward and Recognition 181

Introduction 182
What are the Purposes of Reward and Recognition? 183
How Do We Take a Strategic Approach to Reward and Recognition? 185
How Effective are Financial and Non Financial Rewards? 187
How Do We Evaluate Performance Management? 191
 1

Study Unit 1
Introduction to Strategic Human Resource Management

Contents Page

A. Introduction 2
Why is human resource management important? 2

B. What is Strategy? 3
Are strategies deliberate and planned? 5

C. What is Strategic HRM? 6

What are the outcomes of an HR strategy? 6
What different models are there of HR strategy? 7

D. How is Strategic HRM Different from Other Aspects of HRM? 12

So what determines an organisation's HRM strategy? 12
Is legal compliance strategic? 13
So is responding to ethical issues strategic? 14
So is corporate social responsibility strategic? 14

E. How Does Research Show that Strategic HRM Adds Value to an Organisation? 15
CIPD-Sponsored Research 15
Linking Human Resource Strategy to Performance 17

F. How Does Strategic HRM Support the Management of Change? 18

What is the relationship between the psychological needs of employees
and HR strategy? 18
What are the features we should look for in a well-designed job? 18

G. Who Holds the Responsibility for Strategic HRM? 19

H. When is it Appropriate to Create a Dedicated HR Function? 19

How do organisations use HR professionals? 19
What is HR business partnering? 20

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2 Introduction to Strategic Human Resource Management

How to Use the Study Manual

Each study unit begins by detailing the relevant syllabus aim and learning outcomes or
objectives that provide the rationale for the content of the unit. For this unit, see the section
below. You should commence your study by reading these. After you have completed
reading each unit you should check your understanding of its content by returning to the
objectives and asking yourself the following question: "Have I achieved each of these
objectives?"
Ideally, you should not proceed to the next unit until you have achieved the learning
objectives for the previous unit. If you are working with a tutor, he/she should be able to
assist you in confirming that you have achieved all the required objectives.
Objectives
The aim of this unit is to critically evaluate the strategic approach to human resource
management and describe the benefits of designing and implementing a human resource
strategy
When you have completed this study unit you will be able to:
 Describe and explain a human resource strategy – i.e. a set of principles and values
governing expectations about the role of people as contributors to organisational
effectiveness
 Distinguish human resource strategy from 'managing people', and enforcement of
legal/ethical compliance
 Describe and explain the place of a human resource strategy in the organisation's
value chain
 Describe and explain strategic human resource management as a driver, as a strategic
partner and as an agent for both the leadership and implementation of organisational
change
 Explain power and authority related to the human resource strategy and the role of the
human resource strategist as executive, advisor or consultant
 Examine the arguments concerning the desirability of creating a dedicated human
resource function
 Assess the relevance of research and theoretical evidence concerning the positioning
for human resource strategies (especially Ulrich).

A. INTRODUCTION
Why is human resource management important?
Ever since the earliest theories of management, the role of people within the organisation
has been accepted and it is commonly recognised that someone in every organisation will
need to be responsible for the various matters which arise in connection with the
employment of people – commonly recognised as the 'HR function'. This traditional view of
managing the employment of people tends to be associated largely with tasks, techniques
and procedures and as a result is reactive in approach.
Approaches to people management have changed. Social, cultural and political attitudes
towards employment have been shaped by factors such as globalisation of the labour
market; fluctuations in labour availability; the place of women into the workplace; economic
fluctuations, from boom to recession and vice versa, the application of 'scientific'
management methods and control systems in places such as call centres and the people
versus technology divide.

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 Introduction to Strategic Human Resource Management 3

Elton Mayo's Hawthorne experiments stressed the importance of human attitudes, values
and relationships for the efficient and effective functioning of workers, adding motivation to
the list of the traditional HR tasks such as hiring and firing. In the 1960s and early 70s
government intervention in the labour market came in the form of legislative controls over the
relationship between employer and employee and began a pattern, which continues today, of
increasing legal complexity involved in employing people. As a result, the role of the HR
manager has become more complex.
In more recent times, the need for organisations to compete not just locally but nationally and
internationally, has led most organisations to recognise the importance of the effective use of
the human resource. Human resource management, as opposed to personnel management,
acknowledges the contribution that people management makes to organisational
effectiveness and requires the HR function to be more integrated with the broader objectives
of the organisation, adopting a proactive rather than reactive approach.

B. WHAT IS STRATEGY?
A dictionary will tell you that the term 'strategy' refers to an action plan or course of action. In
other words, how a particular objective might be achieved. In a management context, the
word 'strategy' has become interchangeable with 'long term planning' and is used to describe
an activity that senior managers perform to achieve the organisation's goals. Johnson and
Scholes, for example, in Exploring Corporate Strategy, define the strategic plan as:
'….the direction and scope of an organisation over the long term: ideally which
matches its resources to its changing environment and, in particular, its markets,
customers and clients so as to meet stakeholder expectations."
Strategic management is a term that is used to describe the process of making decisions and
taking actions to achieve the organisation's goals. The process of strategic management is a
continuous process involving the adjustment of the organisation's resources, the environment
in which it operates and the aims of the organisation. In its simplest form, it can be shown
thus:

Set objectives

Evaluate Select strategies

Monitor & Implement

Review

Another way of showing this, which highlights the elements within the five basic stages of
strategic management, is thus:

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4 Introduction to Strategic Human Resource Management

Mission and values

Why the business exists at all,
what it is and the management
philosophy and values

Objectives
How the mission can be achieved

Strategic Analysis
Environmental analysis
Corporate appraisal
Internal analysis

Strategic Choice
Generating strategic options
Evaluating options
Choice

Implementation
Detailed strategies at functional
and operational levels

Review, monitor and evaluate

Assess actual performance in the
light of plans

Strategies must be developed at different levels within the organisation to give effect to the
overall strategic plan. A useful analysis of the breakdown of a strategic plan into functional
activities is found in Strategic Marketing Management by Wilson, Gilligan and Pearson:
 Corporate strategy, which deals with the allocation of resources among the various
businesses or divisions of an organisation
 Business strategy, which exists at the level of the individual business or division,
dealing primarily with the question of competitive position
 Functional level strategy that is limited to the actions of specific functions within specific
businesses.
The classical definition of strategy comes from Chandler in Strategy and Structure (1962):
 Derived from the broad intentions of senior decision-makers in the organisation
 Encompass the organisation as a whole

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 Introduction to Strategic Human Resource Management 5

 Coordinate resources in a way that is designed to achieve sustained competitive

advantage
 Identify future actions based on an analysis of the organisation's internal and external
environments
 Determine organisation's activities over the medium to long term.

Are strategies deliberate and planned?

This is a key question. It is important to remember that strategies tend to emerge rather
more often than they are deliberately formulated. Most decisions, including those at the most
senior levels in organisations, are not based upon objective, evidence-based assessments of
the whole situation. They are somewhat more subjective and are made to fit the perception
of the circumstances at the time they are made. The rational model of strategy that would
appeal the FW Taylor (the father of scientific management) would be thought through in
advance, top down and structured. The reality is that strategy formulation in the real world is
somewhat less planned, bottom up as much as top down and more emergent than
structured. Hence strategy appears through the mist as the organisation progresses rather
than being a sought after destination.
In What is Strategy and Does it Matter? Whittington (1993) differentiates the two outcomes of
the organisation (profit maximisation vs. pluralistic) from the two ways of putting together a
strategy (deliberate and emergent).

Strategy process: Deliberate

CLASSICAL SYSTEMIC
Outcome: Outcome:
Profit maximisation Pluralistic
EVOLUTIONARY PROCESSUAL

Strategy process: Emergent

Four approaches to strategy formulation are thereby seen:

 The classical approach aims at profit-maximisation through deliberate planning and
action.
 The evolutionary approach also aims at profit-maximisation but regards long term
planning as less valuable in a turbulent environment than simple survival and quick
adaptability.
 The processual approach exists where members of the organisation are either not
interested or not capable of formulating and implementing a long-term plan, so that
strategy can be seen only in retrospect and is the sum of local objectives.
 The systemic approach emphasises the importance of the social systems that exist
outside the organisation. Laws deliberately determined by society at large are an
example of this approach.

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6 Introduction to Strategic Human Resource Management

C. WHAT IS STRATEGIC HRM?

Many writers regard a strategic approach to managing people as an essential foundation for
developing progressive people related practices. Strategic human resource management is
about what the organisation intends to do in the longer term to develop integrated personnel
and development practices that will enable the business to achieve its goals.
The strategic approach addresses issues and needs relating to changes in structure and
culture; organisational effectiveness and performance; matching human resources to future
requirements, the development of distinctive capabilities and intellectual capital and the
management of change. The rationale for a strategic approach rests on the advantage of
having an agreed and understood basis for developing approaches to managing people in
the longer term to obtain business success. The theory is influenced by the theory of
resource-based strategy, which we will look at in more detail in Study Unit 2 but in general
terms, it supports the view that organisations will aim to improve resource capability i.e.
achieving a strategic fit between resources and opportunities and obtaining added value from
the effective deployment of resources.

What are the outcomes of an HR strategy?

Bratton and Gold identify the tools and tactics of human resource management, as a
strategic function, as five functional areas forming the core of human resource management
activities:
 Staffing: Obtaining people with appropriate skills, abilities, knowledge and experience
to fill jobs in the work organisation. This role encompasses human resource planning,
job analysis, recruitment and selection.
 Rewards: The design and administration of reward systems. This role includes job
evaluation, performance appraisal and benefits.
 Employee development: Analysing training requirements to ensure that employees
possess the knowledge and skills to perform satisfactorily in their jobs or to advance in
the organisation. Performance appraisal can identify employee key skills and
'competencies'.
 Employee maintenance: The administration and monitoring of workplace safety, health
and welfare policies to retain a competent workforce and comply with statutory
standards and regulations.
 Employee relations: Under this heading may be a range of employee
involvement/participation schemes in union or non-union workplaces. In a union
environment, it also includes negotiations between management and union
representatives over decisions affecting the employment contract.
Torrington and Hall define human resource strategy as a central philosophy of the way that
people in the organisation are managed and the translation of this into HR policies and
practices. To be effective, policies and practices need to be integrated so that they make a
coherent whole that is integrated with the business or organisational strategy.
Human resource strategy is generally behaviour based. The traditional based model
involves an analysis of the types of employee behaviour required to fulfil business objectives
and then an identification of HR policies and practices that would bring about and reinforce
this behaviour.
Some models aim to target not only behaviour but through behaviour change, to effect a
change in the culture of the organisation. There is much debate as to whether this is
achievable.
We will consider some of the more common models of human resource strategy below.

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 Introduction to Strategic Human Resource Management 7

What different models are there of HR strategy?

(a) The Fombrun, Tichy and Devanna Model
Fombrun, Tichy and Devanna developed one of the earliest models of human resource
management in their book Strategic Human Resource Management in 1984. The
model demonstrates one approach to human resource management: the development
of human resource strategy to fit the overall organisational strategies.
The model, shown below, is referred to as the human resource cycle and consists of
four key elements, aimed at increasing organisational performance:
 Selection
 Appraisal
 Development
 Rewards.

Rewards

Selection Performance Appraisal

Development/
Training

This model is useful because it demonstrates, in a simple way, the way each of the four
elements work together to achieve the organisation's goals. Torrington and Hall
illustrate this with an example. If the organisation required a team-based approach, the
implications for human resource strategy would be:
 Selection: Successful experience of teamwork and sociable, co-operative
personality, rather than an independent thinker who likes working alone.
 Appraisal: Criteria based upon contribution to the team rather than individual
effort
 Reward: Based upon team performance and contribution rather than individual
effort.
The model has been criticised as too simplistic in the way in which it focuses on four
elements and ignores employee performance and thereby issues such as motivation
and employee relations. It also assumes the rational model of strategic planning,
which suggests a step-by-step approach to strategy formulation, rather than any other
model, such as the emergent model described by Mintzberg.
Note:
The processes of strategic planning should be familiar to you from your studies for
Corporate Strategy. If you cannot recall the rational model of strategic management or
Mintzberg's model of emergent strategies, review them now.

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8 Introduction to Strategic Human Resource Management

(b) The Harvard Model

The Harvard model was produced by Beer, Spector, Lawrence, Mills and Walton in
1984 and consists of six components:
 Stakeholders interests
 Situational factors
 Human resource management policy choices
 Human resource outcomes
 Long term consequences
 A feedback loop through which the outputs flow directly into the organisation and
to the stakeholders.
The model shown below is adapted from Torrington and Hall:

Stakeholder
interests
Shareholders
Management
Employee groups
Government
HRM policy Long term
Community
choices consequences
Unions HR outcomes
Employee Individual well-
Commitment
influence being
Competence
Human resource Organisational
flow Congruence effectiveness
Situational Cost effectiveness
Rewards systems Societal well-
factors
Work systems being
Workforce
characteristics
Business strategy
and conditions
Management
philosophy
Labour market
Unions
Task technology
Laws and societal
values

 Stakeholder interests: The influence that different stakeholder interests have,

which impact on employee behaviour and performance.
 Situational factors are environmental factors that influence management's choice
of human resource strategy.
 Human resource management policy choices: Management's decisions and
actions take into account both constraints and choices.
 Human resource outcomes: Specific employee behaviours that are considered
desirable: commitment and high individual performance, leading to cost-effective
products or services. There is a basic assumption here that human beings

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 Introduction to Strategic Human Resource Management 9

possess talents that are rarely used at work and that they show a desire to
experience growth through work. David Guest concludes that this indicates that
the model takes the view that organisations should be designed on the basis of
the assumptions inherent in McGregor's Theory Y.
 Long-term consequences: Three perspectives taken into account: the individual,
the organisation and society. At the individual level, the model promotes
individual well-being through psychological rewards for efforts at work. At the
organisational level, the organisation benefits from increased effectiveness that
should ensure long-term survival, while at the societal level, societal objectives of
utilising people at work are achieved.
 The feedback loop reflects how HRM policy choices are affected by stakeholder
interests and environmental factors and how both these are influenced by HR
outcomes.
The model has gained some popularity in the UK but also some criticism in that it
identifies desirable HR outcomes that may not have universal appeal, as they generally
assume an American view of success.
(c) The Warwick Model
This model was developed by the Centre for Strategy and Change at Warwick
University in the early 1990s. Developed from the Harvard model, it emphasises an
analytical approach to human resource management. It also recognises the impact of
the role of the HR function on the human resource strategy content.
The researchers who developed the model, Hendry and Pettigrew, focused their
research on mapping the context; identifying an inner (organisational) context and an
external (environmental) context. It takes into account the importance of organisational
learning in the formation of strategy and thereby incorporates Mintzberg's model of
emergent strategy formation rather than a purely top down rational planned approach.
The five elements of the Warwick model are:
 Outer context (the external environment)
 Inner context (internal factors)
 Business strategy content
 Human resource management context
 Human resource management content.

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10 Introduction to Strategic Human Resource Management

Outer context
Socio-economic
Technical
Political-legal
Competitive

Inner context
Culture
Structure
Politics/leadership
Task-technology
Business outputs

Business strategy HRM context

content Role
Objectives Definition
Product market Organisation
Strategy and tactics HR outputs

HRM content
HR flows
Work systems
Reward systems
Employee relations

Source: Hendry and Pettigrew, 1990

(d) Guest's model

David Guest also adapted the Harvard model. His model is based upon four outcomes
that he has developed into four policy goals:
 Strategic integration: Ensuring that:
(i) Human resource management is fully integrated into strategic planning
(ii) Policies are coherent
(iii) Line managers use human resource practices as part of their every day
work
 Commitment: Ensuring that employees:
(i) Feel bound to the organisation and
(ii) Are committed to high performance via their behaviour
 Flexibility: Ensuring:
(i) An adaptable organisation structure
(ii) Functional flexibility based on multi-skilling
 Quality: Ensuring high quality goods and services through high quality, flexible
employees.

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 Introduction to Strategic Human Resource Management 11

Guest contends that if an integrated set of human resource management practices is

applied in a coherent fashion, with a view to achieving the goals of high commitment,
high quality, and task flexibility, then superior individual performance will result. It also
assumes that this will result in superior organisational performance.
The Guest model has six components:
 An HRM strategy
 A set of HRM policies
 A set of HRM outcomes
 Behavioural outcomes
 Performance outcomes
 Financial outcomes.

HRM HRM HRM Behaviour Performance Financial

strategy practices outcomes outcomes outcomes outcomes

Differentiation Selection Commitment Effort/ High: Profits

(innovation) motivation Productivity
Training Quality ROI
Quality
Focus Co-operation
Appraisal Flexibility Innovation
(Quality)
Involvement
Rewards Low:
Cost
Organisationa Absence
(Cost- Job design
l citizenship Labour
reduction) Involvement turnover
Status and Conflict
security Customer
Complaints
Labour
turnover

Source: Guest, 1997

Guest's model acknowledges the close links between human resource strategy and
general business strategies: differentiation, focus and cost. Like the Harvard model,
high quality and flexible employees are seen as highly desirable outcomes. High
quality here is used in the sense of having a capable, qualified and skilful workforce to
produce high quality products and services, whilst flexible refers to employees who are
receptive to new ideas and innovation and capable of change.
Guest also differentiates between the ideas of human resource practices and human
resource policies, arguing that "it is not the presence of selection or training but a
distinctive approach to selection and training that matters".

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12 Introduction to Strategic Human Resource Management

D. HOW IS STRATEGIC HRM DIFFERENT FROM OTHER

ASPECTS OF HRM?
It can be helpful to separate an organisation's activities into three levels:

Strategic
Managerial
Operational

Operational activity goes on at the shop floor: making things, selling things, dealing with
customers etc. The managerial layer controls (manages) the operations and has an eye to
the short, medium and long-term operational issues. Policy making is generally managerial.
At the strategic level, senior managers are concerned with the long-term direction of the
organisation, as we have already considered. This model is helpful in differentiating strategic
HR activities from managerial and operational ones. Indeed, many of the major
developments in HR management in the western world during the 1990s and into the early
21st-century have been based upon this differentiation:
 Streamlining and automating HR operations (such as creating employee portals and
HR call centres and devolving employee relations and line managers with support from
HR advice where they need it)
 Refocusing HR management on to cost control, compliance plus developing and
supporting line managers
 Enhancing the long-term value of people to the business and taking a place on the
board, for the first time for many HR professionals.

So what determines an organisation's HRM strategy?

There are three drivers for an organisation:

Business
success:
The need to be successful
(usually to make money
but it might be to provide a
service)

Behaving
ethically Compliance
Responding to the with the law
needs of the range
of stakeholders

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 Introduction to Strategic Human Resource Management 13

Some activities are driven only by the business motive, such as profit maximisation, others
just by the law, such as not paying below statutory minimum wage rates. Some activities are
ethical, such as adopting the stakeholder perspective when making decisions. Some
activities are common to all three, such as avoiding racial discrimination. The following
illustrates these three using examples of health and safety issues:

The business case Absence from work due to injury or illness is costly. Likewise, a
poor internal or external reputation for safety or welfare results
in poor recruitment, retention and motivation.

The legal case Litigation can be costly and even result in imprisonment.

The ethical case Taking a stakeholder view of the organisation, it has a social
duty to take care of its most valuable resource.

Is legal compliance strategic?

Governments control HR practices in several ways. They:
 Legislate (create laws)
 Publish codes of practice (not legally enforceable but this is what the government and
therefore, courts will consider to be good practice that employers should follow)
 Provide advice and other resources to promote support good practice (such as the
UK's Advisory, Conciliation and Arbitration Service – ACAS)
 Direct public money to be spent on improving the skills of the workforce or HR practice
 Hold themselves up as examples of good practice in the management and
development of people
 Inspect HR practices (especially in respect of health and safety) and enforce where
appropriate
 Maintain a courts system as a final way of deciding whether or not an employer has
behaved appropriately.
In many parts of the world increasing amounts of HR professionals' time is being taken up
with legal compliance. Is this work operational, managerial or strategic? Dealing with cases
is operational. Writing policies to prevent problems and learning lessons from cases are both
managerial.

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14 Introduction to Strategic Human Resource Management

Returning to the Chandler (1962) definition of strategy:

Chandler model of strategy Is compliance strategic?

Derived from the broad intentions of senior No. The broad intentions emanate from
decision-makers in the organisation. states bodies outside the organisation.

Encompass the organisation as a whole. It depends upon the approach taken by the
organisation. A piecemeal minimum and
Determine organisation's activities over the localised response to legislation will not be
medium to long term. strategic (e.g. controls of certain
chemicals); a consistent organisation wide
response to larger initiatives (such as
working time legislation) would be strategic
HRM.

Coordinate resources in a way that is No. Competitive advantage is the business

designed to achieve sustained competitive driver and compliance is rarely designed
advantage. for this purpose.

Identify future actions based on an analysis Yes. The long term direction of HRM
of the organisation's internal and external usually needs to take account of the
environments. direction the government is promoting and
enforcing.

So compliance activity is not inherently strategic, although a wide and long-range response
to government action might be. This is why senior HR practitioners in organisations are less
concerned with the details of legislation and more interested in the long-term direction of
government and social thinking.

So is responding to ethical issues strategic?

The same applies. If by ethical behaviour you mean reaching an agreement to pay an
enhanced pension to a member of staff who has been injured at work, no. That is an
operational issue. A policy of increasing the employer's pension contribution in line with
inflation is managerial HR activity. However, a strategy to change an organisation's culture to
promote social, environmental and human rights would need to be strategic because of the
wide ranging and long term nature of the issues involved.

So is corporate social responsibility strategic?

By definition CSR is 'corporate' and therefore, almost certainly calls for a strong strategic
approach.

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 Introduction to Strategic Human Resource Management 15

E. HOW DOES RESEARCH SHOW THAT STRATEGIC HRM

ADDS VALUE TO AN ORGANISATION?
What evidence is there, that people management policies can actually influence corporate
performance?

CIPD-Sponsored Research
A number of projects have attempted to identify a link between progressive human resource
management policies and practices and organisational performance. The CIPD in particular,
has sponsored much research into the subject and, in the early part of 2001 it published the
results of its summary of the research carried out on its behalf, entitled: The case for good
people management. It concluded that a positive relationship had been identified between
employee attitudes, organisational culture, human resource management practices and
company performance. It emphasised that, if managers wish to influence the performance of
their companies, the most important area they should focus on is the management of people.
It also concluded that employee commitment and a satisfied workforce are fundamental to
improving performance.
 J. B. Arthur
Arthur conducted a number of investigations, chiefly into the US steel industry, in the
first half of the 1990s. In particular, Arthur examined the effect of high-commitment
strategies (where the focus is on shaping employee behaviours by creating
psychological links between organisational and employee goals, moderate employee
participation, general training and high wages) compared with low commitment
strategies (or, as he called them, control strategies, where compliance is through rules
and procedures, with little employee participation, little training and low wages). He
concluded that mills employing high commitment strategies had significantly higher
levels of productivity and quality. The average employee turnover rate in high
commitment mills was less than half of that in firms with a low commitment strategy.
Arthur also examined the performance effects associated with a fit between business
and human resource strategy and concluded that, where fit could be demonstrated,
productivity was generally 25% higher than without fit. We will look at how 'fit' can be
achieved later in the study material.
 M. A. Huselid
In 1995, Huselid conducted research into the impact of human resource management
practices on company performance and found that, if firms increased their high
performance work practices, the result was significant reductions in employee turnover
and significant increases in productivity and profits.
In a further study in 1997, he focused on the strategic impact on shareholder value of
high performance work systems and found that firms that adopted high performance
work systems had significantly higher levels of performance than those which did not,
although the research did not identify precisely how such a system creates that value.
Later in this study text we'll look at ways of evaluating the effectiveness of human resource
strategies and some of the pitfalls of doing so. But at this point, think about your own
organisation and the strategies employed. How might the strategies help or hinder
organisational performance? What evidence do you have of your findings?

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Case Study 1

In 2003 the UK Chartered Institute of Personnel and Development (CIPD)

published a study into the HR practices, staff views and performance in 11
large UK organisations including Jaguar Cars, the Nationwide Building
Society, Selfridges (a large and successful London store) and Tesco (the
UK's largest supermarket chain).
The University of Bath in the UK had carried out the research. One of the
key conclusions was that the most carefully thought through HR strategy
was useless unless it was embraced by line managers who have the skills
and understanding necessary to engage and motivate employees.
Research had already demonstrated the powerful statistical impact of
people management practices on overall business performance. But in this
study they wanted to understand more about why and how such practices
influenced organisational performance – to unlock what has been termed
the 'black box'.
The study, Understanding the People and Performance Link: Unlocking the
black box confirmed the powerful relationships between HR practices,
employee commitment and operating performance. It tracked
organisational performance over a three-year period. Where effective HR
practices were not in place, levels of employee commitment were found to
be up to 90% lower.
Other key conclusions included:
(a) An organisation needs a clear direction and purpose, beyond the
bland mission statement or generic goal of financial returns, which
engages, enthuses and unites people. At The Nationwide Building
Society this is a commitment to mutuality. At Royal United Hospital
(RUH) Bath it is saving lives. This 'big idea' appears essential in
motivating and directing people behind the strategy of the
organisation.
(b) High performing organisations invariably employ some form of
balanced performance scorecard or methodology. Be it the
stakeholder value model employed at Selfridges, the six-sigma
methodology at Jaguar or a quality framework at the Court Service,
this demonstrates the importance of different stakeholder groups to
the organisation's success, and links individual and corporate goals.
(c) The research confirmed that there was no universal 'best HR
practice'. It is all about having a broad and integrated 'bundle',
tailored to the needs of the organisation. For example, the practices
employed at technology company AIT would be unlikely to go down
well on the production line at Jaguar. Yet every worker there could
tell you Jaguar's latest position in the international quality league
table.
Strong attention to team working, extensive employee communications and
involvement, and positive perceptions of training and careers emerged as
common ingredients in the performance-driving HR mix.

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Leadership – not at the top of the organisation, but at the front line –
appeared to be holding back many UK organisations. Middle managers
and supervisors set the context in which the HR/business performance
relationships happened, or did not happen.
For example at the UK supermarket retailer Tesco, where 88% of staff feel
loyal and share the company's values, a typical section manager described
their role as, "mobilising the team with a goal, motivating people". And
building management capability is a core component of the UK government
tax office's HR strategy.
Another example in the research is nursing staff at a hospital describing the
change after a new ward manager worked with her HR colleagues on a
range of new policies, such as flexible shift working and 360 degree
appraisal. Comments included:
"I'm much more motivated now, there's training, the atmosphere's
totally different";
"Communication is excellent now…our manager is very
approachable"
"When I came here it was unsettled. Now we have a strong
team…you want to do the job to the best of your ability".
The high level of staff turnover in the ward had since fallen to almost zero.
Organisations can make progress very quickly. They need to survey
employee attitudes and commitment; assess, train, coach and support their
first line managers and integrate HR policies with goals and values. Once
these processes are underway there is a very high likelihood of
transformation.

Linking Human Resource Strategy to Performance

Evidence suggests that to achieve superior organisational performance, there must be a
distinct link between human resource strategies and the organisation's business strategies.
We will look at this subject in more detail in the next unit and in Unit 3, but the CIPD research
into people management and business performance identified three main approaches to the
development of human resource strategies:
 The best practice approach, which is based on the belief that there is a set of superior
human resource practice which, if adopted, will lead to better organisational
performance
 The best fit approach, which is based on the belief that there can be no universal
prescription for human resource management policies and practices. It is all contingent
on the context and culture of the organisation
 The configurational approach, which focuses on the need to achieve horizontal or
internal fit, i.e. human resource practices which are interrelated and internally
consistent.
Finally, the Future of Work Survey carried out on behalf of the CIPD and analysed by,
amongst others, David Guest, analysed the effectiveness of a number of 'progressive' human
resource practices by surveying 835 private sector organisations. The survey found that the
application of these practices is associated with higher levels of employee commitment and
quality and greater flexibility. These in turn are associated with higher levels of productivity

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and quality of goods and services and hence financial performance. Their model of the link
between human resource management and performance is shown below.

Business
HR effectiveness
strategy

Quality of goods
HR outcomes and services
employee: performance
Financial
HR practices competence performance
commitment
flexibility Productivity

HR strategy

Source: CIPD, The case for good people management, 2001

F. HOW DOES STRATEGIC HRM SUPPORT THE

MANAGEMENT OF CHANGE?
What is the relationship between the psychological needs of employees and
HR strategy?
HR strategy brings together, in a careful balance, the three needs of the organisation and its
employees:
 Efficiency (scientific management)
 Socialisation (human relations)
 Psychology (neo-human relations)
That is where good job design now rests.

What are the features we should look for in a well-designed job?

 Variety of tasks. Requiring the use of several skills
 Autonomy of the team member in deciding the order or pace of work
 Personal identity. The task forms a whole job (or a large part of a whole job)
 Responsibility. Individuals accountable to each other
 Feedback. Constant information on how things are going
 Social contact. Opportunity for interaction with colleagues on work-related matters
 Balanced workload. Team members help each other to even-out peaks and troughs
in their work
 Minimal role ambiguity or conflict. The team has the opportunity to deal swiftly with
any problem of 'who does what'. With an emphasis on quality, teams are required to
ensure quality standards are given higher emphasis than simply reaching output
quotas.
 Achievement. With the finished product often in view and with their responsibilities for
quality in mind, team members can be satisfied with a job well done

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 Development. The general increase in the required level of skills and particularly
interpersonal skills, provides opportunities for learning and development. These are
transferable outside the immediate workplace and can contribute to a significant sense
of personal growth.

G. WHO HOLDS THE RESPONSIBILITY FOR STRATEGIC

HRM?
Much has been written about the various roles of HR professionals and how they have
changed over time. As far as HR strategy formulation and implementation are concerned,
there is little doubt that this has generally fallen to HR directors, charged with forging the
links between the business strategy, organisational culture and the HR strategy. There is
also little doubt that since the 1980s the presence of HR directors on the boards of both
public and private institutions has increased. A prerequisite for board membership is the
ability to use the business, financial and strategic language used by boards.
In larger or more complex organisations, HR directors have recognised the level of detail
required in strategy work and in common with other functions, have created specialist posts
for middle ranking HR professionals, to support them in their strategic responsibilities (rather
as a politician might have support staff conducting research etc. or civil servants responsible
for overseeing implementation of political decisions). In a few organisations these have
developed into strategy units, with responsibility extending into HR policy and procedure but
stopping short of transactional processes.

H. WHEN IS IT APPROPRIATE TO CREATE A DEDICATED

HR FUNCTION?
How do organisations use HR professionals?
Managing people is a shared activity and many people play a part. The degree to which it is
delegated to line managers will vary from country to country, from sector to sector and even
from unit to unit within one organisation. It is always good to remember that the way you
have experienced HR is not the way it is organised everywhere else.
It is helpful to separate:

Clerk of Works HR Contracts Manager HR HR Architect

Transactional HR Managerial HR Strategic HR

Dealing with individual Where HR is heavily Creative and innovative
casework and formalised and rule-bound HR, with emphasis on
predominantly and emphasis is on vertical integration and
administrative. troubleshooting or staying making best use of the
on the right side of available human resource –
employment law (often added value HR.
strong in a public sector or
unionised environment).

Based on: Tyson and Fell, 1986

It became increasingly common during the 1990s for transactional HR (the left hand box) to
be devolved to line managers and even the individual employee if there was access to an
intranet, containing an employee portal through which the employee could manage their

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leave, change their hours of work, get a pay slip, apply for promotion, find out about
conditions of service etc.
But line managers are busy and cannot be administrative experts. So a new model became
increasingly popular in the early 21st century: the HR strategic business partner model,
proposed by David Ulrich in the USA in 1997.

Shared services Centres of excellence Strategic partners

A single and sometimes A small teams of HR experts A small number of HR

large unit that handles all with specialist knowledge of professionals working
the routine transactional HR key areas of HR closely with local business
activities for the managers influencing
Typically reward, learning
organisation. strategy and steering its
and development, employee
implementation.
Typically: resourcing, engagement, talent
payroll, absence monitoring, management, diversity and The task of strategic
advice on the simpler compliance. partners is to ensure the
employee relations issues. business makes best use of
its people.

Low-cost but effective HR Delivers competitive Highlights to general

administration. business advantages managers the HR issues
through HR innovations and possibilities they may
not see. It is also aims to
inform and shape HR
strategy, so that HR meets
organisational needs.

HR professionals at middle and senior levels in organisations are increasingly seeking

professionally qualified. That is probably one of the reasons why you are pursuing an ABE
qualification.

What is HR business partnering?

HR business partnering involves the restructuring of HR into three specialist sub-functions:
 Shared services. A single and sometimes large unit that handles all the routine
'transactional' (i.e. administrative) services across the organisation – typically
recruitment, payroll, absence monitoring, and advice on the simpler employee relations
issues. Shared services' remit is to provide low-cost, effective HR administration.
 Centres of excellence. Small teams of HR experts with specialist knowledge of HR,
such as reward, learning, engagement, occupational health and talent management.
 Strategic partners. Individual HR professionals working closely with local managers
influencing strategy and steering its implementation. The task of strategic partners is to
ensure the business makes best use of the available people; to point out the HR issues
and possibilities that executives don't often see. It is also aims to inform and shape HR
strategy, so that HR meets organisational needs.
Few organisations create clear boundaries between the sub-functions and there is usually a
degree of overlap between functions. For example, a centre of excellence might handle
complex employee relations issues, whilst strategic partners find themselves entangled in
small, routine matters. Some organisations discover they need a fourth element, a
consultancy role that facilitates and supports change initiatives.

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This fits in with Ulrich's role description for these posts

 HR Leader: Leading change
 Functional Expert: Reengineering organisation processes: 'shared
services'
 Strategic Partner/ Aligning HR and business strategy: 'organisational
Change Agent: diagnosis'
Managing transformation and change: 'ensuring
capacity for change'
 Employee Advocate/ Listening and responding to employees: 'providing
Human Capital Developer: resources to employees'

Case Study 2

from Personnel Today magazine – 28 January 2008

BACKLASH AGAINST HUMAN RESOURCES BUSINESS PARTNER

MODEL AS MANAGERS QUESTION RESULTS
A backlash against the much-feted human resources (HR) business partner
model appears to have begun after research revealed that more than half
of managers were unconvinced by the structure. Only 47% of the
managers polled by research firm Roffey Park said that business partnering
was in any way successful in their organisation. One in four said the model
was ineffective, while the rest were undecided on the merits of the
increasingly popular system.
The business partner model has been hailed as the way forward for the
profession since HR academic Dave Ulrich first wrote about it in 1997. It
was supposed to modernise the function, making it more valuable to chief
executives, and is now the most common structure, according to the
Chartered Institute of Personnel and Development (CIPD). Almost half of
the 479 managers polled had business partners in their organisation.
However, those critical of the model said all too often it had only involved a
change in title, and had not resulted in strategic thinking, with comments
such as: "Too much reliance on the intranet", and "Greater conflict within
HR" in the survey.
Gabriele Arend, HR director at beauty products manufacturer Elizabeth
Arden, said she disagreed with any model splitting HR professionals into
recruiting, training and employee relations experts. Her company is moving
towards a more traditional structure, where HR staffs are trained to develop
generalist knowledge. "This encourages a trust relationship between staff
and their HR partner, but also allows department heads to discuss their
issues with one HR partner rather than three," she said.

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Case Study 3

Job advertisement

HR Business Partner – Various locations

At last, a chance to join an efficient organisation who have a modern HR
strategy that works within this huge global organisation. Our client delivers
an HR service focused on developing the skills of the managers, so they
are truly capable of managing every aspect of the employee lifecycle –
from an unhappy team member, through to under performance to career
development and beyond.
The overall objective of the HR team is to skill managers in all the basic
areas of HR offering guidance – but not hand holding as happens so often
in less sophisticated organisations.

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Study Unit 2
Vertical Integration and Human Resources Strategy

Contents Page

A. Introduction 25
What is vertical integration? 25
How far should vertical integration go? 26
Competitive Strategies and Human Resource Strategies 27
What effect has globalisation had on HR strategy? 29
What are the strategic pressures on public sector organisations? 29
What are the strategic pressures on the not for profit sector? 30

C. What are the Benefits of Vertical Integration? 31

D. How do we Promote the Vertical Integration of Our HR Strategy? 31

How do we integrate business and human resource strategies? 31

E. What is Horizontal Integration? 31

The 'Matching Model' of Human Resource Management 32
Criticisms of the Matching Model 33
Business Level Strategy and Human Resource Management 35
Further Thoughts on Integration 36

E. Bundling and Best Fit 36

What is the significance of bundling? 39

F. Resource Based View (RBV) 39

The Process of Bundling 40
The Use of Integrative Processes 40
Achieving Flexibility 42

G. What are the Benefits of Horizontal Integration? 43

H. What Different Approaches Can Be Taken to Achieve Strategic Alignment? 43

Corporate Level Strategies 43
Business Level Strategies 43

(Continued over)

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Functional Level Strategy 44

Strategic Integration 44
The Best Practice Approach 45
Criticisms of the Best Practice Approach 46
The 'Best Fit' Approach 47
Criticisms of the Best Fit Approach 47
Bundling 47

I. Putting Strategy into Practice 47

J. Barriers to Implementation of HR Strategy 48

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Objectives
The aim of this unit is to critically evaluate and explain the necessity for alignment between
an organisation's corporate strategy (and its higher-order purposes, reflected in its vision,
mission, values and goals) and its human resource strategy.
When you have completed this study unit you will be able to:
 Explain the benefits of vertical integration ('best fit') between an organisation's
corporate and human resource strategies
 Explain the significance of horizontal integration and 'best practice'
 Critically examine review of 'best fit', 'best practice' and other strategic alignment
mechanisms
 Explain the linkages between an organisation's higher-order strategic direction and its
aspirational human resource strategies, e.g., the corporate vision translated into
aspirational models for the performance and commitment of people as sources of
'added value'

A. INTRODUCTION
What is vertical integration?
Vertical integration occurs when the human resource strategies are congruent with the
culture of the organisation and fit with the business strategy. 'Fit' as a concept is relevant not
just in the strategy formulation stage; it may also apply at the implementation stage.
Cultural fit
If strategies fit with the culture of the organisation, not only are they more readily acceptable,
to both senior management and the workforce but implementation tends to go more smoothly
too. If the intention is to change the culture, or adopt an initiative that does not fit the
organisational culture, then there are likely to be difficulties in the implementation stage.
To ensure cultural fit, it is necessary to analyse the existing culture. Coke and Lafferty,
writing in Organisational Culture Inventory in 1989, suggested that analysis on the following
12 points would provide information on how human resource strategies should be shaped:
 Humanistic-helpful: Organisations managed in a participative and person-centred way
 Affiliative: Organisations that place a high priority on constructive relationships
 Approval: Organisations in which conflicts are avoided and interpersonal relationships
are pleasant, at least superficially
 Conventional: Conservative, traditional and bureaucratically controlled organisations
 Dependent: Hierarchically controlled and non-participative organisations
 Avoidance: Organisations that fail to reward success but punish mistakes
 Oppositional: Organisations in which confrontation prevails and negativism is rewarded
 Power: Organisations structured on the basis of the authority inherent in members'
positions
 Competitive: A culture in which winning is valued and members are rewarded for out-
performing one another
 Competence/perfectionist: Organisations in which perfectionism, persistence and hard
work are valued

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 Achievement: Organisations that do things well and value members who set and
accomplish challenging but realistic goals
 Self-actualisation: Organisations that value creativity, quality over quantity and both
task accomplishment and individual growth.
Analyse your own organisation or one that you are familiar with. Which of the twelve points
identified by Cooke and Lafferty does the organisation fit into? What evidence is there to
support your view?

How far should vertical integration go?

The extent to which organisational strategy and human resource strategy is integrated varies
according to the type of organisation. Torrington and Hall identify a range of different
relationships, as shown below:
Separation model

Organisational HR
Strategy Strategy

In this model, there is no relationship at all between organisational strategies and human
resource strategies. This is the model commonly used to describe the approach to human
resource management up to the mid 1980s and in many organisations (particularly smaller
ones) it is still apparent today. In fact, it is arguable that a human resource strategy does not
exist in such organisations.
Fit model

Organisational HR
Strategy Strategy

This model recognises the importance of people in the achievement of organisational

strategy. Employees are seen as key in the implementation of the declared organisational
strategy and human resource strategy is designed to fit the requirements of the
organisation's strategy. We will look at this model in more detail below.
We noted before that this model requires the organisation's strategies to be developed on a
top down planned approach (the rational model).
The dialogue model

Organisational HR
Strategy Strategy

This model takes the relationship between organisational strategy and human resource
strategy one stage further by introducing the need for two-way communication and debate.
Theoretically, the requirements of the organisational strategy may not be possible or
desirable and some adjustment may be needed. In practice, however, the debate is more

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likely to be limited, particularly where the negotiating parties are not of equal status. This
might occur, for example, at functional level where one department may have more perceived
power than another to the extent that its requirements are accommodated at the expense of
another. A negotiation appears to take place but there is not mutually agreed outcome.
The holistic approach

Organisational HR
Strategy Strategy

This model represents where people within the organisation are recognised as key to
competitive advantage, rather than just the way of implementing organisational strategy, i.e.
human resource strategy is not just the means of achieving business strategy (the ends) but
an end in itself. Human resource strategy becomes critical. In practice, Storey found in 1989
that few organisations achieve this degree of integration although research by Kelly and
Gennard in 1996 suggested that many are beginning to approach this model.
The human resource driven model

Organisational HR
Strategy Strategy

This final model places human resource strategy in the driving seat. The argument here is
that if people are the key to competitive advantage, then we need to build on our people
strengths. The potential of employees will affect the achievement of any planned strategy so
it is argued that it would be sensible to take account of this in developing strategic direction.
Are there standard HRM responses to the different types of corporate strategy?
Yes.
Competitive Strategies and Human Resource Strategies
We noted in the previous study unit that business level strategies concentrate on competitive
strategies. We have also noted the need to integrate human resource strategies with
business level strategies. Using Porter's competitive strategies, we can identify the human
resource practices that 'fit' with those competitive strategies:
Differentiation
You may recall that organisations adopting a strategy of differentiation aim to achieve
competitive advantage by doing something that is different from their competitors. To be
effective, such organisations need employees who are:
 Creative
 Able to focus on the long term implications of strategies
 Able to share information and work together
 Risk takers
 Able to tolerate unpredictability and ambiguity.

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Human resource strategies, to support a strategy of differentiation, therefore, need to include

strategies to promote:
 Creativity, for example, by designing an appraisal system that rewards an innovative
approach
 Co-operation and working together, for example, by using a team based approach to
job design, using appraisals to recognise long term and group based achievements
 Experimentation, perhaps by fostering a culture where mistakes are viewed as learning
opportunities and encouraging open communication
 Broader jobs and career paths that reinforce the development of a wider range of skills.
Cost Leadership

Organisations adopting a low cost leadership strategy need people who are:
 Able to focus on the shorter term
 Risk averse
 Concerned for quantity of output, to some extent over quality (although there are cost
implications for quality failures).
Human resource strategies to support a strategy of cost leadership might include:
 Narrowly designed jobs and strict job descriptions
 Short term, results-oriented performance appraisals
 Limited training
 Close monitoring of employee activities
 Short term, low cost employment practices such as short term contracts.
Porter is not the only writer to have attempted to define competitive strategies. We noted in
the last study unit that Miles and Snow also addressed competitive strategies in terms of
defining types of organisation as:
 Defenders
 Prospectors
 Analysers
 Reactors
Similarly, we can identify types of behaviours that such organisations will require from their
employees:
 Defender organisations tend to follow a low cost leadership strategy where stability,
high volume low cost production and strict controls are adopted. Human resource
strategies to support this approach might include a policy to recruit/promote from
within, a centralised approach to structure design and a reward system that is based
upon internal consistency.
 Prospector organisations seek new opportunities so a differentiation strategy tends to
be followed. Emphasis is on creativity, information sharing, multi-skilling etc. Human
resource strategies such as those identified above, for a differentiation approach,
would 'fit' for prospector organisations.
 Analyser organisations operate in at least two different product market areas so need a
broader range of skills and attitudes from their employees. Human resource strategies
here are likely to be more diverse or mixed.

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 Reactor organisations are companies that lack a consistent strategy-structure-culture

relationship and human resource strategies are similarly disassociated.

What effect has globalisation had on HR strategy?

The last quarter of the twentieth century saw an explosion in technology and in particular the
use of Internet technology and the growth of the global economy. We will look at how the
global economy impacts on aspects of human resource management when we look at
situational analysis and human resource planning in Unit 5, but for the purpose of
considering the achievement of strategic fit between human resource strategies and
organisational strategies, there are clear implications for the multinational organisation.
The impact of national culture is an important facet of forming human resource strategies,
because of the impact of national culture on human behaviour. This is easiest to see where
differences are most marked, although we must be aware of stereotyping. National
approaches to, for example, religion, the family and education can impact in the application
or acceptability of certain human resource strategies. The Japanese, for example, have
great difficulty with any course of action where they might be perceived as losing face.
Japanese children are taught to conform, to work within a group and to develop team spirit.
Strategies where individual performance is emphasised are at odds with this background.
Similarly, attitudes towards gender differences vary accordingly to national culture. Research
suggests that where men are assertive and have dominant roles, so organisations tend to
emphasise generating profits, performance and achievement. Where there is a larger role
for women, who are more service oriented, so the emphasis tends to be on quality issues,
interpersonal relationships and concern for the environment.
What are the strategic pressures on public sector organisations?
One of the key differences in strategy in public sector organisations is the impact of the
political view of accountability. At one time, public sector organisations were simply required
to provide a public service, whatever the cost. The view then changed to requiring public
service operators, at the very least, to meet certain financial targets aimed at ensuring the
taxpayer received a certain amount of value for money. Successive governments have built
upon this view, to the extent that public service providers now have to meet stringent
government-set targets and publish how successful they are at meeting those targets.
Funding is frequently dependent upon the successful achievement of such targets, which are
often criticised for being based upon general criteria that do not take into account local
conditions.
More recently, initiatives such as 'best value' within local authorities have been designed to
give local people greater say over the way in which local services are delivered. Local
councils aiming for 'best value' status are required to prepare and publish comprehensive
annual performance plans that set out overall objectives and establish performance reviews.
All services must be reviewed over a five year period and must:
 Ask why the council provides a service at all and ask whether someone else could do it
better
 Compare performance with other providers of similar services
 Consult with those who are partners in or recipients of the services
 Demonstrate that they can compete with other potential providers of the service.
Best value, therefore, goes much further than the original principles of compulsory
competitive tendering, which aimed at getting the best price for any item or service
purchased. Best value also has huge implications for human resource strategies.
For example, if a best value review concludes that the running of local authority retirement
and nursing homes would be more appropriately handled by another service provider, what
implications do you think this might have on human resources management?

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The move towards a more commercial approach to management in the public sector has led
to greater emphasis on the strategic approach to human resource management and towards
initiatives such as high commitment management. John Storey, writing in Public Money and
Management in 1989, noted that local authorities and public sector organisations such as the
NHS were being forced to adopt human resource practices that are integrated with business
plans and to aim for 'committed' employee behaviour, rather than mere compliance with
rules. He also noted some of the difficulties faced by local authorities and the public sector
generally, not least of which is the short-term nature of the political processes in the UK.
Directed by locally elected representatives, for example, local councils in the UK stand for re-
election every four years. Thus, virtually overnight, a local authority can change political
persuasion, resulting in the need/push for a complete change of emphasis in terms of
policies and objectives which human resource management must adapt to. John Storey
illustrates this with the case of Bradford Council that had to reverse its social strategy and
attendant human resource management approach, when support ceased when an
alternative political party gained control of the council.

What are the strategic pressures on the not for profit sector?
As with the public sector, the not-for-profit sector has seen great change in the way its
organisations are managed over the last two decades. In the late 1980s, Peter Drucker
studied the management of the non-for-profit sector in the United States (reported in Harvard
Business Review in 1989) and found that management techniques in the not-for-profit sector
were superior to those found within business.
Drucker found that the not-for-profit sector started with a mission that focused the
organisation on clear action-based goals and unlike most commercially based organisations
who focus on planning and financial returns, the focus for not-for-profits was the performance
of the mission.
To a large extent, the not-for-profit sector has led the way with the soft approach to human
resource management. By not paying volunteers, the voluntary sector have long supported
the view that volunteers must get satisfaction from their endeavours, so strategies aimed at
turning well-meaning amateurs into trained, professional, unpaid staff members are a vital
part of the overall strategy of the organisation. A strong sense of mission is a vital starting
point, which generates high commitment amongst volunteers who, after all, can leave at any
time. This is backed up by a clear commitment to providing training and using the individual
skills and expertise of those who volunteer. Even if an individual proves unsuitable for a
particular role, efforts are concentrated on moving that individual and finding something to
which they are suited, rather than simply dispensing with their services. Once volunteers are
trained, that knowledge and expertise is continually developed and used so that volunteers
continue to get satisfaction from their role. Some not-for-profit organisations have created
career ladders for their volunteers, so that performance is repaid by increased responsibility.
Drucker argued that many businesses could profit from the strategies developed by the not-
for-profit sector in the field of human resource management. He cites, as an example, a
number of students he has taught, all middle to senior executives in a variety of businesses
and many of whom are also active in the voluntary sector for several hours a week. When he
asked why they did it, he found the reply was always the same: "because in my job there
isn't much challenge, not enough achievement, not enough responsibility; and there is no
mission, there is only expediency".

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C. WHAT ARE THE BENEFITS OF VERTICAL

INTEGRATION?
We need HR issues to be on the boardroom agenda
Until the twenty-first century it was a continual irritant to senior HR practitioners and their
representative organisations in the western world, that they aspired to have more influence
on board-level decision-making but did not attain it. Whilst some claimed this was ambition
and vanity, the research was beginning to emerge to show the links between the seriousness
paid to HR issues by boards and organisational success. Vertical integration became one of
the levers to get boards to take HR issues more seriously and therefore, give HRM the time
and financial resources it required. If HRM is clearly supporting the implementation of top-
level corporate strategy (downward integration) and HR strategists are having an influence
on the formulation of corporate strategy (upward integration) then HR is and is seen to be
adding value.
Those are the benefits of vertical integration:
 Corporate business plans and strategies reflect the HR reality of the organisation (and
are therefore, more likely to be accepted, understood and succeed)
 HR activities will cascade from the corporate business plans and strategies and will,
therefore, support them.

D. HOW DO WE PROMOTE THE VERTICAL INTEGRATION

OF OUR HR STRATEGY?
How do we integrate business and human resource strategies?
As we have already noted, business strategies are influenced by human resource strategies,
as well as having influence on them. Thus, the process of achieving vertical integration is a
little like trying to decide which comes first, the chicken or the egg! The theoretical approach
suggests drawing up a matrix where each of the elements of human resource management
(structure, resourcing, human resource development, performance management, reward and
employee relations) are matched against each business strategy, to identify which of the
human resource strategies are associated with various elements of business strategy.
In reality, business strategies might not be so clearly defined or may be 'emerging'.
Perhaps a more realistic approach is to consider each key area of business strategy and the
human resource implications of each as a basis for integration. This will require:
 Knowledge of the skills and behaviour necessary to implement the strategy
 Knowledge of the human resource management practices necessary to elicit those
skills and behaviours
 The ability to quickly implement the desired system of human resource management
practices.

E. WHAT IS HORIZONTAL INTEGRATION?

One of the beauties of HRM is that all people management and development topics can and
ought to integrate with each other. Your organisation's long term HR strategy leads to a
resourcing plan for getting the people you need. Recruitment (part of people resourcing)
overlaps with induction (learning and development). However, induction also involves finding
ways to engage the new member of staff with the decision making processes of the business
(employee relations). Induction will involve setting work objectives (performance

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management) that take account of the direction the business is going in (organisation
development). Those objectives will only be met if sufficient rewards are available.
We could go on.
We call this horizontal integration. Without it, HRM is dysfunctional.
Human resource management should also be an integral part of the business strategy,
contributing to the business planning process as it happens. Horizontal integration with other
aspects of the business strategy is required, as well as fit between the different elements of
the people strategy. The aim is to achieve a coherent approach to managing people in which
the various practices are mutually supportive.
David Guest, for example, writing in 1987 in the Journal of Management Studies, said:
"Because they are the most variable, and the least easy to understand and control of
all management resources, effective utilisation of human resources is likely to give
organisations a significant competitive advantage. The human resource dimension
must therefore be fully integrated into the strategic planning process."
The concept of integration has three other aspects:
 The integration or cohesion of human resource policies and practices, to complement
each other and to help achieve strategic goals
 The internalisation of the importance of human resources by line managers
 The integration of all workers into the business, to foster commitment or an identity with
their organisation.
The basic concept, here, is that if these forms of integration are implemented, workers will be
more co-operative, flexible and willing to accept change. Therefore, the organisation's
strategic plans are likely to be more successfully implemented.

The 'Matching Model' of Human Resource Management

The underlying basis for the matching or 'fit' model of human resource management is that
organisations (certainly in the western world) can only gain competitive advantage by
adopting the low cost leadership or differentiation strategies identified by Michael Porter.
You should note at this stage that, although Michael Porter's work is much respected, it is not
universally accepted as the only route to competitive advantage. Indeed, at the CIPD
National Conference in 2000, many well-respected captains of industry disagreed with
Porter's definition of competitive advantage, let alone the methods of achieving it!
In Unit 1, we looked at some of the common models of human resource management. The
first of those, devised by Fombrun, Tichy and Devanna you will recall, was an early attempt
at the 'matching' model. One of its developers, Devanna, argued, “human resource systems
and organisational structure should be managed in a way that is congruent with
organisational strategy".
This link between strategy and structure is a common theme, although it is sometimes
disputed which comes first, strategy or structure. Theorists will argue that structure should
support strategy but many have noted that strategic choice may be heavily influenced by the
existing structure.
Why do you think this is?
Devanna acknowledged that strategy and structure feed off each other and developed a
matching model of strategic human resource management. This model acknowledges
the links between strategy and structure and attempts to show how both are influenced by
external environmental factors:

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Devanna, Fombrun and Tichy's matching model of strategic human resource

management

Political
forces

Economic Cultural
forces Mission & forces
Strategy

Firm

Human
Organisational Resource
structures Management

Source: Bratton and Gold, Human Resource Management

The Harvard model of human resource management also acknowledged the notion of 'fit'
between corporate strategy and human resource strategy. Its authors conclude that any
inconsistency between internal human resource management practices and competitive
strategy is likely to lead to role conflict and ambiguity that can interfere with individual
performance and organisational effectiveness.

Criticisms of the Matching Model

The concept of 'fit' between human resource strategy and corporate strategy has been
criticised on a number of fronts:
 A number of writers have commented that the matching model implies an approach
that human resource strategy is subservient to business strategy. This means that
business strategy dictates human resource strategy. For this to apply there is a basic
assumption that business strategy is formulated in a rational way, by the top down
approach. Whilst this may be true for some organisations, it ignores the reality that not
all strategic decisions are made in a planned logical way but may be the result of
managers competing for influence, power and resources.
As Purcell put it:
"Strategic decisions are characterised by the political hurly-burly of organisational
life with a high incidence of bargaining, a trading off of costs and benefits of one
interest group against another, all within a notable lack of clarity in terms of
environmental influences and objectives".
 Although the concept of strategic fit has become a somewhat fashionable concept in
recent years, some theorists have questioned whether it is always desirable to match

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human resource strategy to business strategy. There are several circumstances, often
quoted, where a perfect match between business strategy and human resource
strategy might not be to the advantage of the organisation as a whole:
(i) In a volatile environment managers may need to be able to adapt to rapidly
changing circumstances. Human resource strategies may be so closely aligned
to business strategy that they reduce flexibility and the ability to react quickly.
(ii) Similarly, in periods of financial downturn, there is a tendency for corporate
management to attempt to increase profitability through measures such as
downsizing, acquisitions and asset stripping. The 'logical' human resource
strategies that flow from these business strategies would tend to favour short-
term contracts, compulsory redundancies and a reward system based upon
short-term results. Whilst these strategies seem to fit business strategy, they are
hardly likely to generate employee commitment, flexibility and quality; all goals
seen by many writers as some of the key characteristics of successful
companies.
Think about your own approach to management here. If you are a manager in an
organisation which offers rewards for quick results, what type of project might you be
likely to promote: one which offers a low initial rate of return but over, say, a ten year
period offers the potential for greater benefit for the company, or a short term project
which promises a quick high return but only over a relatively short period?
Which project would benefit the company most?
(iii) Some writers argue that there is no proven link between the matching model
and superior organisational performance. In fact, writers have noted that the
organisations that tend to outperform the market are likely to adopt low cost
business strategies rather than differentiation and such business strategies, by
their nature, tend to drive out long term human resource strategies, thereby
destroying the whole basis for human resource strategic management.
You must remember that this is just one point of view but does tend to support
the criticism of the matching model identified above.
(iv) The matching model, it is alleged, tends to ignore the unique characteristics of
the workforce it seeks to manage. Purcell commented that the model ignores the
complex nature of human beings and the possibility that workers and their unions
might influence strategic planning.

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Case Study

In the latter half of the 1990s, Yorkshire Water plc introduced a series of
strategies aimed at moving Yorkshire Water out of the era of public-sector
utilities and creating a business that satisfied the needs of shareholders
and other stakeholders. As part of the human resource strategies geared
to 'fit' this business strategy, employee involvement was to be encouraged
through a reward policy which included performance related pay. However,
getting employees, and many managers, to accept performance related
pay proved to be particularly difficult and it was only introduced when the
then human resources director appealed directly to the workers, by-passing
their shop stewards. Even so, Karen Moir, HR director at Yorkshire Water
reported to the 2000 National Conference of the CIPD, the union, GMB had
tried every year since to persuade the company to drop performance
related pay.
Adapted from People Management, November 2000

Business Level Strategy and Human Resource Management

There has been much written about the links between human resource strategy and
business level strategy.
Kydd and Oppenheim, writing in Human Resource Strategy Journal in 1990, classify a range
of links along a proactive-reactive continuum. At the proactive end of the scale, human
resource professionals take an active part in strategy formulation at all levels. At the reactive
end of the scale, the human resource function is very much subservient to corporate and
business level strategy. Once corporate and business strategies have been determined, the
role of human resource management is to support those strategies through policies,
programmes, practices and philosophies designed to reinforce employee behaviours
appropriate for the chosen competitive strategies.
Some of the models have been criticised for ignoring the impact of environmental influences
on human resource management. Those that have attempted to incorporate environmental
influences have been criticised for being too vague, abstract or generalised.
John Purcell, writing in New Perspectives on Human Resource Management in 1989,
identifies what he calls 'upstream' and 'downstream' types of strategic decisions. Upstream
strategic decisions are concerned with the long-term direction of the corporation. Upstream
first order decisions (as he calls them) set the parameters for the long term direction of the
organisation, the scope of its activities, markets etc. Second order decisions flow
downstream from the first order decisions and might include the inter-relationship between
different parts of the organisation or how the organisation is structured to meet its goals.
Both these types of decision are strategic, as they both have implications for organisational
behaviour. Purcell argues that it is in the context of downstream strategic decisions on
organisational structure that choices on human resource structures and approaches come to
be made. He argues that these are themselves strategic, since they establish the basic
parameters of human resource management in the organisation but they are likely to be
influenced by first and second decisions, as well as environmental factors of law, trade
unions and external labour markets.
The following diagram below should simplify these ideas for you:

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Purcell's Levels of strategic decision making

Upstream

First order: Long term direction of the firm.

Scope of activities, markets,
locations, etc.
ENVIRONMENT

Capital market
Second order: Internal operating procedures.
Relationship between the parts of Product markets
the firm. Technology
Labour markets
Workforce
Third order: Strategic choice in human
resource management. Characteristics
Values
Public policy
Downstream Law

Outcomes: Style, structure, conduct of

human resource management.

Source: Salaman, Human Resource Strategies

Further Thoughts on Integration

Coherent and integrated personnel and development strategies are only likely to be
developed if the top team understand and act upon the strategic imperatives associated with
the employment, development and motivation of people. This is most likely to be achieved
when there is a personnel director, or human resources director, playing an active and
respected role as a business partner, by forming strategic alliances with key players in the
organisation. The effective implementation of human resource strategies depends on the
involvement, commitment and co-operation of line managers and staff generally.
Gratton, Hailey, Stiles and Truss, writing in Strategic Human Resource Management,
comment that good intentions can too easily be subverted by the harsh realities of
organisational life. For example, strategic objectives such as increasing commitment by
providing more security and offering training to increase employability, may have to be
abandoned or at least modified because of the short-term demands made on the business to
increase shareholder value.

E. BUNDLING AND BEST FIT

The terms “high commitment”, “best practice” and “high performance work systems”,
although used differently by different people, tend to mean the same things: the elements of
HRM that, when present, produce high recruitment, retention and commitment from staff and
generate quality, quantity, innovation and cost control from the organisation. We will deal
with these approaches in Unit 3 – The Alternatives to Strategic Human Resource
Management.

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However, one of the important features of this is the value of bundling; bringing related
elements of HRM together in a mutually supportive way, so that employer branding, training
and reward for example are coordinated and support each other. The significant question is
'what does the ideal bundle look like?' The bad news is there is no ideal bundle, because
each organisation is different and its external environment is different. The good news is that
there are certain key features of bundling that tend to promote excellence and organisational
success.
In the USA, Pfeffer produced the following list in 1998 and this is a good summary of the
research in this area:
Organisations that have best practice/high commitment HRM tend to:
 Offer employment security (this is regarded as fundamental to many of the following,
because it generates a strong and positive psychological contract)
 Offer a career rather than a job
 Use selective hiring and sophisticated selection
 Communicate and involve employees in decision making
 Invest well in learning and development
 Use teams extensively
 Offer high reward (usually financial) that is linked to organisational performance
 Minimise status differentials and promote harmonisation.
Employment security
This is not the same as a job for life. The key is that the psychological contract contains the
unwritten clause, 'this employer will do everything reasonably practicable to keep the
employee in employment. When there is uncertainty in the organisation's external
environment, redundancies may be necessary but they will be regarded as a last resort. The
employer will invest in long term planning and employment flexibility to maintain security for
core workers.'
Career management
This would now be expanded to include talent management, which stakes a strategic
perspective upon and integrates the range of people management and development
activities around attracting, identifying, using and developing talent for the immediate,
medium and long term benefit of the organisation. High commitment organisations offer
careers rather than jobs.
Recruitment and selection
The quality of staff joining an organisation is critical to its long-term success. So, time and
money spent on being an attractive employer (employer branding and employer of choice)
and careful selection, using a range of ways to gather information about candidates, does
show a long-term return on investment.
Employee engagement
Communication can be linear and often one-way (from employer to employee). One way
communication is present in all organisations but it is the breadth of the information conveyed
that marks out the best practice organisations. Information on the organisation's financial
performance, for example, can be quite empowering to staff when it makes them sense that
they are treated as intelligent and responsible and when it helps them to make local
decisions, confident in the knowledge of the bigger picture.
Two-way systems include problem solving groups and project teams, as well as the
grievance procedure. The concept of the 'employee voice' goes further because it

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recognises the employee as a principal stakeholder. Partnership relationships with trade

unions promote a positive employee voice, expressed through trusted elected
representatives.
Learning and development
Investment in learning and development, when accurately targeted and carefully used, has
been shown in repeated studies to offer a significant return on investment and is a source of
competitive advantage. This has led to the concept of the 'learning organisation' where
learning is an integral part of everyday life. The difficulty is in finding measures of investment
in learning. In days when learning was assumed to take place only on tanning programmes,
days of formal training were counted. These days it is recognised that learning comes from a
much wider range of activities: observing role models; experience and reflection;
secondments; job shadowing, knowledge management systems etc. So it is impossible
accurately to assess the investment in learning.
Teams
First we need to be clear what is meant by 'team working'. The Katzenbach and Smith
(1993) definition is:
 A small number of people, with
 Complementary skills
 Committed to a common purpose, performance goals and approach
 For which they hold themselves mutually accountable.
Whilst, in theory, team working should provide quality, productivity and innovation through:
 Variety of activities
 Autonomy but
 Social interaction
 Personal identity
 Responsibility
 Feedback on performance from colleagues
 Balanced workload
 Clear role and minimum conflict
 Achievement; seeing job through
 Personal development.
The research evidence suggests that these claims are rarely achieved in practice, even in
autonomous team working environments. All these features are also claimed to result from
good job design.
High level, contingent reward
This has two linked elements: higher levels of reward that differentiate the organisation from
similar, often less successful, employers and reward linked to contribution.
The latter is surprising, given the extensive criticism of performance related pay in practice.
Harmonisation
This also has twin elements: external (visible) harmonisation (removal of clocking on; single
refectory; shared car parking; one union etc.) and the invisible harmonisation of terms and
conditions (holidays, sick pay, pensions etc.). Psychologically harmonisation is an
expression of team working on a corporate scale.

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What is the Significance of Bundling?

It will be evident from Pfeffer's list above, that it would be difficult to implement any one of
these eight elements successfully without implications for most or even all of the others. So
a team working initiative would need to involve staff in its design and implementation and the
team working arrangements would fail if there were inadequate recognition in the rewards
structures of the role played by the new teams. Selection would need to include
assessments of team working capabilities and training would need to be given into the
concepts and practical outworking of team work. Thus a team working initiative would need
to be part of a bundle of changes.
Another key aspect of bundling is the need for internal fit; whatever configuration is chosen
must fit with the culture and internal systems of the organisation. So it might be better to use
the expression 'best fit' rather than the Universalist 'best practice'.

F. RESOURCE BASED VIEW (RBV)

This approach assumes that sustained competitive advantage can be obtained only from an
organisation's SWOT (strengths, weaknesses, opportunities and threats) by exploiting the
organisation's internal strengths and external opportunities, whilst minimising its internal
weaknesses and the effects of external threats. To achieve this competitive advantage the
organisation needs four attributes.
1. It adds value
2. It is rare in the market place
3. It is hard or impossible to imitate
4. There are no real substitutes.
The application of this to HRM is a comparatively recent phenomenon. The question to be
answered is 'are an organisation's human resources a key source of its competitive
advantage?' The answer is 'yes' if, viewed as a single resource, employees have the four
attributes above.

The people add value to customers Almost certainly yes

The human resource is rare in the It may not be hard to get good people but it is
market place usually a long term activity to build up the social
networks etc. that characterise high performing
It is hard or impossible to imitate organisations

There are no real substitutes Unless people can be replaced by technology

there is no substitute

The Resource Based View explains why organisations with large headcounts are either:
(a) Thinning down (to make technology rather than people their source of competitive
advantage) or
(b) Moving production to locations where staff costs are low cost (making low cost and
therefore low price their competitive advantage) or
(c) Moving into the professional, knowledge-based service sector (where it is the quality of
people that gives the competitive advantage).
Horizontal integration occurs when the various human resource strategies are cohesive and
mutually supporting. The process of 'bundling', or 'configuration' can attain this. Bundling

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means using human resource practices which are complementary. For example, a business
strategy to achieve competitive advantage through quality might suggest:
 Sophisticated recruitment and selection procedures to recruit people who are likely to
deliver quality and high levels of customer service
 Focused training in customer care initiatives and total quality management
 The encouragement of organisational learning through initiatives to develop a learning
culture and learning organisation
 Appraisal systems which recognise and measure contribution towards quality and
organisational learning
 Reward systems that are linked to performance and the achievement of high standards
of customer service.
You can see how resourcing, development, performance management and reward strategies
are all supportive of each other. The synergy that results from this process means that the
impact of the whole 'bundle' on organisational effectiveness can be greater than the sum of
its parts.

The Process of Bundling

The process of bundling is driven by the needs of the business. Armstrong suggests that the
following six steps are required:
1. An analysis of what the needs of the business are.
2. An assessment of how human resource strategy can help to meet those needs.
3. The identification of appropriate capabilities and behaviours required of employees if
they are to make a full contribution to the achievement of strategic goals.
4. A review of the appropriate human resource practices followed by the grouping
together of them in ways that are likely to ensure that people with the required
capabilities are attracted to and developed by the organisation and which will
encourage appropriate behaviours.
5. An analysis of how the items in the bundle can be linked together so that they become
mutually reinforcing and therefore coherent.
6. The formulation of programmes for the development of these practices, paying
particular attention to the links between them.
The end result of this process may be several alternative 'bundles' of practices. There have
been a number of attempts by writers to identify an 'ideal' set of practices which are the most
effective in improving performance but as we have already seen, all organisations differ and
a contingency approach (finding a 'best fit' rather than 'best practice') will depend upon the
nature and type of organisation.
You will recall that in study Unit 3, we identified several factors that will affect this concept of
'best fit'. If you cannot recall these factors, review that unit again now.

The Use of Integrative Processes

Simply selecting an appropriate bundle of practices is not, in itself, the final stage. The
various elements of the 'bundle' need to be brought together by the use of integrative
processes and by linking different practices together.
The two main integrative processes are performance management and the use of
competencies. Armstrong offers two models to show how performance management and
competencies can be used as an integrating force:

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Performance management as an integrating force

Performance
management

Performance Reward
improvement management

Commitment Motivation

Employee
development

Source: Armstrong, Strategic Human Resource Management: A Guide to Action

Use of competencies as an integrating force

Use of
competencies

Development Reward

Recruitment

Source: Armstrong, Strategic Human Resource Management: A Guide to Action

We will return to the subject of competencies in the next study unit when we will look at how
competency frameworks can be put together and their role in modern human resource
management. For the moment, however, an example of how competencies can act as a link
to human resource practices may help with this idea.
In the next unit we will look at the process of delayering and the growth of the professional
organisation. In brief, the professional organisation is a concept where an organisation
consists of a 'core' of key employees with other resourcing requirements being met from a
'periphery' of workers generally employed on fixed term and/or part time contracts.

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As we will see, the advantage of this structure is that the organisation remains flexible and
able to use labour as and when required and dispense with the services of those periphery
workers when they are no longer needed. From a human resource point of view, the
organisation needs to be able to retain the key workers whilst generating commitment and
motivation amongst those periphery workers who have little job security. Organisations try to
achieve this by offering 'employability' rather than 'employment', that is, by offering the
opportunity to develop transferable skills and gain experience in broader roles so that there is
scope for opportunities to move into new roles. The links to human resource strategies in
this scenario include:
 Resourcing: Developing a positive psychological contract based on an undertaking to
identify and develop transferable skills; provide scope for job enlargement/enrichment
and opportunities to move into new roles.
 Development: Identify skills development needs through personal development
planning; institute programmes for developing transferable skills.
 Reward: Develop broad-banded/job family structures that identify competence levels
for roles or job families and provide a basis for identifying learning needs.

Achieving Flexibility
Strategic flexibility is about the ability of the organisation to respond and adapt to changes in
the environment in which it operates. Fit is concerned with aligning business and human
resource strategy. Some writers argue that fit and flexibility are mutually exclusive. This is
because, if human resource strategies 'fit' business strategy, they are concerned with the
current situation, whereas 'flexibility' is required in changing situations.
As we will note again in study Unit 5, the need for flexibility and the ability to respond to
change will depend on the nature of the environment in which the organisation operates.
In a stable environment, the need for change is largely predictable and infrequent. The
organisation will tend towards more fixed roles and practices, requiring tight job descriptions
and people with a narrow range of highly toned skills. In a dynamic environment, the need is
for people with the ability to perform many functions or tasks to be multi-skilled and capable
of rapid change. Few organisations today are faced with a stable environment. For the most
part, the pace of change within the environment is very rapid and there is little opportunity for
certainty. Modelling techniques such as scenario building or business forecasting can help to
predict some aspects of change in the environment so that human resource strategies can
be devised to support the business.
The human resource response to dealing with this dilemma is to aim for resource flexibility by
developing a variety of 'behavioural scripts' and encouraging employees to apply them in
different situations.
The main components of the flexibility strategy are:
 Developing human resource systems that can be adapted flexibly
 Developing a human capital pool with a broad range of skills
 Selecting people who have the ability to train and adapt
 Promoting behavioural flexibility by, for example, training to extend behavioural range
 Using performance management and reward systems that encourage flexible
behaviour
 Bundling these with participative work systems that give employees opportunities to
contribute
 Considering other ways to extend organisational and role flexibility.

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G. WHAT ARE THE BENEFITS OF HORIZONTAL

INTEGRATION?
Bundling has arisen because practitioners and academics have observed the value of
dealing with HR issues as a coordinated whole, rather than as a series of unrelated topics
dealt with in isolation. Clearly, horizontal integration reduces overlapping, contradiction,
misunderstanding and mistiming. Horizontal integration also encourages HR practitioners to
think not just about the processes they manage but also about the more significant, higher
level issues of the outcomes and impact of HR activity.
Taking this a stage further, it is useful to think of the organisation as a human being rather
than a machine; to take the organic rather than mechanistic approach. Humans can be
irrational, unpredictable and highly complex. An irritation in one area of the body may cause
the whole human being to behave quite differently. When there is a serious failure of one
part the whole organism may die and not be capable of revival. These features are true of
organisations. The mechanistic approach sees the organisation as a machine; rational,
predictable and a set of independent systems, with the output of one system becoming the
input for the next one. If one part of a machine breaks down, the machine may stop but the
fault can be traced, a part replaced or adjustment made and the machine can be started up
again. Horizontal integration treats HRM as a single organism. It has separate parts
(recruitment, selection, induction, reward etc.) but these are critically interdependent and you
cannot change one without significant implications across the whole organism.
The integrated, organic approach supports the need for strategic HRM.

H. WHAT DIFFERENT APPROACHES CAN BE TAKEN TO

ACHIEVE STRATEGIC ALIGNMENT?
Before we go on to look further at the subject of integrating human resource management
with corporate strategies, we need to look at the way strategies are developed throughout
the organisation. In the previous unit, we noted that strategies are developed at various
levels within the organisation.
Corporate Level Strategies
Strategic decision making at the corporate level is concerned with answering the question:
what business are we in? Such strategies determine the type of business the organisation
wants to be in. Initially, corporate strategies will be concerned with issues such as
establishing a market and survival but as the organisation develops, corporate strategies
become more associated with its philosophy towards growth and the management of the
various business units that make up the organisation.

Business Level Strategies

Business level strategy deals with decisions and actions relating to each business unit. The
main objective of a business level strategy is to make the unit more competitive in its
marketplace. In other words, this level of strategy deals with the question: how do we
compete?
One of the main writers on the subject of business level strategy is Michael Porter, who
identified what he calls 'generic' strategies for ensuring competitive advantage in his book,
Competitive Strategy.
You will have studied these in your Corporate Strategy module, but to remind you these are:
 Cost leadership, which involves creating a very low cost base and becoming the lowest
cost producer for the industry.

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 Differentiation, which is based on making a company's products different from those of

its competitors, creating a unique brand.
 Focus strategy based on cost leadership, where the organisation sets out to be the 'key
player' in a particular market segment based on low prices.
 Focus strategy based on differentiation, where the organisation sets out to be a key
player in a particular market segment based on differentiation or 'uniqueness'.
Writers Miles and Snow also wrote about different approaches to competitive strategy,
identifying four models of strategic orientations:
1. Defenders, which are companies with a limited product line where management focus
is on improving the efficiency of their existing operations. Defenders, therefore, follow
a low cost leadership strategy where the commitment to low cost tends to stifle
innovation.
2. Prospectors, on the other hand, tend to have a wide product range and will adopt a
strategy that is focused upon innovation and market opportunities. Prospectors
therefore follow a strategy of differentiation that emphasises creativity, sometimes at
the expense of efficiency.
3. Analysers are companies that operate in at least two different product market areas,
one stable and one variable. In this situation, managers emphasise efficiency in the
stable areas and innovation in the variable areas.
4. Reactors are companies that lack a consistent strategy-structure-culture relationship.
Senior managers react to external environmental pressures by piecemeal strategic
adjustments.
Different business level strategies are translated into functional level strategies.
Functional Level Strategy
This level relates to the major functional operations within the business unit, such as
manufacturing, finance, marketing etc.
At this level, strategy is concerned with the question: how do we support the business level
competitive strategy? Thus, for example, for a low cost leadership approach to competition,
strategies at functional level will be aimed at reducing costs, such as specific purchasing
policies and guidelines.

Strategic Integration
As we have already seen, research suggests that, in order to be successful, organisations
need to ensure that strategies at all levels are integrated.
This is sometimes shown as a hierarchy of strategy as follows:

Corporate level strategy Corporate Management

Business level strategy Senior Managers

Functional level strategy Functional Managers

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To be successful, strategy formulation should be a two-way process and not just a top down
approach.
The drawback with the above diagram as a means of illustrating strategy formulation is that it
implies that the process is a largely internal matter for organisations.
This is not the case.
All organisations are subject to influences not only from within, but also from the environment
in which they operate. Economic, social, technological, political and cultural influences
impact upon the organisation by offering opportunities or restricting strategic choices.
This is sometimes shown as follows, showing the organisation at the centre, influenced by
external factors that are political, cultural, social, economic and technological in nature:

political

social cultural

The
Organisation

economic technological

We will take a practical look at the development of human resource strategies in the next
unit, when we look at the activities involved in turning human resource aims into actual plans
for implementation. However, at this stage we need to complete our review of the factors
which are relevant to the development of human resource strategies, by looking at the main
approaches to the development of human resource strategies.
Various writers have used different terminology to describe approaches to the development
of human resource strategies but all seem to agree that three main approaches can be
identified. The CIPD describes these approaches as:
 The best practice approach
 The best fit approach
 Bundling.

The Best Practice Approach

The best practice approach is based upon the concept that there is a set of best human
resource practices, adoption of which will lead to superior organisational performance.
Pfeffer, in Competitive Advantage Through People, listed seven human resource practices
which he identified as commonly adopted by successful companies:
1. Employment security. This means that employees are not quickly made redundant
during periods of economic downturns or poor performance of the organisation as a
whole. This is a tactic that fits with the concept of high performance management,
which, you will recall, involves careful recruitment and selection procedures, extensive
training, information sharing and delegation. Such practices involve high expenditure

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and organisations adopting them would expect employees to stay with them for some
time so that the investment can be recouped.
2. Selective hiring. This requires the organisation to look to recruit people with the right
attitudes, values and cultural fit (all characteristics that are difficult to change) and to
train people in the behaviours and skills that are easily learned.
3. Self-managed teams. This is a key requirement for high performance management
systems as self-managed teams promote information sharing to encourage creativity
and use peer control rather than hierarchical control, thereby allowing the organisation
to remove layers within the hierarchy.
4. High compensation contingent on performance. Again, this commonly features in high
performance management systems. Compensation (pay) is based upon
organisational, team or individual performance, such as profit sharing or performance
related pay.
5. Training. We have already noted that training is a key element of high performance
management practices, to provide a skilled and motivated workforce that has the
knowledge and capability to perform the requisite tasks.
6. Reduction of status differentials. Organisations that are able to use the skills,
knowledge and ideas of people at all levels are, some writers have argued, able to
achieve superior performance. Status differentials (different terms and conditions of
employment, visible signs such as office space contingent upon position within the
hierarchy, etc.) can send signals that people are not valuable or valued. Organisations
wishing to adopt high performance management practices must reduce or eliminate
status differentials.
7. Sharing information. Similarly, the sharing of information is an essential feature of high
performance work systems. This is for two reasons. Firstly, sharing information on the
organisation's performance and business strategies conveys to employees that they
are trusted. Secondly, information on business objectives and performance is essential
if people are to contribute effectively.

Criticisms of the Best Practice Approach

If you have followed the argument for the contingency approach, that is that there is no ideal
format for management practices that will produce superior performance; organisations need
to develop their own unique set of practices to be tailored to their own unique combination of
internal and external influences.
You will probably have already realised that the best practice approach is inconsistent with
contingency theory.
Laudable though many of the best practice elements may seem, if they are at odds with the
organisation's corporate and business strategies, it will give mixed messages to the
workforce and may lead to conflict and inflexibility.
The best practice approach has been criticised because 'best practice' frequently means little
more than a statement that 'the vast majority of organisations do it', without clear evidence
that 'it' (whatever it is) actually improves organisational performance. Furthermore, best
practice measures are predominantly input based; for example, the number of training days
achieved or cost per position filled. There is a tendency, therefore, to measure human
resources achievements in terms of what can be easily measured, rather than what is
actually required or will have a positive impact on organisational performance.
These criticisms should not dismiss the best practice approach outright, as a best practice
policy can be a good starting point for adapting policies to suit the organisation.

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The 'Best Fit' Approach

This approach is aimed, largely, at overcoming the criticisms of the best practice approach.
It recognises that there can be no overall 'prescription' for human resource practices, as it
depends on the nature of the organisation. This does not mean that elements of the best
practice approach that work for other organisations should be ignored. It requires
organisations to investigate and identify strategies that are effective in similar or other
environments and then adopt or adapt them to meet the individual requirements of the
organisation. We have already identified the need for human resource strategies to be
integrated with organisational strategies so this approach does have some logic.
The starting point for the best-fit approach is an analysis of the organisation and its
environment (and we will look as specific techniques for doing so in the next study unit) and
a review of practices and innovations in both similar and dissimilar organisations.
Benchmarking can be useful as a tool to identify developments that are used to good effect
elsewhere.

Criticisms of the Best Fit Approach

Many writers, Purcell in particular, have criticised the best fit approach as being too reliant on
the 'here and now' rather than looking towards the future. The best fit approach looks at
what the organisation is, rather than what it wants to be and promotes the adoption of human
resource strategies to fit the organisation as it is perceived. In Purcell's view, organisations
should be less concerned with best fit and best practice and should concentrate on the
process of organisational change, so they can 'avoid being trapped in the logic of rational
choice'. When you remember that strategic planning as a process implies, by its nature,
change of some kind, Purcell's arguments seem to have some logic.

Bundling
A 1999 CIPD survey, The impact of people management practices on business performance:
a literature review, carried out by Richardson and Thompson commented that:
"A strategy's success turns on combining 'vertical' or external fit and 'horizontal' or
internal fit. This has consolidated the importance of 'bundles' or HR practices'.
Bundling refers to the adoption of combinations of practices. Implicit with the concept of
'bundling' is that the practices adopted are complementary and thereby self-reinforcing.
Research suggests that adoption of 'bundles' of human resource practices can lead to higher
levels of organisational performance provided that these bundles achieve high levels of fit
with competitive strategies.
The main problem with this approach is deciding which is the best way to relate different
practices together. There is no evidence that one bundle is generally better than another,
although Armstrong notes that the use of performance management practices and
competence frameworks are two ways that are typically adopted to provide for coherence
across a range of HR activities.

I. PUTTING STRATEGY INTO PRACTICE

In the same way that the content of an HR strategy must 'fit' with the internal and external
environments, the process of implementation must fit. Since every organisation is different
every implementation strategy must fit.
Clearly, board membership or at least a voice on the board, is a great aid to implementation.
HR practitioners are often confused about who is their prime customer: the staff, the unions,
line managers or the board? The customer for HR strategy must be the board and

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particularly the chief executive. With the ear of the chief executive, implementation is much
more likely to be successful.
Lower down in the organisation there is also a need for champions; individuals who:
 Understand the strategy to be implemented
 Are committed to it
 Have social capital locally in order to facilitate implementation locally.
The problem with champions is that:
 To have credibility, locally, they will have been in post for a while
 They are often talented people whose career is characterised by frequent moves.
The combination of these two factors means that champions are not always as useful in
practice as the theory would suggest.

J. BARRIERS TO IMPLEMENTATION OF HR STRATEGY

Marchington and Wilkinson in People Management and Development (2002) suggest five
reasons why HR strategy is blocked or slowed:
1. A disconnect between managers responsible for implementation and senior managers
responsible for the strategy. This may be ideological ('them up their have now idea
what work is like down here in the real world') or cynicism about the commitment to the
strategy in the long term ('they will have another grand plan by next week').
2. Work overload and therefore, the conflict of priorities.
3. A lack of competence in implementing change – this may reflect the need for training in
interpersonal or managerial skill.
4. The desire for supervisors to maintain flexibility by adapting the rules
5. A lack of awareness of the rules by both the formulators and the implementers of
strategy.

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Study Unit 3
The Alternatives to Strategic Human Resource
Management

Contents Page

A. Introduction 50

B. What is High Performance Working? 51

Why move towards HPW? 51
What does this mean in practice? 51
What evidence is there that it works? 52
How do we go about implementing high performance working? 53
The High-Performance Management Model 53

C. What is High Commitment Management? 54

What is the High Commitment Model? 54

D. What is High Involvement Management? 54

E. Which Model is RIght? 55

Can these models be seen in organisations? 55

F. What Other Approaches Are There? 55

Delayering and the 'Professional' Organisation 56
Business Process Re-Engineering (BPR) 56
The Quality Movement 57

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Objectives
The aim of this unit is to critically examine the advantages and disadvantages of the major
alternative models for strategic human resource management.
When you have completed this study unit you will be able to:
 Describe and explain High Performance Working
 Describe and explain High Commitment Management
 Describe and explain High Involvement Management.

A. INTRODUCTION
In Unit 1 we noted the development of different schools of thought on the subject of
management and identified that the changing approach to the management of people was
due in part to the emerging management theories. The modern approach to management
theory is a development of the systems approach which, you will recall, is based upon the
concept of the organisation as a structured socio-technical system consisting of at least three
sub-systems:
 Structure (division of labour, authority, relationships and communication channels)
 Technological system (the work to be done and the techniques and tools used to do it)
and
 Social system (the people within the organisation, the ways they think and interact with
each other).
Contingency theory acknowledges the interrelationship of these sub-systems but goes
further to acknowledge that there is no 'best way' for these sub-systems to be arranged to
provide an 'ideal' management model. Each organisation is a unique blend of internal and
external factors and strategies must be developed to meet the needs of this unique blend.
The contingency approach to human resource management follows similar lines of thought.
In other words, there is no 'ideal' collection of human resource strategies that all
organisations should adopt but strategies should be developed according to the nature of the
business strategy, the resources available and the environment in which the organisation
operates.
However, against this background there are a number of models that suggest approaches for
strategic human resource management, some of which we will look at below.

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B. WHAT IS HIGH PERFORMANCE WORKING?

The four elements of HPW are:
 Employee autonomy and involvement in decision making
 Support for employee performance
 Rewards for performance
 Sharing of knowledge and information (learning).
Details will vary from organisation to organisation.

Why move towards HPW?

Because if you are not driving up performance:
 Staff motivation will be lost
 Quality, quantity and innovation will decline
 Pressure to reduce your prices will grow or
 Customers may simply stop buying your goods or services altogether or
 Competitors may take your work.

What does this mean in practice?

Employee autonomy  Develop flexibility of skills

and involvement
 Team working to give variety and responsibility.

Support for employee  Appropriate selection and recruitment processes (finding

performance staff at all levels who will support a high performance
culture)
 Comprehensive induction programmes
 Sophisticated and wide training
 Integrated and wide ranging performance management
 Emphasis upon work-life balance.

Rewards for  Offer a career not just a job

performance
 Harmonised terms and conditions
 Pay that is competitive with other employers
 Rewards linked to individual and team performance.

Learning  Plenty of effective communication

 Quality improvement teams
 Lean systems
 Spending on training.

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What evidence is there that it works?

 The bottom line (according to 2004 research by the Engineering Employers’ Federation
and Chartered Institute of Personnel and Development, HPW explains about 20% of
increases in productivity and profit in manufacturing organisations that have adopted
HPW)
 Increased job satisfaction and commitment: quality, quantity and innovation
 Employees more likely to say ‘a great place to work’
 Increased earnings potential for employees.

Exercise
Tick the relevant boxes where HPW practices are present in your organisation:

Employee autonomy  We develop flexibility of skills

and involvement
 Team working gives variety and responsibility

Support for employee  We look for staff at all levels who will support a high
performance performance culture

 We have a comprehensive induction programme

 Training is wide and appropriately sophisticated

 Performance management is wide ranging and integrated

into our operations

 We provide work-life balance

Rewards for  We offer a career not just a job

performance
 Terms and conditions are harmonised

 Pay is competitive for the sorts of work we do

 Rewards are linked to individual and team performance

Learning  There is plenty of effective communication

 We have quality improvement teams

 We have lean systems

 We invest adequately in training our people

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How do we go about implementing high performance working?

Things that may need to be addressed are:
 Getting top management’s commitment, particularly to resource, to communicate and
to demonstrate the required behaviours. (Managers are the key.)
 Getting the resources HPW needs (both financial and risk taking e.g. new reward
structures)
 Carrying out team and individual appraisals that make a real difference
 Seeking and rewarding discretionary behaviour (Ability x Motivation x Opportunity =
AMO)
 Allowing employees to re-design jobs to maximise interest and challenge
 Changing existing strong cultures (especially to promote local discretion)
 Increasing levels of trust between management and employees
 Getting staff to be understand about organisational performance (so they see where
they fit in and ratchet it up)
 Involving employees in design and implementation of HPW
 Not regarding HPW as one simple solution; it is a number of themes woven together
 Integrating initiatives, so that they reinforce each other, therefore:
(a) Implementation is in bundles
(b) Staff understand it and show commitment
(c) Other organisations are used as benchmarks
(d) Continuous improvement is developed.

The High-Performance Management Model

The high performance management model is often the model used by researchers
investigating the people management/performance link. It aims to make an impact on the
performance of the firm through its people, in such areas as productivity; quality; levels of
customer service; growth, profits and ultimately, the delivery of increased shareholder value.
The United States Department of Labor offers the most well known definition of high
performance work systems (as it is referred to in the US), published in 1993. The
characteristics listed were:
 Careful and extensive systems for recruitment, selection and training
 Formal systems for sharing information with the individuals who work in the
organisation
 Clear job design
 High level participation processes
 Monitoring of attitudes
 Performance appraisals
 Properly functioning grievance procedures
 Promotion and compensation schemes that provide for the recognition and financial
rewarding of the high performing members of the work force.

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You will see that when we look at different approaches to human resource strategy formation
how the high performance model features strongly in what is termed the 'best practice
approach'.

C. WHAT IS HIGH COMMITMENT MANAGEMENT?

What is the High Commitment Model?
The high commitment model goes beyond performance, alone, to embrace workforce
commitment and identification with the organisation's values and goals. Stephen Wood,
writing in the International Journal of Human Resource Management in 1996, defined high
commitment management as:
'a form of management which is aimed at eliciting a commitment, so that behaviour is
primarily self-regulated rather than controlled by sanctions and pressure external to the
individual, and relations within the organisation are based on high levels of trust".
Walton, writing in Harvard Business Review in 1985 and more recently Wood and Albanese
in Journal of Management Studies in 1995 identify the main features of high commitment
management as:
 Development of career ladders and emphasis on trainability and commitment as highly
valued characteristics of employees at all levels in the organisation
 High level of functional flexibility with the abandonment of potentially rigid job
descriptions
 Reduction of hierarchies and the ending of status differentials
 Heavy reliance on team structure for disseminating information (team briefing),
structuring work (team working) and problem solving (quality circles)
 Job design as something management consciously does in order to provide jobs which
have a considerable level of intrinsic satisfaction
 No compulsory lay-offs or redundancies policy and permanent employment guarantees
with possible use of temporary workers to cushion fluctuations in the demand for labour
 New forms of assessment and payment systems and, more specifically, merit pay profit
sharing
 High involvement of employees in the management of quality.

D. WHAT IS HIGH INVOLVEMENT MANAGEMENT?

This approach involves treating employees as partners in the enterprise, whose interests are
respected and who have a voice in matters that concern them. Armstrong identifies that the
aim is to create a climate in which a continuing dialogue between managers and the
members of their teams takes place to define expectations and share information on the
organisation's mission, values and objectives. This establishes mutual understanding of
what is to be achieved and a framework for managing and developing people to ensure that
it will be achieved.

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E. WHICH MODEL IS RIGHT?

There are three main models that suggest approaches for strategic human resource
management:
 High performance management model
 High commitment management model
 High involvement model.
None of these models should be thought of as mutually exclusive. In fact, a study by the
CIPD in 2000 on people management and business performance (The case for good people
management) found that the approaches are complementary and concluded that:
"there is no proven universal set of 'best personnel practices' which is likely to produce
improved business performance, but there are clear indications of the essential building
blocks. The effective application and 'fit' of selection, training, job design and
communication and involvement practices feature strongly in the evidence and are
likely to be key components of what we would expect to find in a thought through HR
strategy".

Can these models be seen in organisations?

The models highlighted above concentrate on the role and purpose of human resource
strategies, depending upon which model is selected. However, from a practical point of view,
the aims of human resource management must be translated into policies and procedures
covering functional areas that can be implemented to achieve the desired aim.
The CIPD study supports the view first identified in their 1997 study, Impact of people
management practices on performance and underlined by their Workplace Employee
Relations Survey in 1998 (carried out by, amongst others, David Guest) that the following
practices are commonly found in effective human resource strategies:
 Selection and the careful use of selection tests to identify those with potential to make
a contribution
 Training and in particular a recognition that training is an on-going activity
 Job design to ensure flexibility, commitment and motivation, including steps to ensure
that employees have the responsibility and autonomy to use their knowledge and skills
to the full
 Communication to ensure that a two-way process keeps everyone fully informed
 In the private sector, employee share ownership programmes (ESOPs) to keep
employees aware of the implications of their actions, including absence and labour
turnover, for the financial performance of the organisation.

F. WHAT OTHER APPROACHES ARE THERE?

The traditional view of human resource management is sometimes considered at odds with
some of the modern developments in management thinking and practices. In this section,
we will look at some of the implications for human resource management of recent initiatives
such as delayering, business process re-engineering, the quality movement and the learning
organisation.

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Delayering and the 'Professional' Organisation

Although not exactly a new idea, delayering often goes hand in hand with downsizing.
Delayering is a process whereby layers of management are taken out of the hierarchy to
speed up response times and make the operation more efficient. Drucker suggested the
need for delayering in 1988 when he expressed the view that, in future, organisations would
be based upon a range of highly skilled experts who know exactly what to do and whose
efforts are co-ordinated rather than controlled.
Torrington and Hall take Drucker's ideas a stage further by suggesting that in future
organisations, hierarchy will become redundant and working relationships will be based upon
market transactions, where required services are purchased when necessary and dispensed
with when not required. Charles Handy, writing in the Royal Society of Arts Journal in 1997,
used the concept of the mercenary to describe the situation:
"we are on hire to the best bidder for as long as we are useful to that bidder and then
we hope we will be useful to another bidder. We are mercenaries all of us, and
organisations too. You can see why that might make sense in terms of short-term
efficiency but ….. it does not build continuity, any sense of pride or any sense of
commitment."
Torrington and Hall also predict a move away from traditional organisational boundaries.
Traditional approaches show organisations expanding their activities along the supply chain.
Torrington and Hall identify a shift away from the traditional acquisition route towards moving
activities along the supply chain by contractual controls on quality, price etc. Using their
example, car manufacturers not only manufacture and sell vehicles but control the servicing
of those vehicles by specifying the standards to which servicing should be carried out. They
also frequently dictate which organisations carry out servicing by the use of 'approved'
service centres, which must be used if the customer wishes to retain the benefit of a warranty
in excess of the legal minimum. They view this as a blurring of traditional organisational
boundaries which, combined with less emphasis on hierarchy, suggests an organisational
structure which they call professional. The professional structure consists of a central core
containing all those activities which will be carried out by employees, while the periphery
contains activities which are put out to tender by contractors (outsourced, to use a phrase
that you are probably familiar with) or moved elsewhere in the supply chain. Core activities
are those activities which the organisation has specialist skills in (also described as a
'distinctive competence' in some literature), or which are crucial to the business, rare or
secret.
From a human resource management point of view, the approach to the core employees is to
give them a strong sense of identification with the business and its success, usually through
developing a corporate culture, with shared values and reinforced, consistent behaviours.
Those at the periphery have a close specification of what is required from them and their
continued engagement depends on meeting the terms of the contract.
To many people, this type of organisation might seem unattractive as, for those working
within it, it lacks job security. Kanter, in When Giants Learn to Dance (1989) believes that
security in the future will come from continued employability rather than continued
employment.

Business Process Re-Engineering (BPR)

The term business process re-engineering was first used by Hammer and Champy in Re-
engineering the Corporation to describe a process of redesigning work to encourage the
vertical and horizontal compression of tasks. They defined BPR as:
"The fundamental rethinking and radical redesign of business processes to achieve
dramatic improvements in critical, contemporary measures of performance, such as
cost, quality, service and speed."

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According to Hammer and Champy, for the new approach to organisational design to work,
the hierarchy of the corporation must be 'flattened' by the removal of many middle
management positions, to give way to 'enabling' information technology and self managed
work teams. Then work is redesigned into self-managed work teams and managerial
accountability is shifted to the 'front line'. Information technology is seen as a critical enabler
that allows organisations to do work in different ways.
Of paramount importance to the success of BPR is senior management's commitment to the
process, ability to set ambitious goals and to initiate the process. It highlights the need for
strong leadership and a clear, strong, corporate culture.
Human resource strategies to support the aims of BPR suggest that practices are required
that seek to achieve workers behaviour and performance, more consistent with the
organisation's culture and goals. This suggests the 'soft' approach to human resource
management but it is interesting to note that Champy observed that "the only way to
persuade many folks to undertake a painful therapy like re-engineering ….. is to persuade
them that the alternative will be even more painful'. This suggests that the 'hard' version of
human resource management might be a necessary prerequisite before the 'soft' version can
work in the re-engineered workplace.

The Quality Movement

The recent emphasis on 'quality issues' has come about, in part, as a result of the success of
Japanese companies and in particular in their commitment to improving production
processes. Total quality management (or TQM as it is better known) was a phrase coined by
Ken Holmes in his work of the same name, when he defined quality as 'the totality of features
and characteristics of a product or service which bears on its ability to meet stated or implied
needs'. This rather complex definition can be simplified down to the idea of 'fitness for
purpose' and therefore TQM is associated with the establishment of standards for a product
or service according to the needs of customers; setting up procedures for ensuring those
standards are met, monitoring actual quality and taking action when standards fall below
those required. This represents a major difference from the traditional approach to quality as
it emphasises continuous improvement and the need for ensuring quality throughout the
organisation, not just the production process. As Holmes put it: "if a company wishes to
ensure that it reliably meets its customers' requirements, all parts of the company must be
involved in quality". Thus in Holmes' view, TQM is more of a management technique or
cultural issue rather than just a production matter.
Dale and Cooper, in Total Quality and Human Resources: an executive guide (1992)
identified seven key elements of total quality management:
(a) Commitment and leadership of the Chief Executive
It is generally agreed that commitment from the top is an essential feature of successful
TQM.
(b) Culture change
A culture of not passing on faults to either internal or external customers is clearly
important, together with a belief that all tasks can be continually improved. Critically, a
culture of viewing mistakes as learning opportunities needs to be developed.
(c) Planning and organisation
This involves:
 Designing quality into the product, planning and communicating systems and
procedures to be followed to ensure quality
 Designing work structures to support quality improvement (such as work teams or
inter-department teams)

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 Ensuring the necessary resources are made available for quality improvements
 Identifying how quality will be measured and monitored.
(d) Education and training
This is an important element in understanding the new approach to management,
learning new skills in a team environment, learning new priorities and new tasks.
Problem solving techniques needed for TQM may differ from techniques traditionally
used. Torrington and Hall comment that one often overlooked aspect is management
development. Managers' tasks and roles change with TQM and they require new skills
in the form of decision-making, giving guidance and support rather than control and
direction setting.
(e) Involvement
Involving employees in the process of quality improvement is key, whether this is
through suggestion schemes, team based quality meetings or involvement in cross-
function project teams looking at quality issues.
(f) Recognition
Senior managers need to recognise and reward quality improvements, either in the
form of publicity or in company newsletters, for example. Similarly, it is important that
reward and appraisal systems support quality achievements.
(g) Measurement
Measurement of quality is an important aspect, through techniques such as
benchmarking, where an organisation or a department within it, compares itself on a
range of indicators to direct competitors or other organisations in the same sector.
Many organisations have had difficulty in attempting to implement TQM. A CIPD study found
that many organisations experienced problem because middle managers lacked
commitment; seeing TQM as representing a greater workload for them without any
immediate payoff, or because they saw TQM as leaving them with no job or role.
From the point of view of human resource strategy, Storey, in Developments in the
management of human resources (1992) concluded that, ideally, the personnel function (or
human resources function) should be involved in the development of TQM strategy itself.
Critically, human resource strategies need to be aligned to TQM strategies to be effective.
For example, in the appraisal system, appraisal criteria should be in line with quality criteria.
Similarly, the organisation's reward policy should be based upon TQM practices, such as
rewarding group efforts.
Torrington and Hall also found that applying quality criteria within the personnel function is an
essential part of TQM and enables the function to act as a role model for the rest of the
organisation and understand first hand problems and issues.

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Study Unit 4
Designing Strategic Human Resource Management

Contents Page

A. Introduction 61

B. HRM Strategy - Design Principles 62

C. What is the External Context for a HRM Strategy? 64

D. What is the Internal Context for a HRM Strategy? 65

Power 68
Culture 70
Key Business Issues Facing the Organisation 71

E. Developments in Human Resources 72

The Changing Nature of the Employment Contract 72
A Diagnostic Approach to Manpower Analysis 79
The Competency Approach 79
Emotional Intelligence 82

F. HRM Strategy and Lifecycle Stage 82

The Lifecycle of Organisations 82
Centralised and Decentralised Organisations 83
Structural Implications 84

G. What if the Organisation is going through Structural Change? 85

What is the HR strategy for mergers and acquisitions? 85

H. Implications of Globalisation 85

I. Skills Needed to Implement Strategic Human Resource Management 86

Conflict and Change 86
Change and the Individual 87
Resistance to Change 87

(Continued over)

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Reactions to Change 88
Change Models 88
Change Management Strategies 88
The Process of Change 89
Force Field Analysis 90
Overcoming Resistance to Change 91
The Pace, Manner and Scope of Change 91
Managing Cultural Change 92

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Objectives
The aim of this unit is to design human resource strategies that may be related to the current
and expected requirements of organisations confronting a range of contingencies.
When you have completed this study unit you will be able to:
 Describe the general principles of design applicable to a human resource strategy
 Evaluate the factors in the organisation's internal and external environment that will be
relevant to the construction of a human resource strategy, e.g., technological, social,
economic, competitor change, the organisation's culture and climate etc.
 Evaluate human resource strategies for various contingencies, e.g., continued growth,
the business cycle, stability/stasis, (slow) decline, and corporate transience
 Evaluate human resource strategies for special-case scenarios, e.g., mergers and
acquisitions, strategic alliances and joint ventures
 Evaluate human resource strategies related to organisations in multinational or global
environments
 Describe and explain implementation issues: the interpersonal and other skills needed
by the human resource strategist in order to generate commitment among key
stakeholders and business partners towards a given human resource strategy.

A. INTRODUCTION
In this unit, we will take an overview of the sequence of activities involved in the development
of a meaningful human resource strategy, culminating in credible action plans for its
implementation, and look at ways of monitoring and measuring the effectiveness of human
resource strategies.
In Unit 1 we noted briefly the strategic management model, that is, the step-by-step process
that describes the processes involved in strategic management. We described the process
then as a five point cyclical process, but now we are going to add a further element into the
cycle specifically to highlight the analysis which precedes the identification of strategies:

Set objectives

Evaluate Environmental
analysis

Monitor and Select appropriate

review strategies

Implement

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In this unit, then, we will look in more detail at the processes involved in creating strategic
human resource choices. That is, we will look at the role of the internal and external analysis
in creating strategic options, techniques that can be used to identify the gap between what
the organisation is likely to achieve without intervention and what it wishes to achieve (known
as the strategic gap) and how risk and uncertainty can be assessed and dealt with. We will
also assess how factors such as the size, structure and life cycle of the organisation might
impact on strategic choice.

B. HRM STRATEGY – DESIGN PRINCIPLES

From what we have studied so far, you will recall that there is no overall single human
resource strategy or series of strategies that can be considered ideal or prescriptive for all
organisations.
Boxall, writing in the Journal of human resource management in 1993 listed the following
basic propositions about the formulation of human resource strategy:
 There is typically no single human resource strategy in an organisation. From his
research, Boxall found that successful organisations did have an overall strategic
approach within which there were specific human resource strategies.
 Business strategy may be an important influence on human resource strategy but it is
only one of several factors. In the last study unit, we identified some of the factors that
have an influence on human resource strategy.
 Implicit (if not explicit) in the mix of factors that influence the shape of human resource
strategies is a set of historical compromises and trade-offs from stakeholders.
 Management may seek to shift the historical pattern of human resource strategy
significantly, in response to major contextual change but not all managements will
respond and not all in the same way. In other words, human resource strategies may
be used as a method of effecting change.
 The strategy formation process is complex and excessively rationalistic models that
advocate formalistic linkages between strategic planning and human resource planning
are not particularly helpful. In reality, therefore, there is no magic formula which will
lead to adoption of a logical collection of human resource strategies to support a given
set of business strategies.
 Descriptions of the dimensions that underpin human resource strategies are critical to
the development of useful typologies but remain controversial, as no one set of
constructs have established an intellectual superiority over others.
Armstrong, in Strategic Human Resource Management: A guide to action, also notes:
 That coherent and integrated human resource strategies are only likely to be
developed if the top team understand and act upon the strategic imperatives
associated with the employment, development and motivation of people.
 This will be achieved more effectively if there is a human resource director who is
playing an active and respected role as a business partner.
 The effective implementation of human resource strategies depends on the
involvement, commitment and co-operation of line managers and staff generally.
There would seem to be no basic process, therefore, for formulating effective strategies but
we can make some general comments and statements about the possible routes.
Formulating a human resource strategy is the start of effective human resource management
but implementing it is the main task. Strategies tend to be full of general aims and rhetoric
and these must be translated into concrete action plans with clearly stated, measurable

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objectives and the resources to achieve them. All too often there is a gap between the fine
words of the strategy and what actually happens on the ground! There are a number of
reasons for this:
 Complex or ambiguous initiatives may not be understood by those who have to carry
them out or may be perceived in a way which is different to what was intended
 There is a tendency for people to accept only those initiatives which they perceive to be
relevant to their own areas
 Where initiatives represent change of some sort, people may resist that change for a
number of reasons
 If the initiative appears to be contrary to the organisation's culture, it will be resisted (for
example, delayering in a culture where role within the organisation is a driving force)
 If the initiative is seen as a threat, for example, to job security
 If the initiative is perceived as unfair
 Inertia can lead to initiatives being only partly implemented.
Armstrong identifies a number of 'barriers' to the implementation of human resource
strategies, such as:
 Failure to understand the strategic needs of the business with the result that human
resource strategic initiatives are seen as irrelevant or counter-productive
 Inadequate assessment of the environmental and cultural factors that affect the content
of the strategy
 The development of ill-conceived and irrelevant initiatives, possibly because they are
current fads or because there has been an ill-digested analysis of best practice that
does not fit the organisation's requirements
 The selection of one initiative in isolation, without considering its implications on other
areas of human resource practice or trying to ensure that a coherent holistic approach
is adopted
 Failure to appreciate the practical problems of getting the initiative accepted by all
concerned and of embedding it as part of the normal routines of the organisation
 Inability to persuade top management actively to support the initiative
 Inability to achieve ownership among line managers
 Inability to gain the understanding and acceptance of employees
 Failure to take into account the need to have established supporting processes for the
initiative (for example, performance management to support performance pay)
 Failure to recognise that the initiative will make new demands on the commitment and
skills of the line managers who may have to play a major part in implementing it (for
example, trying to implement an appraisal system without training line managers in the
skills necessary to carry out the process)
 Failure to ensure that the resources (finance, people and time) are available to
implement the initiative (for example, failing to train managers in appraisal systems
because there is no budget to finance that training)
 Failure to monitor and evaluate the implementation of the strategy and to take swift
remedial action where things are not going according to plan.
A planned approach to strategy formulation and implementation should help to avoid many of
these barriers. A thorough analysis of the needs of the business, coupled with an analysis of
likely barriers, will ensure that steps can be taken to avoid difficulties. It is important to

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consider the monitoring and evaluation of the initiative during the implementation stage so
that problems can be identified and dealt with quickly. We will look at evaluating human
resource strategies later in this study unit.
Armstrong suggests preparing a plan for implementing a strategy in a formal manner. This is
a useful discipline to ensure matters are not forgotten and a useful tool for your examination!
The strategy should be set out under the following headings:
1. Basis
 Business needs in terms of the key elements of the business strategy
 Analysis of the environmental factors (using techniques such as a SWOT
analysis and/or PEST analysis)
 An analysis of the cultural factors.
2. Content
 Details of the proposed strategy.
3. Rationale
 The business case for the strategy against the background of business needs and
environmental/cultural factors.
4. Implementation plan
 Action plan
 Responsibility for each stage
 Resources required
 Proposed arrangements for communication, consultation, involvement and training
 Project-management arrangements.
5. Costs and benefits analysis
 An analysis of the resource implications of the plan (costs, people and facilities)
and the benefits that will accrue, for the organisation as a whole, for managers and
for individual employees.

C. WHAT IS THE EXTERNAL CONTEXT FOR A HRM

STRATEGY?
Having identified in earlier study units that the organisation is affected by both internal and
external influences in the way in which it operates and agrees and implements its strategic
plans, this study unit looks at some of the external influences which affect human resource
planning. We will also look at the ways in which human resource planning responds to some
of these issues.
For this study unit, therefore, we will look at
 The labour market generally, how the political environment has shaped and will
undoubtedly continue to shape human resource strategies,
 The political environment, the implications of law and political emphasis
 The social/cultural environment
 The economic environment

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 The internal environment of the organisation in terms of internal politics/culture with

particular reference to the management of change
 The changing nature of human resource management and in particular the changing
nature of the employment relationship.

D. WHAT IS THE INTERNAL CONTEXT FOR A HRM

STRATEGY?
In its simplest form the process of developing strategies starts with identifying the 'planning
gap', that is the difference between the current state of affairs and the desired state of affairs:

Where we are now Where we want to be

The planning gap

This is a very simplistic view but it identifies the basic process.

Like the rational approach to strategic planning, identified earlier, the systematic approach to
developing human resource strategies:
 Considers all the relevant business and environmental issues
 Creates a 'vision', to use Mintzberg's phraseology, or if you prefer, determines goals.
These goals represent the main issues to be worked on and derive primarily from the
content of the business strategy
 Determines the means of achieving goals.
Armstrong uses the following model to describe the process:

A Sequential Strategic HRM Model

Mission

Business Strategy

Internal External
environment scan environment scan

HR Strategy

HR Programmes

Source: Armstrong, Strategic Human Resource Management: A Guide to Action

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This model is clearly business led, although it would be wrong to say that business level
strategies dictate human resource strategies, as HR strategies are formed in accordance
with the framework of the human resource approach to be adopted by the organisation. The
process of formulating human resource strategies, therefore, becomes more along the
following lines first identified by Dyer and Holden in 1988 in Strategic Human Resource
Management and Planning:
 Assess feasibility: From a human resource point of view, feasibility depends on
whether the numbers and types of key people required to make the proposal succeed
can be obtained when required and at a reasonable cost. Internal and external
analysis of the labour market, skills availability etc. are some of the tools that might be
used at this point.
 Determine desirability: The implications of the strategy in terms of human resource
policies must be examined. For example, an organisation with a policy of full
employment is unlikely to accept a strategy of enforced redundancies.
 Determine goals: These indicate the main issues to be worked on and they derive
primarily from the content of the business strategy. For example, a strategy to become
a lower-cost producer would require the reduction of labour costs. This in turn
translates into two types of human resource goals: higher performance standards and
reduced numbers.
 Decide means of achieving goals: The general rule is that the closer the external and
internal fit, the better the strategy, consistent with the need to adapt to change. For
example, a strategy to improve employee retention would need to consider
employment conditions and practices locally and perhaps nationally. Employees are
unlikely to remain with the company if the organisation's reward system appears out of
step with the local or national market, unless there are other factors that might
encourage staff to remain.
Armstrong sets out a model which demonstrates the sequence of human resource strategy
formulation but points out that, in reality, the process is likely to be far less orderly, as human
resource management is all about the management of change in conditions of uncertainty.
You may find the model useful in your examination as it provides a good checklist for
highlighting the relevant issues!
You should also bear in mind that much of the process we have described here is probably
only relevant to larger organisations. Bear in mind some of the comments we have made in
the last study unit about influences on the process of strategic human resource
management, such as structure of the business, the lifecycle of the organisation, its culture
and industry sector.

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The Sequence of Human Resource Strategy Formulation

Analyse
 What is happening?
 What is good and not so good about it?
 What are the issues?
 What are the problems?
 What is the business need?

Diagnose:
 Why do these issues exist?
 What are the causes of the problems?
 What factors are influencing the situation (competition,
environmental, political, etc.)

Conclusions and recommendations:

 What are our conclusions from the analysis/diagnosis?
 What alternative strategies are available?
 Which alternative is recommended and why?

Action planning:
 What actions do we need to take to implement the
proposals?
 What problems may we meet and how will we overcome
them?
 Who takes the action and when?

Resource planning:
 What resources will we need (money, people, time)?
 How will we obtain these resources?
 How do we convince management that these resources
are required?

Benefits:
 What are the benefits to the organisation of implementing
these proposals?
 How do they benefit individual employees?
 How do they satisfy business needs?

Source: Armstrong, Strategic Human Resource Management: A Guide to Action

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In practice, a far less scientific approach to forming strategy is more likely and even
desirable. Strategy selection is a process that is guided by the intentions of senior
management, which may or may not be specified in the mission. Sometimes this 'intention' is
referred to as the 'vision'. It is intention or vision that leads to actions being exercised on a
collective yet consistent basis. Strong leadership from the chief executive, with other
members of the senior management acting jointly, bring together appropriate strategies to
meet business needs.
We have already noted that the extent to which human resource strategy is led by or leads
business strategy is dependent upon a number of factors. It is also worth remembering that
the formulation of corporate and business strategy is influenced not only by environmental
factors (which we will look at in more detail later) but also by internal factors within the
organisation that impact at the point of strategic option generation and strategic choice.
Political and cultural influences within the organisation, in particular, can influence and be
influenced by strategic choice. We will look at some of these issues briefly here.

Power
Lines of authority in an organisation indicate a right to do something but this is not
necessarily the same as power to do something, which is associated with ability to do
something rather than authority. In this sense, 'ability' has nothing to do with the skill or
expertise to perform a task but is more associated with the ability to negotiated desirable
outcomes.
Charles Handy, in Understanding Organisations, identified six sources of power within
organisations:
 Physical power. This is the power of force and is rare in modern organisations, other
than the militia. Physical power sometimes manifests itself in bullying and intimidation
and can be a symptom of poor industrial relations. Those with physical power may
dictate an outcome favourable to themselves through threats and bullying.
 Resource power. This is linked to control over physical resources or information. The
extent depends upon the way the resource is controlled, how valuable it is and how
much of it there is. Managers can, for example, exert resource power by limiting the
information they pass on to subordinates (and of course the reverse can often be true!).
Unions have, over the years, wielded varying levels of resource power by their ability to
control the human resource. In our earlier case study from Yorkshire Water plc, we
noted that the introduction of performance related pay was delayed because it was not
supported by the union and this lack of support has led to difficulties ever since.
 Position power. This is power derived from the job itself. It is the equivalent to formal
authority and carries, for example, the right to access to information, to be consulted on
certain matters, etc. Senior managers to some extent but the Chief Executive to a
great extent, has position power and studies on the effect of leadership and managerial
style have looked at the impact of this power on strategy formulation.
 Expert power is associated with the level of expertise of an individual and is
dependent upon the expertise being of value to and recognised by others within the
organisation. Lawyers and accountants within organisations often rely upon expert
power to exercise staff authority. Personnel managers often have to rely upon expert
power to influence strategy formulation.
 Personal power is associated with charisma. Charismatic individuals, may not
necessarily occupy positions of authority within an organisation or group, but their
personal qualities often allow them to influence others.

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Leadership and human resource management

Leadership is often defined in terms of personality traits; behaviour; contingency, power and
occupation of an administrative position. Most definitions reflect the assumption that
leadership involves a process whereby an individual exerts influence upon others in an
organisational context. Leadership, therefore, can involve aspects of resource power,
position power and personal power.
There has been much written about what constitutes 'leadership' and 'management'. Kotter
in Leading Change in 1996 proposed that managers develop plans, whereas leaders create
a vision and a strategy for achieving the vision. Kotter also highlighted the difference in the
way managers and leaders seek to promote their agenda. Managers, it is argued, organise
and engage in a process of controlling and problem solving, whilst leaders engage in a
process of alignment and seek to motivate and inspire. Kotter suggests that a balance is
needed between management and leadership within any successful organisation.
The definition above supports the view of leadership as key to a high performance
organisation, as a strong charismatic leader has the ability to build high levels of commitment
and co-operation. Peter Senge, in The Fifth Discipline made the link between leadership and
strategic human resource management and suggests that a key constraint in the
development of a resource based, strategic human resources management model is
leadership competencies.
Other writers have considered the characteristics of those in leadership positions and argued
that leaders that are open and participative are more likely to adopt 'prospector' and
'differentiation' strategies and the human resource management strategies to support that
approach. Alternatively, leaders who desire 'control' and are 'challenge-averse' will focus on
'defender' and 'cost' leadership strategies.
Trade unions and strategic human resource management
Much of the theory relating to strategic human resource management has tended towards
the view that management and workers share common goals and that differences are treated
and resolved rationally. According to theory, if all workers are fully integrated into the
business they will identify with their company's goals and management's problems, so that
what is good for the company is perceived by workers as also being good for them. Critical
to achieving this goal is the nature of worker 'commitment' to the organisation.
This goal has been criticised by many writers as being inconsistent with traditional industrial
relations and collective bargaining. Critics argue that human resource policies and practices
are designed to provide workers with a false sense of job security. Furthermore, some
writers have suggested that one of the reasons for the growth in 'progressive' human
resource practices is to weaken or avoid the unions.
Even today, when the apparent power of trade unions has weakened, it is clear that they are
still a force to be recognised and a potential tool to be employed in the pursuit of
organisational effectiveness.
The personnel profession and human resource strategy
It seems to go almost without saying that the personnel manager is likely to be influential in
the development of human resource strategy but it is worth noting that the perception of the
personnel function and its professionalism has been and is likely to remain, key to the
adoption of a strategic approach to human resource management.
Michael Porter, speaking at the 2000 National Conference of the CIPD commented that, to
have an impact on the performance of business, human resource managers need to make
sure their human resource practices are wired into the strategy of the organisation. "That is
not going to happen", he warned, "unless you get very business-oriented. Think of yourself
as a business manager, not an HR person."

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The extent to which human resource strategies are integrated into corporate and business
level strategies, therefore, seems to be influenced to some extent by the perception of
human resources within the organisation. Where the positive benefits of a strategic
approach are recognised and the professionalism of human resource practitioners is
acknowledged, so the degree to which strategies are integrated or even influenced by human
resources, increases.

Culture
An organisation's structure and culture are often thought of as two sides of a related feature.
We will look at how structure affects and is affected by human resource strategies in a later
study unit.
As we have already noted, it can sometimes be difficult to assess what comes first, strategy
or structure. The same is true for cultural aspects of an organisation. In other words, is
strategy formulation influenced by culture or is culture influenced by strategy?
Culture can be a difficult thing to define with any precision. It is associated with the beliefs,
attitudes and patterns of behaviour within the organisation. Mintzberg refers to
'organisational ideology' but most other writers use the term 'organisational culture'.
Culture can have visible and invisible signs. Visible signs might include a dress code or
uniform, customs and rituals (the office party or long service awards can indicate a particular
culture, for example, where loyalty is rewarded), physical signs such as the layout of the
working environment (larger offices for more senior managers could indicate a culture where
position within the hierarchy is valued), or the language or jargon used at work. Invisible
signs of culture tend to be associated with the 'way' things are done, the values and beliefs
that underpin the decision making process.
Charles Handy, in Gods of Management identified four culture types:
 Power culture. This is usually found in small organisations where there is little formal
structure. Culture is dependent upon the power source within the organisation, often
the owner-manager. Employees will gear their activities towards the needs or
directions of the power source.
 Role culture. This type of culture is concerned with logic and formality. In a role
culture everything and everybody has its place and success is judged by ability to
follow rules and procedures and marked by movement up the hierarchy. There are
formal rules, strict job descriptions and written procedures in a role culture and
employees are expected to fulfil the role of their job rather than display individuality.
This type of culture is commonly found in large bureaucratic organisations.
 Task culture. In a task culture the nature of the task becomes the driving force to the
activities of employees. The principal concern is to get the job done and performance
is judged by results. This type of culture is common in a team based environment as
the emphasis is on co-operation to solve problems. Job satisfaction is often high in a
task culture. It is the culture to which modern organisations often aspire.
 Person culture. This type of culture is not that common. In a person culture, the
individual is the driving force for the activities of the organisation. It tends to be found
in professional groups where the success of the organisation depends on the talent of
the individuals. Doctors and lawyers (in particular barristers) tend to display the
characteristics of a person culture. One overriding difference between a person culture
and any other type of culture is that management authority is derived not from the
authority of the owners but from the willingness of the managed to be managed.
Culture is an important factor in strategy. As culture is a collection of shared beliefs and
attitudes, it acts as a limiting factor on strategic choice. An organisation is unlikely to select a
strategy that conflicts with its culture. Conversely, culture may lead to the selection of

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strategies that are consistent with the existing culture. For example, in an organisation
where the pursuit of excellence is valued, strategies are likely to be adopted that support that
culture.
Culture has become a fashionable topic in recent years with writers arguing whether or not
culture impacts on organisational performance. You will have noted above that Handy's task
culture is currently seen as something to aspire to. This is partly as a result of the current
interest in the resource based theory, which we identified earlier and which values employee
commitment, flexibility and quality. Writers have argued that a strong task based culture
promotes these values.
Culture is seen as a key element in organisational performance. If human resource
management strategies can enhance organisational performance, can human resource
strategies change corporate culture? Many writers have argued that culture represents a
complex set of ideas and values and cannot be 'managed', whilst others contend that
adopting strategies that are consistent with the 'desired' culture will ultimately lead to a
change in culture, albeit slowly. In reality, this is only likely to be achieved in combination
with a great many other factors, such as top management commitment to change and
managers being seen to adopt the new patterns of behaviour, not just directing others to do
so. However, if these are supported by appropriate human resource strategies, such as
reward systems that support the desired culture, appropriate recruitment and selection
criteria and procedures, etc. then clearly human resource strategies have a very strong role
to play in promoting cultural change. Against this procedural background, the specific issues
that have to be addressed include:
 The business issues facing the organisation
 Achieving integration and vertical fit
 Approaches to achieving horizontal integration
 Flexibility.

Key Business Issues Facing the Organisation

Key business issues that impact on human resource strategies include:
(a) Intentions concerning:
 Growth or retrenchment
 Acquisitions
 Mergers
 Divestments
 Diversification
 Product/market development.
(b) Proposals on increasing competitive advantage through:
 Innovation leading to product/service differentiation
 Productivity gains
 Improved quality/customer service
 Cost reduction.
(c) The perceived need to develop a more positive, performance-oriented culture.

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(d) Any other culture management imperatives associated with changes in the
philosophies of the organisation in such areas as:
 Gaining commitment
 Mutuality
 Communications
 Involvement
 Devolution
 Team working.
Human resource strategies are all about making business strategies work but it must be
realised that to some extent this is and should be a two-way process where business
strategies may be influenced by human resource strategies, by taking into account key
human resource opportunities and constraints.
Business strategy guides human resource strategies in the following areas:
 The human resource mission
 Values, culture and style
 Organisational philosophy and approach to the management of people
 Top management as a corporate resource
 Resourcing
 Skills acquisition and development
 High-commitment management
 High-performance management.

E. DEVELOPMENTS IN HUMAN RESOURCES

The need to respond to the changing nature of human resource management and to meet
the demands of the internal and external environment, has led to the development of a
number of initiatives, some of which we will look at in this last section of this study unit.

The Changing Nature of the Employment Contract

(a) The Full-time Contract
The traditional view of employment involves people employed under a contract of
employment on a full-time, permanent basis. In fact, the traditional view went one
stage further and represented men employed on a full-time permanent basis.
However, we have already noted that this pattern of employment is no longer
sustainable and full-time permanent employment is rapidly declining. A variety of
alternative working arrangements are now common.
In the nineteenth century, a working week consisting of ten hours a day, six days a
week, was common. Since then, there has been a consistent shift towards a shorter
working week with an average official full-time working week now of 38 - 44 hours. In
October 1998 the Working Time Regulations attempted to restrict the working week to
48 hours per week, although there is some debate whether this piece of legislation has
been effective. Of course, there are many people (middle managers it seems from the
research) who work well in excess of these hours.

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(b) Shift Working

Shift working can be traced back for as long as there are records. In industry, split
shifts were operated as early as 1694. One of the effects of increased competition in a
range of industry sectors is that, in an effort to attract customers, particularly in
organisations supplying the end consumer, there has been a move towards offering a
24 hour, 7 day a week service (or as close to this as legislation permits). Even where
this service is offered by using IT technology, this round-the-clock opening requires
some staff. As a result, shift working is more common today than it ever was.
(c) Part-time Working
At one time, part-time working was relatively unusual. This was partly because it was
uneconomic for the employer as national insurance costs for the part-time employee
were disproportionately higher than those for the full-time employee. A part-time
contract was seen as an unattractive alternative to those for whom full-time work was
not available as rates of pay and benefits were proportionately lower than for full-time
employees. However, the need for flexibility, labour and skills shortages and changes
in national insurance rates have all led to a huge rise in the number of people now
employed under part-time contracts.
Defining part-time work is difficult. Virtually any job which requires an employee to
work less than the standard number of full-time hours per week for a particular
organisation is classed as part-time, so 'part-time' can mean anything from a couple of
hours a week to 35 hours per week or even more. In the past, some employers tried to
use part-time contracts as a means of reducing employment costs by requiring part-
time workers to work close to a full working week but on a reduced pay rate and by
restricting benefits such as paid holidays, sick pay, pensions and training opportunities
to full-time contract staff. Recognising that part-time contracts offered the organisation
greater flexibility, enlightened employers treated part-time employees equally to full-
time employees and more recently, the Part time Workers Regulations have required
this equal treatment by law; at least in theory!
The rise in part-time contracts in recent years has been almost exclusively female, with
over 90% of new part-time positions being filled by women. Recent research by the
CIPD suggests that employers are finding other benefits from offering part-time
contracts. Part-timers are said to:
 Have lower levels of absenteeism than full-time employees
 Be better motivated
 Be more productive.
However, part-time work is not without its problems.
Employers are finding that:
 They may need to adopt different communication methods where there are a
number of part-time workers as, at any one time, many employees may be
absent from the workplace.
 There can be difficulties co-ordinating tasks, so traditional approaches to job
design and work allocation may no longer be appropriate.
 Some full-time workers can resent the flexibility offered to part-time staff, which
can cause difficulties with work groups.
 Where there are a large number of part-time employees, costs for training can be
disproportionately high.

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 It can be more difficult generating involvement and commitment with part-time

staff, who may be working so few hours that it is difficult to ensure that they are
kept up to date with the objectives and values of the organisation.
Perhaps it is not surprising that many employers view part-time workers as a problem
to be solved, rather than an opportunity for greater flexibility.
(d) Flexible Working Hours
Flexible working hours were seen, originally, as a means of overcoming travel to work
problems. The most common approach to flexible working is where the employer has
no fixed start or finish times but allows the employee to start work within a fixed
timeframe (say between 8am – 10am) and finish between a fixed time-frame (say 4pm
– 6pm). Employees are free to choose when to start and finish work provided they are
in attendance during the 'core' period and provided that, at the end of the period (week,
month or some other arbitrary period), they have completed the minimum number of
hours required.
Although such arrangements have been around for over 30 years, they did not prove
particularly popular with either employers or employees. There are a number of
reasons for this.
 Employers found that if the 'core period' was too short, tasks requiring staff
interaction were hindered.
 There were increased costs from the increased monitoring required to ensure
that staff completed the minimum number of hours.
 The greater the flexibility offered to employees (for example by offering the
opportunity for time worked over the minimum to be taken as time off in lieu of
payment), the greater the disruption to work.
Even so, there were benefits to employers, mainly from reduced overtime costs and
supporting an increased working day.
Employees were, at least initially, suspicious of the flexible working time as they saw it
as a way of restricting paid overtime opportunities and they resented the way in which
their attendance was registered, often by the re-introduction of the mechanical time
clock.
Interest in flexible working hours has been increasing again recently, partly in response
to the debate of the work-life balance.
The following case study was reported at the 2000 CIPD National Conference and
appeared in People Management in November 2000.

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Case Study 1

A BT trial scheme has produced hard evidence that employees with a

better work-life balance really do make their organisations more profitable.
Bob Mason, BT wireless's senior vice president of human resources, told
conference delegates about a trial that initially offered 18 employees at a
BT Work software office the opportunity to determine their own working
times and patterns under a "Freedom to Work" agreement. It has since
been rolled out to about 3,000 people.
"I've got real evidence to show [that a better work-life balance] reduces
absenteeism and the costs of business and increases productivity," Mason
said. "It's good business sense."
And employees reported that they felt increased loyalty to the firm and felt
empowered to take control of their own lives. One employee turned down
a better-paid job in favour of this increased flexibility, and other BT
employees expressed an interest in transferring to areas offering "Freedom
to work", Mason claimed.
The company also accrued other unforeseen benefits from the new working
systems. "We now require less office space", he said. "We stumbled upon
a way of spreading the working hours right across the day." This has led to
improved customer satisfaction, with customers across time zones – in the
UK and India, for example – reaping the benefits of staff being available 24
hours a day.
In today's tight labour market, the business arguments for a better work-life
balance were "compelling", Mason argued.

Source: People Management, 9 November 2000

(e) Annual Hours

One variation on the flexible working hours is that of the annual hours contract. This
approach was developed in response to the difficulties sometimes faced by businesses
with seasonal or fluctuating demand periods, either predictable or unpredictable. The
main basis for an annual hours contract is that the period of time within which full-time
employees must work their contractual hours is defined over a whole year. Such
arrangements are becoming more common in manufacturing environments, where
annualised hours enables the organisation to separate employee working hours from
operating hours and use expensive plant and equipment over a longer period by
operating a "five crew system", particularly in continuous process production, which
enables the plant to be operated for 50 or more weeks in the year without the need for
overtime.
Annualised hours are also becoming more common in fields such as further education,
where the move towards modularised courses means that teaching staff can be
required to undertake more 'contact hours' at certain times of the year to meet the
demands of student numbers.
Flexibility is one of the main advantages to the employer but on the downside, the
system places some distance between the employer and employee, to the extent that
the employee becomes more like a subcontractor, working as and when required.

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(f) Temporary Contracts

Although no contract is, in reality, permanent, the traditional approach to contracts of
employment is that they were indefinite. Temporary or fixed-term contracts have a
definite start and finish date so are for a defined period.
The main use of fixed-term or temporary contracts is to cover periods of high labour
demand, for example, the pre-Christmas period in the retail trade. Fixed-term contracts
offer employers the flexibility to hire and eventually dispense with the services of
members of staff. This can also be valuable in periods of unpredictability and
uncertainty, or where there is a short-term need for a particular skill or expertise that
will not be required later.
Until recently, some employers saw temporary contracts purely as a method of cutting
costs. Temporary staff, for example, didn't have to be offered paid holidays, sick pay or
pensions. Furthermore, temporary staff could be got rid of without the need for
redundancy payments. Some organisations exploited this 'loophole' in employment
protection legislation by issuing a series of temporary contracts so that the same
employee could be employed for many years but on a series of one-year temporary
contracts. Case law and legislation have combined to ensure that employees in this
situation now have some employment protection in such circumstances but temporary
contracts are still seen by many organisations as a route to cheaper labour costs.
It would be easy to think that lack of job security would make temporary workers less
committed to the organisation and less productive, but research tends to support the
opposite view. Temporary workers are often more motivated and keen to put a lot of
effort into their work, are rarely absent and often keen to work overtime if required,
perhaps in the hope that they might become permanent.
(g) Distance Working
Distance working, or teleworking as it is sometimes known, is one form of flexibility that
has been made possible by the advances in information and communications
technology. There are two main forms of distance working:
 The individualised form of teleworking where an employee works away from the
employer's premises, such as home-based teleworking or multi-location working
 A form of collective teleworking where work is completed on non-domestic
premises and managed by the employer or third party. This includes call centres
and tele-cottages.
The number of people engaged in teleworking is difficult to estimate, as the nature and
range of jobs that can fall into this category is vast. Sales representatives, for example,
have always worked this way but now it is possible for a wide range of types of
employment to be undertaken by distance working. Some teleworkers may spend
some of their working week at the employer's premises, whilst others never, or only
rarely, work 'at the office'.
Managing teleworkers presents new challenges for managers. Particular care must be
taken when selecting candidates for teleworking, as workers who are separated from
the main activities of the organisation can feel isolated and lack motivation. Very clear
parameters must be laid down to establish the criteria for decision making and issues
that need reference back. New employees need an induction to the organisation in the
same way as 'office-based' employees and indeed, may need more because the social
aspects of work will be absent. Building relationships and team working present
particular difficulties for those who are physically separate from the organisation.
A great many organisations offer some form of teleworking now and most if not all point
to reduction in office and support costs as one of the main advantages.

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(h) Outsourcing
Outsourcing is another way of working that is increasing in popularity. Many large
companies used to carry out various tasks in-house that they now contract out to
external organisations that specialise in the field in question. In some cases, whole
departments have disappeared and all the work is carried out by outside contractors.
This has meant that numbers employed by the larger organisations have fallen but
those employed by the smaller specialist organisations have increased.
Outsourcing has a number of advantages:
 Outsourcing can be used in the same way as temporary contracts to reduce
costs, particularly where the work is seasonal or of a temporary nature. Rather
than set up a department or part of the organisation to handle a particular task or
range of tasks, outside contractors may be employed. A typical example might
be to outsource (use contractors) to handle a new product launch or the
installation of a new computer system. The contract would be for a limited period
and when the period has expired, or the task has been completed, the contract
ends.

Outsourcing
Example 1
Outsourcing might be used when there is an occasional need to
recruit a very senior manager or director, using the services of a
specialist recruitment agency. The company's own personnel
department might be experienced in recruiting production workers or
secretaries but lack experience in recruiting senior executives.

 Similarly, outsourcing can be used where the organisation lacks the expertise or
equipment for a particular peripheral task. A manufacturing company, for
example, might outsource its insurance portfolio to an insurance broker. The
broker, working to guidelines laid down by the company, would assume
responsibility for arranging insurance cover for the company, handling any claims
and dealing with any associated paperwork.

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Outsourcing
Example 2
One of the commonest uses of outsourcing is in facilities
management. Facilities management is defined by the British
Institute of Facilities Management as "the integration of multi-
disciplinary activities within the built environment and their impact
upon people and the workplace".
Typically, facilities management can incorporate:
 Cleaning
 Catering
 Energy management
 Heating and lighting
 Cabling
 Lift maintenance
 Car parking
 Landscaping
 Location
 Planned maintenance
 Air conditioning
 Space planning
 Fire protection
 Risk management
 Office services, such as telephones, reprographics, post
 Decoration and the internal environment
As accommodation costs have risen sharply and regulations relating to
the health and safety of those at work have been introduced, the scale
and skills required of the task of managing, say, the head office, has
increased. It is not unusual, therefore, to find that this task is
outsourced to a specialist facilities management company which, in
return for fee (which may or may not include items such as rates and
energy charges), take over the responsibility (and liabilities) associated
with managing the building. The owner or occupier of the building may
have to employ or appoint one member of staff to act as liaison with the
contractor, but does not then have to appoint staff such as caterers,
maintenance engineers, decorators, etc.

 Outsourcing can represent real savings in expensive office space and the other
additional costs of employing people direct. Staff numbers can be reduced whilst
still getting the work done.
Outsourcing is not suitable for all functions, although in theory any function can be
outsourced. Where work is of a 'core' nature, that is vital to the organisation, most
companies prefer to keep these functions in-house. Similarly, work of a particularly
confidential or secret nature is usually kept in-house.

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A Diagnostic Approach to Manpower Analysis

Different ways of working, such as teleworking or outsourcing, are not the only change in the
way the human resource strategies are attempting to work with and resolve the problems of
managing the human resource. Back in Study Unit 1, we noted that attitudes to people
management are behind the revolution that has turned personnel practice into human
resource management. One facet of this change in attitudes manifests itself in a changing
attitude to manpower planning and in particular, to solving problems associated with people
management at a strategic level.
The traditional (sometimes called the rational) approach to manpower planning involves
assessing the gap between current levels of manpower and desired levels of manpower and
selecting strategies to close that gap, usually recruitment, efforts to retain staff, or a reduction
in numbers through redundancy. A sophisticated approach to this process might involve
complex models of likely labour demand and supply, with computers enabling a range of
variables to be taken into consideration. However, it is essentially a statistical analysis and
one that may look impressive on paper or on a computer screen but one that often proves
inaccurate. The more likely real life situation is one of continuous imbalance as a result of
the dynamic conditions facing any organisation, the behaviour of people and the
imperfections of manpower models. Hence, the diagnostic approach was developed in the
mid 1980s to try to find a more realistic method of analysing manpower.
The diagnostic approach requires managers to identify the reason behind any apparent
imbalance, rather than simply try to resolve an imbalance by recruitment, retention or
redundancy. An example may help to explain this more clearly.
If a telephone sales organisation faces a problem of retaining staff, the rational approach
would be to step up recruitment or try to retain staff by increasing pay. However, a diagnostic
approach would mean becoming aware of this problem by monitoring manpower statistics
such as wastage and stability and obtaining qualitative data by interviewing staff. The
interviews might reveal concerns with job satisfaction and career paths open to staff,
reflecting their aspirations that are not being met by current practices. Rather than express
these aspirations openly for fear of conflict with management, many staff prefer to seek
employment elsewhere. The loss of skilled labour has important cost implications and in the
face of continuing shortages of skilled workers, a diagnostic approach to retention can
provide a significant pay-off.
The diagnostic approach enables strategies to be targeted that are more specifically aligned
to the needs of the organisation, rather than attempt a general approach. For example, in
the telesales example above, the organisation could attempt to improve the work
environment and work practices, to provide avenues for greater job satisfaction and personal
growth. This may have implications for job design, departmental structure and management
style, creating a tension that will have to be resolved. In this way, manpower planning
becomes integrated into the whole process of the management of the employment
relationship.

The Competency Approach

The terms 'competence' and 'competency' have become interchangeable recently.
'Competency' generally means something that you can do or a behaviour that you can
demonstrate. 'Competence' generally means the standard that is demonstrated. There is
some debate over the birth of the concept of the competence approach but the basic idea is
relatively simple. Most tasks require a range of skills and a certain level of underlying
knowledge to complete the task. To take a simple telephone message, you need to be able
to converse in the language, to be able to operate the telephone and to have some method
of recording information. The manner in which you answer the telephone might be important
(particularly in a sales environment).

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You probably don't need to know how the telephone actually works! Some of these skills,
such as the ability to converse in the appropriate language or the ability to write down a
message, could be gained in any other environment where these skills are required, such as
in a shop. These, therefore, represent transferable skills, because they can be transferred
to or from other situations. You don't have to have acquired them in a telephone sales
environment.
The use of competency frameworks was intended to provide employees with a clearly
defined set of outcomes or recognised skills and managers with a consistent measurement
tool that could be used across geographical, cultural and national boundaries.
The competency approach to human resources is concerned with behaviour and skills that
are relevant to the job and the effective or competent performance of that job. A competency
approach concentrates on the skills and behaviours required for the job.
Most frameworks are in the form of a matrix of descriptors and levels. Typically, competency
frameworks contain a mix of behaviours, functional skills and knowledge but care should be
taken that only measurable components are included.
A critical aspect of all frameworks is the degree of detail. If a framework is too general
(containing only statements about communication, team working, etc.), it will not provide
enough guidance, either to employees as to what is expected of them, or to managers who
have to assess their staff against these terms. If, on the other hand, it is too detailed, the
entire process becomes excessively bureaucratic and time-consuming and may lose
credibility.
The most widely used competency headings include:
 Communication
 Management of people
 Leadership
 Customer or client focus
 Team work
 Intellect, creativity and judgement
 Delivery of results
 Strategic thinking and planning; organising
 Management of financial and other resources; business awareness
 Expertise and professional competence.
Developing a competency framework can begin with importing an existing off-the-shelf
package through to developing the entire thing from scratch. Analysis is required to
determine what competencies are applicable to specific jobs, using techniques such as
observation, self-reporting, interviews with employees, checklists and inventories. It is
important to take care that none of the competencies discriminate against any particular
group of employees or potential employees, both in terms of complying with the
organisation's approach to diversity issues and in avoiding legislative controls such as the
Disability Discrimination Act.
Initially, competency frameworks were restricted to management positions, probably because
it was thought to be too time-consuming to develop frameworks for all levels within the
organisation and because off-the-shelf packages were available for management roles.
However, organisations are now recognising the value of competency frameworks beyond
the simple use as a performance management tool and frameworks are being developed for
a wide range of jobs.

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Competency frameworks can be used for:

 Training and development: identifying gaps and helping employees develop in the right
direction
 Development, promotion and succession planning: assessing employees' readiness or
potential to take on new challenges
 Annual appraisals and/or performance related pay: appraising and managing
performance according to competency
 Recruitment: choosing the right people to join an organisation
 Change management: using competencies when restructuring or dealing with other
cultural change
 Grading structures.

The Competency Approach

Example
A number of organisations are using competency frameworks to
refine recruitment and selection procedures. Instead of requiring
candidates to provide evidence of a similar work background to the
vacancy, or a specific level of nationally recognised qualification,
candidates are given the competence profile of the job and must
justify their selection for interview by offering evidence or examples of
how they meet the required competencies. Companies using these
criteria argue that the process is fairer on candidates whose
employment or educational background does not fit the standard
pattern and, as a result, it is argued, is less likely to discriminate
against candidates from different ethnic or employment backgrounds.
From an organisation point of view, the organisation is likely to attract
candidates from a wide range of backgrounds, which can help raise
levels of creativity and innovation. Competency frameworks can
similarly be used for career development opportunities, removing,
supporters argue, artificial barriers to advancement, such as race,
gender, age or disability discrimination.

The main benefits of a competency-based system are:

 Employees have a set of objectives to work towards and are clear about how they are
expected to perform their jobs
 The appraisal and recruitment systems are fairer and more open
 There is a link between organisational and personal objectives
 Processes are measurable and standardised across organisational and geographical
boundaries.
Criticisms of a competency-based system are that:
 It can be over-elaborate and bureaucratic
 The language used to describe competencies may be off-putting
 It is difficult to strike the right balance between reviewing the competencies often
enough for them to remain relevant but not so often as to become confusing

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 If too much emphasis is placed on 'inputs' at the expense of 'outputs', there is a risk
that it will result in employees who are good in theory but not in practice and will fail to
achieve the results that make the business successful
 Competencies are based on what good performers have done in the past and this
approach works against rapidly changing circumstances by setting one particular group
of attitudes and behaviours in stone
 Because of earlier discrimination against certain groups in society, the models used for
developing competencies tend to exclude the attitudes and behaviours of these groups,
so it subsequently becomes difficult, for example, for women or people with disabilities
or from ethnic minorities to match the underlying behavioural and attitude assumptions
of the competency framework
 Some behavioural competencies are basically personality traits which an individual
may be unable or unwilling to change and it is not reasonable to judge someone on
these rather than what they actually achieve.
As a final comment on competency and competence based models, you are probably aware
that NVQs or National Vocational Qualifications are competence based qualifications. These
qualifications differ from academic qualifications by focusing on performance at work and
outcomes that can be assessed against standards defined as performance criteria. NVQs
are provided at different levels, starting at level 1 for work that is composed of routine and
predicable activities, through to level 5 for work involving the application of complex
techniques in unpredictable contexts. This allows people to build up qualifications from the
time they complete formal education to the end of their career. NVQs have become a key
part of government initiative to improve the skill base of the UK economy and an important
means for many people to progressively achieve higher qualifications.

Emotional Intelligence
Emotional intelligence is not a new concept but a way of analysing the capabilities of the
organisation. The term 'emotional intelligence' was defined in 1999 by Goleman at the CIPD
Annual Conference as "the capacity for recognising our own feelings and those of others, for
motivating ourselves, for managing emotions well in ourselves and in our relationships".
Emotional intelligence is seen as a necessary attribute for effective leadership and effective
leadership has been recognised as an essential for effective achievement of the
organisation's strategic goals.
By analysing and evaluating the emotional intelligence of the organisation, a measure is
obtained of the effectiveness of leadership. Strategies can then be developed to develop
emotional intelligence, thereby developing leadership capability. We will look at how
emotional intelligence can be developed when we consider employee development generally
in Study Unit 8.

F. HRM STRATEGY AND LIFECYCLE STAGE

The Lifecycle of Organisations
Organisations, like people, change as they grow and develop. We can identify four key
stages in an organisation's development:
 Birth or start up is the founding stage. The organisation usually lacks a formal
structure that only emerges as the organisation develops and grows in size. In the
early states, an organisation's main objective is to establish a market for its products or
services and to stay solvent.
At the start up stage, organisations need to remain flexible and therefore, human
resource strategies will tend towards flexible working patterns, the recruitment of

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employees who are likely to be well motivated, highly committed and probably, no
unions. Pay policies are likely to be competitive.
 The growth stage is where most organisations hope to remain! As the organisation
grows in terms of turnover and number of employees, so there tends to be increased
division of labour, a more formal structure and adoption of competitive strategies.
During the growth period, organisations move towards more progressive and
sophisticated recruitment and selection, training and development, performance
management processes and reward systems, focus on achieving high commitment and
place emphasis on developing stable employee relations.
 Maturity is a period of slow or negative growth and can be a period of consolidation
before a second growth phase. It can also signify the start of a period of decline. To try
to prevent decline organisations pay close attention to the control of costs both of
labour and productivity. Labour relations can become strained and training is often cut
back as the cost becomes harder to justify.
 Decline occurs if the measures taken in maturity are not effective. The emphasis shifts
to rationalisation and downsizing, cost cutting becomes a driving force. Lay-offs,
redundancies and short-term contracts can be a key feature of the decline period.
This is not the only basis for analysis of organisational development from birth onwards.
Alfred Chandler, in 1962, identified three stages of organisational development. Although his
work was some time ago and written at a time when growth was seen as a primary objective
of all organisations, his basic three stages of development are still quoted as valid today.
Chandler concluded that all organisations pass through three stages of development:
 Unit
 Functional
 Multi-divisional.
The unit stage begins with a single location, single product and a single decision maker. The
numbers employed are small enough for everyone to work together and to perform almost
every function. Control is exercised through mutual adjustment. This is the equivalent to
our 'birth' stage above and human resource strategies therefore are concerned with flexibility
and commitment with supporting reward policies.
As the unit stage develops and more people are employed, so there is a gradual move
towards specialist functions being carried out by dedicated employees. A hierarchy starts to
evolve and strategic emphasis shifts from establishing a market towards growth as the
business starts to expand, perhaps by acquiring other businesses or developing supplier or
customer outlets.
As specialist functions develop so the organisation evolves into Chandler's functional stage
where specialist departments are created to carry out functions such as marketing, finance,
production etc. If the business expands still further and diversifies into different industries
and products, there is then the final stage of turning into a multi-divisional form.

Centralised and Decentralised Organisations

In Chandler's work on the development of organisations, he found that as organisations
moved from the unit and functional stages towards a multi-divisional structure, so there was a
move from a centralised to decentralised structure.
One form of decentralised structure, made popular in the 1980s is the strategic business unit
(SBU) that was seen as a method of empowerment of the unit as a whole. In an SBU
structure, the management of the unit are given an agreed budget or targets for the
forthcoming period. Thereafter, they have freedom to manage themselves in whatever way
they think fit, provided that they submit regular reports and meet the targets or comply with

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the budget expectations. Interestingly, when moving towards decentralisation, the personnel
or human resources function is often the last to be decentralised.
On the surface, decentralisation and the strategic role of human resource management seem
to be at odds. The rationale behind decentralisation is that each business unit has to
maximise its contribution to group objectives. The contingency approach would almost seem
to suggest different human resource strategies for different units, which may well lead to
conflict. Torrington and Hall take the view that in a decentralised environment, the role of
human resource management changes. They suggest that the emphasis should be on
generating a common mission and shared purpose and on co-ordinating through the
development of standards and norms.

Structural Implications
We have already noted that it can sometimes be difficult to establish which comes first,
strategy or structure. In theory, structure should support strategy but in practice it is often a
limiting factor. Managers are unlikely to adopt a strategy that requires structural change as
changing a structure is a time consuming and frequently expensive exercise. Pre-existing
structures, therefore, might suggest a particular approach to human resource strategy.
As with the previous sections where we considered the impact on human resource strategies
of where the organisation is in terms of its life cycle, we can make similar comments for
differing structures. For the purpose of looking at this briefly, we will use Charles Handy's
classification of structures, but you can apply similar comments to other classifications.
 The entrepreneurial form emphasises central power. Decisions are made at the
centre and behaviour reflects the expectations of the power source at the centre.
There are few collective decisions and the emphasis is on individual performance
rather than team working or group work. Thus human resource strategies tend to
support individual rather than team performance.
 The bureaucratic form emphasises distribution rather than centralisation of power and
responsibility. Bureaucracies have earned themselves a poor reputation on the
grounds of inflexibility and an over dependence upon rules and procedures but they
have been the dominant structure for many years. The bureaucratic approach is
intended to provide organisational control through ensuring a high degree of
predictability in people's behaviour. It also means trying to ensure that different clients
or employees are treated fairly through the application of general rules and procedures.
Human resource strategies that sit well with the bureaucratic form emphasise equality,
predictability and a role culture. Selection and recruitment policies, for example, would
favour strict selection criteria based on thorough job analysis. Performance appraisals
would emphasise compliance with the needs of the job rather than innovation.
 The matrix form has gained much popularity as it emphasises the co-ordination of
expertise into project-oriented groups of people with individual responsibility. This
approach is favoured as it has been developed largely to avoid some of the criticisms
of the entrepreneurial and bureaucratic structures. The matrix structure requires the
group and team based approach that is currently popular. Human resource strategies
to support this approach are based upon recognition of group rather than individual
efforts, promoting communication and information exchange. The matrix form lost
some of its popularity when it was found that the administrative structure to support it
tended to be costly but the increasing internationalisation of business, where the
impracticability of bureaucracy is most obvious, has given it a new lease of life.

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G. WHAT IF THE ORGANISATION IS GOING THROUGH

STRUCTURAL CHANGE?
What is the HR strategy for mergers and acquisitions?
International mergers and acquisitions are increasingly frequent, with 172 cross border deals,
worth $1bn, in 2006 alone. It is the international aspect of these mergers that makes them
difficult. HR professionals can play a key role in making integration a success for all
employees and can lead the transfer of knowledge. According to the CIPD's report,
International Mergers and Acquisitions: How can HR play a strategic role? 60% of overseas-
owned organisations growing through acquisition have already made deliberate attempts to
share and integrate with the acquired firms' knowledge in the UK.
The CIPD recommends five steps for a smooth transition:
 Ensure commitment and a willingness to learn from the new company; from all levels of
the organisation.
 Integrate staff involved in the acquisition into common processes; give them a voice in
the new firm.
 Allow the acquired organisation to preserve its positive practices; that's why you chose
to buy them in the first instance.
 Make sure enough time is allowed to digest and share knowledge.

Case Study 2
Satish Pradhan, executive vice president of group HR at Indian
conglomerate Tata Sons, acquirer of 98 companies across six continents,
says:
"When we begin to think about a potential M&A candidate, we are already
thinking about the future combined entity. This has huge implications for the
way we approach and address issues right through the whole process –
from scanning to integration."
Rather than a challenge, an M&A should be seen as an opportunity for HR.
It's a great chance to bring the function into the strategic heart of a
company, and a means of quickly the company culture in new members of
staff.

H. IMPLICATIONS OF GLOBALISATION
Companies that are operating globally must have a strategy for dealing with the implications
of this. Those implications include:
 Diversity of language, culture, economics and political process
 Decentralisation of power from the 'we know best' mother country to local managers
who understand their local cultures and can behave sympathetically but need to be
controlled
 Reward structures need to fit the local culture
 Attitudes to risk will vary from country to country

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 Formality vs. informality of process and behaviour

 Loyalty to the organisation and long-term career expectation
 Willingness (or unwillingness) to relocate, short term or long term.

I. SKILLS NEEDED TO IMPLEMENT STRATEGIC HUMAN

RESOURCE MANAGEMENT
As we have noted earlier, an organisation is influenced by both external forces (typically
analysed in terms of the political, technological, economic and social factors) and by internal
issues such as the structure and culture of the organisation. Some of these issues we have
already considered. For example, in the last study unit we noted how structure, leadership
styles and culture can all have an influence on the formulation of human resource strategies.
In this study unit, therefore, we will look at how some of these issues work together,
particularly in the area of change and change management.
Change can occur in small incremental steps or on a more significant scale. Some people
will argue that if, change is going to occur, then it is better for it to do so on a major scale so
that problems can be addressed together, whilst others argue that incremental change is
easier to manage. There is no right or wrong way to change; it depends on the needs of the
organisation. It is the way that change is managed that dictates whether it will be introduced
with major disruption or relatively smoothly. It generally falls to the human resource
professional to manage change.
In the dynamic business environment today, change seems almost inevitable at some stage
for most organisations, yet the process is rarely without difficulties. In 1991, Pettigrew and
Whipp studied competitiveness and managing change in the motor, financial services,
insurance and publishing industries. In Managing Change for Strategic Success, they noted:
"The process by which strategic changes are made seldom move directly through neat,
successive stages of analysis, choice and implementation. Changes in the firm's
environment persistently threaten the course and logic of strategic changes: dilemma
abounds. We conclude that one of the defining features of the process, in so far as
management action is concerned, is ambiguity; seldom is there an easily isolated logic
to strategic change. Instead, that process may derive its motive force from an
amalgam of economic, personal and political imperatives. Their introduction through
time requires that those responsible for managing that process make continual
assessments, repeated choices and multiple adjustments.
Change management strategies may be mainly directed towards strategic change but it may
also be necessary to adopt a strategic approach to operational change.
Operational change relates to new systems, procedures, structures or technology that will
have an immediate effect on working arrangements within part of the organisation.
Operational change can impact more significantly on people within the organisation and
therefore, has to be handled carefully.

Conflict and Change

Change generates conflict. Our traditional view of conflict is that it is something bad and
something to be avoided. Organisations spend much effort (and money) avoiding conflict by
promoting team working and valuing managing skills such as negotiation. We often view
conflict as a management failure. However, there is an alternative view, that conflict is
inevitable in organisations and may even help the process of change and be beneficial.

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The view that conflict is inevitable arises out of the view that, in the majority of organisations,
employees have to compete for limited resources and the hierarchical nature of the structure
promotes competition. Individual and organisational goals do not always coincide, nor do
those of other stakeholders such as shareholders and customers.
The view that conflict can actually help an organisation comes from the concept that conflict
reflects the need of the organisation to change. Conflict is said to reflect internal and
external influences and in particular, to identify when those influences are out of balance. As
such, conflict is said to be an indicator of the need for change and should be viewed
positively. Opponents of this view argue that organisations deliberately set out to manage
the environment by, for example, ensuring customer expectations are able to be met by the
organisation and thus stakeholder influence can no longer be seen as an independent
indicator of change. However, promoting change as positive does lessen the psychological
effects sometimes encountered with change.

Change and the Individual

For most people, change represents uncertainty; the fear of the unknown. As a result, most
people are, at least to some extent, unhappy with change.
Change has physiological, physical and psychological implications for human beings:
 Physiological affects might include disturbed sleep patterns (particularly following a
change in working patterns such as a move to shift working)
 Physical changes can come about if a house move is required, or travel patterns are
disrupted because of change
 Psychological changes commonly arise when someone feels disoriented by the
changes, feels insecure or where old social relationships are disrupted.

Resistance to Change
It is perhaps not surprising that the usual reaction to change, therefore, is to resist it.
Resistance can also arise:
 Through conflict with cultural, religious or class influences such as a resistance to
change brought about by changes in the Sunday Trading laws
 Through conflict with group loyalties, such as might arise if established working groups
are dismantled
 Through conflict with habitual patterns of work or behaviour, common in situations
where change is brought about through the introduction of new technology
 Through loss of status or perceived loss of status, for example, if the change appears
to devalue certain skills or power sources.
However, commonly, resistance arises not because of the nature of the change but the way it
is introduced.
The four most common causes of resistance to change are said to be:
 Self-interest. Where the status quo is felt to be comfortable or advantageous to an
individual or the group.
 Misunderstanding/distrust. Where the reasons for the change or the nature of the
change have not been made clear and in particular, where there is a perceived threat
 Contradictory assessments. Where an individual's assessment or evaluation of the
stated benefits of the change differ from management's view
 Low tolerance of change. Some individuals have a lower tolerance of uncertainty.

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Reactions to Change
There are four main types of reaction to change:
 Acceptance
Acceptance of change doesn't necessarily have to be enthusiastic but it does recognise
that the change proposed is going to take place and the individual agrees to or accepts
their role in the process.
 Indifference
Where change does not directly affect an individual, indifference may be the result.
The individual appears apathetic and lacking in interest in the proposals.
 Passive resistance
Here the individual does not co-operate and may refuse to learn the new technology or
ways of working and deliberately stick to the old work patterns. Sometimes passive
resistance can be hard to identify but on examination, the individual may be continuing
with behaviour that reinforces the old ways of working. Typical examples of such
behaviour might include procrastination, where an individual is unhappy with accepting
increased responsibilities.
 Active resistance
Common examples of active resistance include absenteeism, strikes, sabotage or
deliberate errors. Such active resistance does not have to be malicious in nature but
will reflect a deliberate attempt to avoid or reverse the proposed change.

Change Models
There are a number of models for change management that have been developed over the
years. Probably one of the best known is that developed by Lewin in 1951. His model can
be shown as follows:

Unfreeze Change Refreeze

existing behaviour attitudes/ behaviour new behaviour

Unfreeze is that part of the process associated with breaking old patterns of behaviour so
that new patterns can be established. People should know why they are required to change
and be committed to it (or at least know why they are required to change) before they can be
expected to implement change. The process of 'unfreeze', therefore, is often associated with
the communication process.
Change is concerned with identifying what the new behaviour/process/procedure is or should
be and encouraging individuals and groups to adopt the new behaviour.
Refreezing is the final stage and encompasses consolidation or reinforcement. Ideally,
reinforcement should be positive in the form of praise or reward for adapting to the new
circumstances but sometimes negative reinforcement may be used, such as applying
sanctions to those who fail to comply.

Change Management Strategies

Armstrong, in Strategic Human Resource Management, A Guide to Action, sets out the
following guidelines for change management strategies:
 The achievement of sustainable change requires strong commitment and visionary
leadership from the top.

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 There is a need to understand the culture of the organisation and the levers for change
that are most likely to be effective in that culture.
 Those concerned with managing change at all levels should have the temperament and
leadership skills appropriate to the circumstances of the organisation and its change
strategies.
 It is important to build a working environment that is conducive to change. This means
developing the firm as a 'learning organisation'.
 Commitment to change is improved if those affected by change are allowed to
participate as fully as possible in planning and implementing it. The aim should be to
get them to 'own' the change as something they want and will be glad to live with.
 The reward system should encourage innovation and recognise success in achieving it
change.
 Strategies for change must be adaptable; the ability to respond swiftly to new situations
and demands, which will inevitably arise, is essential.
 Change will always involve failure as well as success. The failures must be expected
and learned from.
 Hard evidence and data on the need for change are the most powerful tools for its
achievement but establishing the need for change is easier than deciding how to satisfy
it.
 The emphasis must be on changing behaviour, not trying to enforce corporate values.
 It is easier to change behaviour by changing processes, structure and systems than to
change attitudes.
 It is necessary to anticipate problems of implementation, which will include:
(i) Resource dependency (shortages in the resources required, people and time as
well as money, will inhibit change)
(ii) The capacity and willingness of middle managers to support the change (without
their co-operation, change strategies are likely to fail)
(iii) The capacity and willingness of human resource professionals to ensure that the
change is embedded, in spite of indifference or negative reactions (this includes
the ability of human resources to provide guidance, advice and training as well as
developing procedures that are user-friendly and not over-engineered).
 There are usually people in organisations that can act as champions of change. They
will welcome the challenges and opportunities that change can provide. They are the
ones to be chosen as change agents.
 Resistance to change is inevitable if the individuals concerned feel that they are going
to be worse off, implicitly or explicitly. The inept management of change will produce
that reaction.
 In an age of global competition, technological innovation, turbulence, discontinuity,
even chaos, change is inevitable and necessary. The organisation must do all it can to
explain why change is essential and how it will affect everyone. Moreover, every effort
must be made to protect the interests of those affected by change.

The Process of Change

Changes within the organisation need careful planning. A typical approach is to develop a
procedure along the following lines:

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 Identify the need for change. This may come about as a result of a strategic review or
perhaps as a possible solution to a particular problem. Change might not necessarily
be the answer to a problem, so alternative approaches should be investigated at an
early stage.
 Once the need for change has been established, a tentative plan can be put together,
identifying alternative choices that might be available for implementation or the nature
of the change.
 Potential reactions to change need to be analysed for each of the options identified so
that a final decision can be made based upon the facts.
 A timetable needs to be put together to implement the change. Some changes can be
implemented quickly (usually the smaller changes or those which are being forced on
employees rather than negotiated). The analysis of potential reactions to the change
can help dictate how quickly the change is introduced. The analysis can also help
identify those mostly likely to resist the change and those likely to be in favour, which in
turn can be useful as a guide to establishing the most appropriate communication
methods.
 Communication is vital and should continue throughout the process. It requires careful
thought to ensure that the right message is being given to the right people. Problems
implementing change can often be traced back to poor or inappropriate communication
methods.
 Implement the change.
 Review and evaluate the success of the change against the original objectives, making
modifications if required.
The timetable and implementation stages need to ensure that any training or retraining takes
place at an appropriate time i.e. not too early so that skills are forgotten but not so late than
there is no time to ensure familiarity with any new procedures or equipment before they must
be used.

Force Field Analysis

One fairly simple technique to help identify difficulties with the proposed change is to use
force field analysis.
Developed by Kurt Lewin, the technique is based upon the concept that, in any
organisational situation, the status quo is determined by the interaction between opposing
forces. Driving forces are those forces that are pushing the organisation towards the desired
state, whilst restraining forces are forces that are pushing the organisation back away from
the desired state. When these forces are in equilibrium, the organisation is static.
Arrows are used on a simple diagram to represent these forces and the thickness of these
arrows represent the relative strength of the forces, as follows:

Driving Restraining
forces forces

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The arrows can represent any force, such as a new law or technology, an interpersonal force
such as the vision of a leader or an institutional force, such as the culture of the organisation.
The diagram can help to identify and visualise some of the potential difficulties that might
arise from the proposed change.
Force field analysis does suggest that there are two approaches to dealing with opposition or
difficulties arising out of change; either strengthen your own position or weaken the opposing
forces.

Overcoming Resistance to Change

A critical factor in the successful implementation of change is overcoming resistance to it.
Look back at the four common causes of resistance to change. Can you suggest ways of
overcoming these causes? You could have identified some of the following:
 Negotiation and incentives can help where resistance stems from self interest (i.e.
those involved feel that they are likely to lose something).
 Support should be offered to those with a low tolerance of change, with rewards for
adopting new behaviours.
 Misunderstanding is best dealt with by appropriate communication and education.
 Where people's perception of the benefits etc. are different from those of management,
it is sometimes found that allowing those people a more active role in the change
process helps in the communication and persuasion process and also helps build trust.

The Pace, Manner and Scope of Change

There are three main areas that must be addressed when considering strategies for
overcoming resistance to change:
 The pace and timing of the change
 The manner in which it is introduced
 The scope of the proposed change.
(a) Timing
Some changes have to be introduced quickly in response to a crisis. Some can only
be introduced over a longer period because of the amount of work necessary before
the change can be introduced. Rapid changes are often perceived as threatening and
although the timescale leaves little room for the build-up of resistance, in the longer
term, resentment and suspicion may lead to future problems. A slower pace can allow
time for communication, questions and reassurance.
Timing is just as important as speed. An organisation can lose credibility if a change is
introduced at a time when it might appear, for example, that the change is as a result of
a knee-jerk reaction to a problem, despite the fact that the change might have been
planned for some time.
(b) Manner
If you identified words such as 'support', 'communication' and 'participation' or
'involvement' when looking at ways of overcoming resistance to change, you will have
identified the importance of the manner in which change is introduced. Involving
people in the process of implementing change; listening to people's concerns and
acting upon them, providing support, advice and assistance, will all help to ensure
people are motivated to accept change; in effect, adopting a democratic approach to
introducing change.

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Although senior management generates change, successful change comes through a

more participative and genuinely democratic approach. Careful planning, particularly in
terms of identifying training needs, etc. also generates an impression of empowerment
rather than change being imposed from above.
It is important that participation is genuine and not (as Rosabeth Kanter described it)
"something the top orders the middle to do from the bottom". For participation to be
successful there has to be genuine support from all levels and a prevailing culture of
participation.
Donald Kirkpatrick in, 'How to Manage Change Effectively, stressed the importance of a
two-way communication process, i.e. listening to feedback from people, not just telling
them about the proposed change.
All of the above suggests that the autocratic imposition of change can never work, but
is not necessarily the case. Where the prevailing culture is such that employees do not
expect (or want) anything other than a dictatorial approach, this can be effective. The
armed forces are probably the most common example where imposed change is
accepted as the norm.
(c) Scope of Change
As we have already commented, some people support the view that change should be
implemented in small incremental steps, whilst others will claim that large-scale total
transformation is to be preferred. It is true that total transformation, when carefully
managed, can create a dynamic and exciting environment, provided that the
organisational culture for innovation and dynamism is already present. However, for
most people, smaller changes are more likely to win support more quickly.
There are often hidden challenges associated with change. It would be rare for all the
effects of a change to be predicted with 100% accuracy and in most cases, a period
after a change is required for adjustment and consolidation, so that minor difficulties
can be addressed. The bigger the scope of the proposed change, the greater the risk
of unpredicted difficulties.
Finally, you should be aware that there is a finite limit to the amount of change that
most people can accommodate in their lives. Although some people seem better able
to handle change than others, the proposed level of changes should be aimed at the
average employee. Change represents a major source of stress in the workplace.

Managing Cultural Change

As a final comment on our section on change, it is worth considering some of the aspects
involved in a cultural change.
Changing an organisation's culture is a notoriously difficult thing to do. Culture is difficult to
define and even more difficult to distil out into parts that can be changed. Furthermore, an
organisation's culture is reflected in its existing recruitment policies, so that individuals that
conform to the old culture will have been recruited in the past, perpetuating and
strengthening the very cultural aspects that subsequently have to change. Most research
has shown that it can take between three and eight years to change an organisation's
culture.
Establishing new patterns of behaviour and norms needs a consistent approach that
addresses the following areas:
 Top management commitment
 Managers must be seen to adopt the new patterns of behaviour, not just directing
others to do so

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 There must be positive support for new behaviours, preferably including recognition
(perhaps through an appraisal system) and/or rewards for adopting new patterns of
behaviour
 Recruitment and selection procedures and policies may need reviewing to ensure
individuals conforming to the new patterns of behaviour are recruited
 The new behaviours must be clearly communicated to existing employees and to new
employees via an induction programme
 Training is almost always required.

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Study Unit 5
Evaluating Strategic Human Resource Management

Contents Page

A. Introduction 96

B. How Easy is it to Link Cause and Effect? 97

C. How Can you Measure the Impact of Strategic Human Resource Management? 97
Micro Measures 98
Macro Measures 98

D. Tools Available to help Measure Strategic Human Resource Management 99

Contribution to Added Value 99
Contribution to Competitive Advantage 99
Contribution toward Business Performance 100
The Balanced Scorecard Approach 100
Benchmarking 100
Other Analytical Tools 101
Using Evaluation Data 101

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Objectives
The aim of this unit is to critically evaluate the processes required in order to assess the
effectiveness of any given human resource strategy, especially in relation to the strategy’s
impact on overall corporate outcomes and results.
When you have completed this study unit you will be able to:
 Explain the nature of correlations and the problems associated with tracing causal
relationships between events
 Describe and explain the factors involved in measuring the impact of a given human
resource strategy
 Evaluate of the available tools for measuring the effectiveness of a human resource
strategy: the balanced scorecard, best practice, competitor benchmarking, etc
 Assess some of the key research findings about the connections between human
resource strategy and organisational performance (e.g., Purcell, Huseleid, Guest).

A. INTRODUCTION
When we looked at the process of strategic human resource management, we noted that it is
not the end of the process when strategies are implemented. Whenever a course of action is
put in place, it is never 100% certain that the course of action will achieve the desired results.
A variety of factors can knock a plan off course and this is just as true with human resource
strategies as any other type of plan. The role of monitoring, review and evaluation is to
oversee the progress of an action plan, so that deviations from expected results can be
spotted quickly and, if necessary, corrective action taken.
You may recall from earlier studies that the features of a basic control system are:
 An identification of what the process should achieve (i.e. its objectives)
 Measurement of what is actually being achieved (called the feedback stage)
 A comparison of what is actually being achieved against what should have been
achieved
 Identification of any required corrective action
 Implementing corrective action.
This basic control system can be applied to human resource strategies but it does create
some difficulties in establishing clear objectives and what measurements should be taken to
establish whether objectives are being met.
At an operational level, objectives for specific strategies are clearly identifiable and the
evaluation process becomes straightforward. For example, one of the objectives of
introducing an induction programme might be to improve retention levels for new recruits.
The success or failure of this initiative can be measured by recording the numbers of staff
leaving within, say, 3 months, 6 months, or 1 year of starting work. The results can be
compared with an industry benchmark or against historical data that can then be used to
evaluate whether the cost of providing the induction training was justified by savings in
recruitment costs.
Quantitative measurements tend to be preferred by managers because they are easier to
measure and easier to explain. Measurements such as labour turnover (the number of
members of the workforce leaving during the period, expressed as a percentage of the total
workforce) are easy to calculate and can be adapted for a number of different uses.
However, while quantitative measures can be useful indicators, they can over-simplify a
situation and mask the real problems or successes. Furthermore, because quantitative

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measures are so easy, there is a tendency to make measurements and comparisons that are
irrelevant to the real objectives of the plan or course of action. For example, it would be
tempting to evaluate the success of a training course for telesales operators by the number
of calls each operator makes, as collecting this data is easy. However, it is not the number of
calls that is relevant but the number where a successful sale is made or perhaps the value of
sales made by each operator.
Monitoring effectiveness in strategic terms is not easy. Quantitative techniques like
budgetary controls are commonly used, with the achievement of budgetary targets seen as
evidence that the strategy is working. However, financial targets alone can over-simplify the
role of strategy and do not address the role of performance and can even hide problems of
performance. Furthermore, we must not lose sight of the fact that we have concluded that no
one strategy should be considered as an isolated case, for it is the synergy created by the
'bundle' that dictates the true success of the human resource management function.
Attempts, therefore, to measure the effectiveness of the strategic contribution of human
resource management tend to concentrate on the overall contribution to the success of the
organisation, in terms of added value, competitive advantage and the impact on business
performance. Typically, ways in which this contribution has been made will include:
 Developing a positive psychological contract
 Increasing motivation and commitment
 Increasing employee skills and extending the skills base
 Providing employees with extended responsibilities so that they can make full use of
their skills and abilities
 Spelling out career opportunities and defining competence requirements
 Instituting processes of performance management and continuous development
 Using reward management systems to convey messages about what the organisation
believes to be important and what it is prepared to provide financial and non-financial
rewards for
 Developing employment relations strategies that provide employees with a voice.

B. HOW EASY IS IT TO LINK CAUSE AND EFFECT?

This is one of the major assumptions about strategy formulation; there is a tendency to
determinism: an expectation that it is possible to read across from the organisation’s
business strategy and its external environment on to its HR strategy. This might be true for
‘classical’ strategies in stable organisations (classical strategy was described in Unit 1).
However, many organisations lack a single and clear business strategy.

C. HOW CAN YOU MEASURE THE IMPACT OF STRATEGIC

HUMAN RESOURCE MANAGEMENT?
Demonstrating the link between good practice HRM and organisational success has been a
matter of great concern and considerable research. Many would claim that their model of
HRM would improve the bottom line but the evidence has been hard to find. The Black Box
research, dealt with elsewhere in this guide, gives some good evidence that there are
demonstrable links. However, a universal model for measuring the success of HR strategy
does not exist. Measurement and analysis must be tailored to fit the organisation and in
dynamic environments, there are simply too many other variables to allow safe conclusions
to be drawn about the causal link between HR strategy and its impact.

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That said, the following measures make a useful contribution to measuring HR strategy’s
impact:

Micro Measures
 Headcount
 Salary and other staff costs
 Absence rates and costs
 Cost of investment made in employees
 HR cost per employee
 Recruitment costs per recruit
 Staff turnover
 Appraisal rates
 Employee profile (age, gender, ethnicity etc).
 Average manager’s span of control
 Grievances lodged per employee (collective and individual)
 Number of tribunal cases
 Disciplinary actions per employee
 Exit polls
 Employee satisfaction survey
 Management satisfaction with HR
 Employee representative satisfaction
 Time taken to complete HR processes (recruitment, discipline etc).

Macro Measures
 Customer satisfaction levels
 Value added per employee
 Productivity rates
 Value of rejects and rework
 Per item production costs
 Bottom line profit.
If the information is available, these can be benchmarked against other organisations.

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D. TOOLS AVAILABLE TO HELP MEASURE STRATEGIC

HUMAN RESOURCE MANAGEMENT
As with any aspect of strategic HRM there is no one right way to measure its effectiveness.
However, there area number of tools.

Contribution to Added Value

The term 'added value' has a particular meaning in accounting terms; the difference between
the income of the business arising from output (sales) and the amount spent on input
(purchased materials, services etc.). Here, we use the term in a more general way to mean
the development and use of a resource in a way that ensures it yields a substantial and
sustainable higher return on whatever has been invested in it. Added value, therefore, can
mean the creation of more out of less. A common measurement used is added value per £
of employment costs.
People create added value, for it is people who develop visions, define and set goals,
develop strategic plans and implement them. It will be enhanced by anything that is done to
obtain and develop the right sort of people; to motivate and manage them effectively; to gain
their commitment to organisational values; to build and maintain stable relationships with
them, to develop the right sort of organisation structure and to deploy them effectively and
productively in that structure.
An added value approach to human resources will be directed towards improving:
 Motivation
 Commitment
 Skills
 Performance and
 Contribution.
Evaluating the human resource contribution, therefore, will be directed towards
measurements associated with these factors, both in quantitative and qualitative terms. For
example, employee attitude surveys might be used to judge levels of motivation and
commitment; a skills analysis would look at the skills base of the organisation, traditional
measures of performance such as units of production per production operative, value of
sales per salesperson, etc.

Contribution to Competitive Advantage

The ability to gain and retain competitive advantage is crucial to a business's growth and
prosperity. Unique talents among employees, including superior performance; productivity;
flexibility, innovation and the ability to deliver high levels of personal customer service, are
ways in which people provide a key component in developing an organisation's competitive
position.
Competitive advantage is achieved by developing core competencies in the workforce
through functions such as resourcing, reward and development and by developing the
organisation as a learning organisation.
Traditional measures of competitive advantage centre on measurements such as market
share or sales turnover per employee. Such measures can provide some indication of the
benefit of human resource strategies.

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Contribution toward Business Performance

Research concludes that high performance working processes lead to reduced employee
turnover, increased productivity and superior corporate financial performance. This suggests
that human resource strategies can be evaluated using traditional measurements, such as
productivity levels, labour turnover and financial indicators, such as profit levels (e.g.
profitability per employee), return on investment, etc.

The Balanced Scorecard Approach

Kaplan and Norton in Harvard Business Review first identified the balanced scorecard
approach in January 1996. This performance management technique involves reviewing the
business from four main perspectives – customers, finance, people and operations:
 Customer perspective: Which seeks to identify the key elements of the organisation's
performance through the eyes of its customers
 Internal business perspective: Which identifies the business processes and
technologies that are critical to success, such as manufacturing capability, quality, etc
 Financial perspective: Which considers factors of relevance to the financial health of
the business and to providers of finance, such as shareholders
 People, innovation and learning perspective: Which addresses the question "How
do we continue to grow and improve?" and therefore, considers the future needs of the
business.
The balanced scorecard approach provides an approach towards the management of
individual and team performance and thereby the effectiveness of human resource
strategies, by measuring and valuing qualitative factors such as creativity, learning and
flexibility rather than the traditional quantitative methods of measuring individual output, for
example.
This approach is fast becoming one of the more popular approaches to measuring human
resource effectiveness, because of the qualitative as well as quantitative range of
measurements.
Benchmarking
No discussion on performance measures would be complete without some mention of
benchmarking, which has been seen as one of the major new management techniques of the
1990s and has been accepted as a technique applicable to both private and public sectors in
the UK. It is a practice whereby better practice is identified from other organisations and
compared with practice within one's own organisation, to provide information for the purpose
of improving operations. Thus, it goes a little further than a simple comparison of (usually)
quantitative data between companies.
Benchmarking has its origins in the 1980s when Xerox, realising that there was a
performance gap between itself and its top competitors (the price of Canon photocopiers was
less than Xerox's own manufacturing cost), sent a team to Japan to investigate the reasons
for the disparity. From the findings, Xerox implemented a process of change that ultimately
led to a reduction in manufacturing cost and improvement in production time, quality and
development lead times. Since then, benchmarking has been developed and now the
technique is regarded as an important tool in bringing about improvements in business
performance.
Benchmarking can be used in three ways:
 Simple comparison between companies
 A corporate learning tool to identify how things are done elsewhere and why results are
achieved

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 A performance improvement tool, seeking out examples of 'best practice’ that can be
adopted if appropriate.
Benchmarking activities can be differentiated according to the type of comparison that is
being made:
 Functional benchmarking looks at comparative performance between organisations
of a single business function, looking at inputs, activities and outputs of that function.
 Process benchmarking compares performance between organisations of a structured
set of activities designed to produce a specified output for a particular customer or
market. In other words, this type of benchmarking looks at the activities of competitors
supplying the same or a similar customer or market and may involve activities within
more than one functional area.
It is also possible to carry out a benchmarking exercise:
 Internally, whereby the comparisons are made between units, divisions, plants or
subsidiaries.
 Externally, with comparisons made with companies outside the organisation.
Internal benchmarking does make comparison of like-with-like easier and relevant data is
relatively easy to obtain but it does have a number of drawbacks, as it is mainly inward
looking and tends to be narrow in perspective.
Benchmarking within the human resource function has now become established practice.
Benefits of using this technique are that it:
 Enables the setting of more meaningful and realistic targets
 Increases motivation of staff through sharing with them what is possible
 Provides an early warning of competitive disadvantage
 Promotes teamwork and cross-functional learning.

Other Analytical Tools

Structured or semi-structured questionnaires of stakeholders (particularly managers) are
widely used and management consultancy firms can provide a service for designing and
running such a survey.
Service level agreements (SLAs) between HR providers and users of customers are
increasingly common, particularly in the public sector. They offer a way to identify the key
issues between users and providers of HR services, the reasonable standards that will be
attained and how performance will be measured and evaluated.
The presence or absence of an HR professional has always been a very rough but useful
measure of the seriousness afforded to HR in an organisation.

Using Evaluation Data

Evaluation is not just about measuring performance and assessing whether strategies
represent value for money, although clearly that information is valuable. More importantly,
monitoring and evaluation exercises should be part of the on-going process of strategic
human resource management, as the means of establishing the effectiveness of human
resource strategies and taking corrective action if necessary.
Evaluation, therefore, brings us back full circle to the establishment of objectives for
strategies, as it is against those objectives that the results of the data collection must be
viewed. Where results are not as expected, the reasons should be assessed and
adjustments made in the light of experiences. Easily said, but not always easily done!

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 103

Study Unit 6
The Ethical Implications of Strategic Human Resource
Management

Contents Page

A. Introduction 104
How do managers make decisions ethically? 104

B. Main Ethical Issues in People Management and Development 105

C. Equality and Diversity 108

Aren't all HR professionals discriminating all the time? 108
So who experiences unfair treatment? 108
How is discrimination relevant to employment? 110
What behaviours are outlawed by the legislation? 110
Benefits of Managing Diversity 111
Managing Diversity – The CIPD Checklist 112

D. Advantages of an Ethical Approach to People Management and Development 115

E. Promoting and Enforcing Ethical Behaviour 117

F. 'Hard' and 'Soft' Human Resource Strategies 117

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Objectives
The aim of this unit is to design, implement and assess a human resource strategy,
evaluating appropriate ethical principles and values.
When you have completed this study unit you will be able to:
 Describe and explain moral, ethical and practical issues in relation to the management
of people in an organisational setting
 Explain the rationale for ethical codes of conduct/behaviour and their enforcement
 Explain the differences between 'hard' and 'soft' human resource strategies
 Explain the effective management of ethical dilemmas in organisations, e.g., whistle
blowing, a multinational workforce, equal opportunities and diversity.

A. INTRODUCTION
It is usually accepted that governments have a primary role to set the scene for society,
internationally, nationally and locally. Owners and managers hold the key responsibility for
determining and enforcing the acceptable standards within their organisations. They are
expected to understand and follow the moral code prevalent within society, even if this is not
expressly stated in law or company policy. Hence ethics are always changing.

How do managers make decisions ethically?

The terms "accountability" and "social responsibility" refer to the way in which an
organisation is run and held responsible for its actions. The word "ethics" refers to actions
that are held to be right or wrong. The debate about business ethics centres on whether the
only responsibility of organisations and management is to maximise profits. This is the usual
driving force behind the founding of an enterprise and is an assumption of most
microeconomic models used to analyse the behaviour of firms.
Most decisions that organisations make will be founded upon one of four basic beliefs:
 Deontology: That the organisation has a responsibility to act in ways that respect the
fundamental rights of human beings (as if there is a set moral code that is larger than
the organisation). The morality of the actions is to be considered, not just their
consequences.
 Utilitarianism: That the business should serve the greatest good of the greatest
number.
 Teleology: That the end justifies the means, irrespective of the damage that is caused
to people on the way to utopia.
 Egoism: That moral behaviour should be considered in terms of personal self-interest.
These are wider views of management responsibility. They can and often do conflict with the
profit motive espoused by the purists.
Personnel management has always had an ethical dimension, being associated with people
management but for many years personnel managers seemed to attempt to bury this aspect.
This is due, in part, to business concerns with bottom line profits being at odds with the
concept of a social role for businesses.
The 1980s and early 1990s saw a number of incidents within the business world that
highlighted the consequences of unethical and immoral behaviour by businesses. At the
same time, increasing involvement of the media in business affairs has resulted in members
of the public being more informed and less tolerant of what they consider to be immoral
business behaviour. Since then, there has been an increase in ethics, not just as a

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personnel issue but more in terms of a general management issue, culminating in the
appointment of a Minister for Corporate Social Responsibility in 2000. Now, walk into the
reception of almost any large organisation and you'll probably find a statement of the
corporate values pinned proudly on the wall.
In this study unit we will:
 Examine the importance of ethics and values in the design of human resource
strategies
 Consider the development of action plans which reflect both organisational priorities
and cultural preferences
 Identify what constitutes ethical and unethical behaviour within the workplace
 Investigate value statements and their practical implications
 Consider issues of equality and diversity
 Identify the benefits and problems associated with adopting an ethical approach to
organisational practices.

B. MAIN ETHICAL ISSUES IN PEOPLE MANAGEMENT

AND DEVELOPMENT
It is not sufficient just to make a statement that the organisation is an ethical organisation or
to express these ideas in a value statement. To be effective and to reap the benefits that are
claimed for ethical management, these values must be translated into actual practice and
must be reflected in all the systems and procedures used by the organisation.
In the same way that we acknowledged that human resource strategies needed to achieve a
'fit' with the business strategies of the organisation, so they must also be seen to 'fit' and to
uphold the values and ethics of the organisation.

Case Study 1

At Ulster Bank Group, regular workshops were held in support of the value
statements that we looked at earlier. Ulster Bank found these invaluable
and in particular they provided information about areas where there were
inconsistencies between what the company says and what it does. Staff
highlighted, for example, that managers smoking in their offices despite a
non-smoking policy wasn't in tune with the value of 'leadership by example'.

Human resource managers are in a unique position to ensure that ethics and value-based
management is applied throughout the organisation, by ensuring communication and training
programmes are in place. They can also set an example of good practice, by ensuring that
all human resource strategies and practice comply with the code.
This compliance or fit is not always as straightforward as it might appear on paper.
It requires a very thorough investigation, to ensure that all policies meet the code, without
ambiguity. Michel Syrett, chief executive of New Ways to Work and writing in People
Management in 2000 noted that a token approach to implementing strategies based on
ethical and value codes is bound to fail. Talking about the introduction of work-life balance
initiatives, introduced in support of a family-friendly approach, he said: "It is sheer tokenism
to launch a work-life balance scheme involving, for example, access to parental leave, part-
time working and sabbaticals, and then sit back and expect employees to rush in if their line

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managers are unconvinced or resentful, or if their departments are overworked, under-

resourced and unable to provide cover."
The Institute of Management recommend the following approach to value management:
 Make the link between corporate strategy and the ethical values and vision of the
organisation
 Ensure you have top team commitment and that managers are prepared to ‘walk the
talk’
 Make sure there is clarity throughout the company about what the values really mean
 Incorporate the values into a performance appraisal system
 Develop open channels of communication, so employees can give and receive
confidential advice and information
 Measure and report on business performance in relation to the values of the
organisation
 Update and review the values regularly, through an inclusive process of dialogue with
all employees; values must be shared if they are to be effective.
The Good Corporation Charter provides a useful perspective on ethical issues in HRM
(www.goodcorporation.com):

The organisation provides  There are clear employment terms and

clear and fair terms of conditions for all employees
employment.
 There is a process to ensure that the privacy
of employees is respected
 There is a clear disciplinary procedure that is
applied fairly
 There is an effective process to deal with
employee complaints and grievances
 Freedom of association and organisation of
employees is respected
 There are effective employee communication
and consultation processes
 There is a process to monitor compliance with
relevant employment laws and regulations.

(Continued over)

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The organisation provides  There are procedures to ensure the provision

clean, healthy and safe of a healthy and safe working environment
working conditions. and the continuous improvement of health
and safety performance
 There are processes to provide adequate
resources and training for the provision of a
healthy and safe working environment
 The organisation has a fair remuneration
policy everywhere it operates
 There is a process to ensure that employees
know how and when their pay and benefits
are determined
 Local cost of living and market rates are taken
into account when setting pay and benefits.

The organisation strives  The organisation encourages diversity and

for equality and diversity recruits, promotes and rewards employees on
for all present and the basis of merit alone.
potential employees. It
does not discriminate on
the grounds of disability,
colour, ethnic origin,
gender, sexual orientation,
age, religion, and political
or other opinions.

The organisation  All employees have appropriate learning and

encourages employees to development opportunities to support their
develop skills and work
progress in their careers.
 Employees have regular performance reviews
that consider skills development and career
prospects.

The organisation does not  There is a process to ensure that no forms of

tolerate any sexual, harassment, bullying or discrimination are
physical or mental tolerated.
harassment or bullying of
its employees.

The organisation employs  There is a policy not to employ forced,

only voluntary and bonded or otherwise exploited labour
appropriately aged
 There are processes to ensure that
employees.
employment practices for young people follow
internationally accepted standards.

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C. EQUALITY AND DIVERSITY

Aren't all HR professionals discriminating all the time?
We discriminate against different types of people, consciously or unconsciously, in many
aspects of our life and work. This is not, in itself, a problem. For example, the process of
selection is specifically concerned with discrimination between people, by making decisions
about who and who not to shortlist, to interview and to appoint. Discrimination in this sense
is perfectly acceptable as long as it is done and is seen to be done, on the basis of fair
treatment of the people concerned. Forms of discrimination that are not fair have
increasingly become unacceptable and in many cases have been the subject of legislation,
making them unlawful.
This has a particular impact on management practice. Managers need to ensure that they do
not discriminate unfairly in their decisions or actions towards employees, whether before or
during employment. Here, we shall review those aspects of legislation that apply directly to
these issues and also explore how organisations meet the challenge of providing equal
opportunities.
We then go on to consider the future of these issues, with particular reference to the move
away from a concern with equality, per se, towards the issue of managing cultural diversity.

So who experiences unfair treatment?

There are certain groups in any society who are discriminated against for unjustifiable
reasons. Members of these groups are subjected to treatment which is different from that
accorded to other people, purely on the basis of their membership of that group. Such
unequal treatment derives from the prejudices and preconceptions of the people with whom
they have to deal and needs to be seen as a problem of those acting in a discriminatory
manner, rather than a problem of the victim of the discrimination.
Within the United Kingdom, there are six main characteristics which have resulted in unfair
treatment and which the Government has addressed through legislation:
 Sex/gender
 Race/ethnicity
 Disability
 Age (older and younger workers)
 Religion and belief
 Sexual orientation.
(There is legislation covering some other issues such as trade union membership. However,
these topics are often known colloquially as the 'six pack'.)
These groups are, in this context, referred to as disadvantaged in that, as victims of
persistent discrimination, they have been excluded from playing their full part in society, or in
particular parts of it (for example, in employment).
Recognising the basis of discrimination is the first step towards establishing equal treatment
for disadvantaged groups. As we noted above, it derives from prejudice towards and
preconceptions about, the members of those groups. On some occasions these attitudes are
consciously and overtly displayed but very often the people holding them are not even aware
that they influence their dealings with other people. As such, many of the preconceptions are
widely held, particularly in respect of certain characteristics that these groups are assumed to
possess and which are then used to pass judgement on individual members.

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This may be seen, in the context of employment, from the following list of attitudes about the
above six groups.
(a) Sex and gender
This is aimed at equalising the treatment of women and men. The main benefit has
been to women who have been subject to assumptions such as:
 Women should not work; their place is in the home
 They do not want much responsibility at work
 Their home commitments (children) will impinge on their working life
 Women are less mobile as they have to stay in the part of the country where their
husband has a job.
Legislation also encompasses equal pay, although this appears to have had limited
effect in bringing the pay of women in line with that of men. (In 2007 UK women who
worked full time were paid on average between 83 and 86% of men's hourly earnings -
source UK Government's Women and Equality Unit).
(b) Race and ethnicity
This is aimed at removing race and ethnicity as a reason for disadvantageous
treatment. The main benefit has been to ethnic minorities who have been subject to
views such as:
 They require time-off for religious holidays that do not mesh with the needs of the
employer
 Qualifications gained abroad are not as good as those to be found in the UK
 Workers will not want to work for a black supervisor
 The ability to fill out an application form in good English is a requirement for
someone who is being employed in low-level manual work.
(c) Disability
This covers both physical and mental disability; the latter also including learning
disability. Assumptions countered by the legislation include:
 An employee with facial disfigurement will be an embarrassment to other workers
or customers.
 A visual handicap cannot be overcome.
 A physical impairment affects mental faculties.
 Someone who has suffered mental illness will automatically not be able to take
any kind of pressure that the working environment could provide.
Employers and service providers are required to make reasonable adjustments to
premises and practices to compensate for someone's disability. What is reasonable
will vary from organisation to organisation.
(d) Age
The Employment Equality (Age) Regulations 2006 came into force in October 2006 and
counter assumptions such as:
 Older people are less adaptable
 They are not interested in coping with new technology
 They will work much more slowly than younger employees
 They have become less interested their career development

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 Younger workers are immature or lack skill.

(e) Religion and belief
Although much of the discrimination directed at members of religious groups was
covered by the legislation dealing with race and ethnicity, in the United Kingdom the
law, irrespective of their race or ethnicity, covers discrimination against someone
because of their religion or similar belief system.
(f) Sexual orientation
Likewise discrimination on the grounds of someone's sexual orientation is unlawful.
This includes less favourable treatment arising from a belief (without any evidence) that
someone might be gay, lesbian or transgender.

How is discrimination relevant to employment?

The need for fair treatment is particularly acute in the area of employment in general and of
management in particular, where decisions are constantly being made which affect the lives
and opportunities of individuals. As a result, partly driven by legislation and partly by good
practice, most organisations have adopted policies and practices designed to ensure the fair
and equal treatment of those with whom they have dealings (and note that this does not just
cover their own employees).
There is, though, a continuing concern to ensure the effectiveness of such policies and
practices in the face of the widespread existence of, particularly, unconscious prejudices and
preconceptions in society at large, which invariably, will be reflected to a greater or lesser
extent within the organisation's own workforce. The adoption of policies, of itself, does not
eradicate the problem and control over practice has become more difficult with responsibility
for more and more employee issues being devolved to line management.

What behaviours are outlawed by the legislation?

Principally three:
 Less advantageous treatment (not giving a job to a woman because of her sex;
dismissing a gay man because of his sexual orientation; not promoting a middle aged
worker because of her age)
 Harassment and bullying (teasing a young person because of her age or a worker with
a visual impairment because of his disability)
 Victimisation (treating someone less advantageously because he or she had previously
complained or had supported someone else who had complained).
The main differences between the equal opportunities approach and managing diversity
approach are compared in the following table:

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Aspect Equal Opportunities Managing Diversity

Purpose Reduce discrimination Utilise employee potential

to maximum advantage
Case argued Moral and ethical Business case – improve
profitability
Whose responsibility Personnel department All managers
Focus Groups Individuals
Perspective Dealing with different needs of Integrated
different groups
Benefits for employees Opportunities improved for Opportunities improved for
disadvantaged groups, primarily all employees
through setting targets
Focus on management Recruitment Managing
activity
Remedies Changing systems and practices Changing the culture

Source: Torrington and Hall, Human Resource Management

Benefits of Managing Diversity

Over the last decade, many organisations have learned from practical experience that equal
opportunities policies can bring important business benefits. Increasingly, it is recognised
that initiatives are more likely to thrive if they positively advance business goals and
performance.
A number of writers have researched the positive benefits of managing diversity, rather than
simply adopting equal opportunities policies. For example, Rosabeth Moss Kanter, in The
Change Masters: Corporate Entrepreneurs at Work, in 1994 noted that organisations that are
serious about diversity show better overall financial performance.
Kanter also noted that the business reasons for valuing diversity are also linked to those
which relate individual need to the health of society generally. The willing contribution of
responsibility, initiative and creativity depends on a fair and encouraging relationship between
employer and employee. These relationships will not be realised in organisations that
marginalise parts of their workforce by neglecting the diverse needs of employees.
The CIPD, in considering the importance of adopting a management of diversity approach to
equal opportunities, suggest that the reasons why diversity matters in business can be sub-
divided into six areas:
 Customer care
Increased emphasis on customer care for internal and external customers makes the
need to address diversity issues more important. Active diversity management can
open up new opportunities and improve market share by broadening the customer
base.
 Ethics and values
Ethical behaviour in the conduct of business is a significant concern of organisations,
as we have already noted earlier in this study unit. Increasing importance is placed on
behaving ethically and being seen to behave ethically. New 'dignity at work' policies
require that all forms of intimidating behaviour, including sexual and racial harassment

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and bullying are regarded as contravening the values of the organisation and, as such,
are treated as serious disciplinary matters.
 People management
Research, including that carried out by the CIPD in 1994, shows that organisations
which focus on equality and diversity are able to:
 Attract and recruit people from a wider range of talented candidates
 Retain the best talent
 Benefit from lower turnover and absenteeism
 Demonstrate greater organisational flexibility to respond to change.
Other reported benefits include better decision making; improved teamwork; greater
creativity, better customer service skills and improved quality of outcome.
 Changes in society
Expectations of fair treatment at work have increased and people have become more
aware of equal opportunity issues. This influences their aspirations to work for
employers with good employment practices.
As we have seen, changes in patterns of academic and vocational achievement have
changed the distribution of skills in the labour force. Important demographic changes,
such as the growing proportion of older people, are also affecting the availability of
labour. All of these changes are challenging the effectiveness of traditional methods of
recruiting and retaining talent.
Organisations recognise that healthy businesses flourish in a healthy society and some
employers are concerned about the threat of social disintegration because they
recognise that the economic exclusion of groups in society, in the long term, will limit
the growth of the total business market.
 Legislation
Laws prohibit discrimination on the grounds of sex/gender; race/ethnicity; disability; age
(older and younger workers), religion and belief and sexual orientation. The cost of
legal action for failing to comply with legislation can be high not only in terms of the
actual financial impact but also in the associated costs from damage to the
organisation's reputation and public image.
 Best practice
Benchmarking against good practice in other organisations maintains momentum and
stimulates ideas. Keeping up with best practice helps to avoid losing out to competitors
with more open and attractive employment policies. Initiatives such as the equality
checklist produced by the Equal Opportunities Commission have also encouraged
employers to take action.

Managing Diversity – The CIPD Checklist

According to the CIPD, the management of diversity is more than just words, policies and
procedures. It requires systematic management action and changes to working practices
and organisational culture. It depends upon leadership and commitment from management
at all levels.
The CIPD set out a checklist of key principles for the management of diversity, as follows:
 Lead and set values
(i) Communicate a value system based on trust, which welcomes individual
differences. Develop an open culture with good communication channels and

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open dialogue, starting with and actively supported by the Chief Executive and
the top management team. Use value statements and seek to create a well-
balanced, diverse workforce.
(ii) Make equality an issue for everybody by using eligibility criteria which are fair to
all and supportive of business goals, as well as reflecting legal requirements and
aspirations for best practice. Review documents such as application forms and
job descriptions.
(iii) Set and communicate standards of behaviour based on treating people with
respect and dignity. Use codes of conduct and training programmes. Take
disciplinary action when codes are broken.
(iv) Use public debate and changes in UK and European law on equality as a prompt
for action but do not wait for the law, act as soon as the need is clear.
(v) Mainstream equality principles as the basis for developing all people
management practices and business activities; valuing difference becomes part
of the fabric of the organisation and its approach to customers.
(vi) Look for ways of addressing the diverse needs of customers and clients, for
example, when undertaking market research. Link this to the use of diversity
within the organisation to improve overall business performance.
(vii) Be aware that international culture issues add an extra complexity to managing
diversity. Multi-national organisations and those operating in world markets need
to ensure that approaches to managing a diverse workforce take into account the
ways in which individual working styles and personal preferences are influenced
by national culture.
 Establish a policy agenda
(i) Accept that, having satisfied the requirements of the law, everything cannot be
done at once. Prioritise initiatives which nurture personal development and
individual contributions. Aim to release and develop the potential of as many
people as possible as quickly as practicable.
(ii) Make sure the organisation is kept informed about developments in the equality
field.
(iii) Aim to create an empowering culture in which decisions are made at the most
appropriate levels. Encourage experimentation and innovation, continuous
learning and development through mentoring and training. Commit to realistic
but stretching objectives. Monitor training across diverse groups.
(iv) Link the management of diversity to other systematic value-driven initiatives,
such as Investors in People, total quality management and the UK Quality Aware.
(v) Build diversity concepts and practice into management training and team building
programmes. This will increase awareness about the need to handle different
views, perceptions and ideas in positive ways. Include diversity objectives in job
descriptions and appraisal systems.
(vi) Train widely to encourage an understanding of why valuing people as individuals
is important to the organisation. Introduce awareness raising about diversity and
provide skills training to help people work together better in a diverse
environment. Include diversity issues in induction programmes so that all new
employees know about the organisation's policies and values.
(vii) Make clear that the organisation recognises that employees have caring
responsibilities. This can be achieved by having employment provisions which
help people to make the best arrangements to balance their work and personal

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responsibilities. Provisions should be available fairly to everybody, comply with

the law and support business needs.
(viii) Encourage suppliers to adopt diversity management approaches in their
organisations and include specific requirements in contract specifications.
 Embed policy in procedures
(i) Make sure that merit, competence and potential are the basis for all recruitment,
employment and development decisions.
(ii) To respond appropriately to diversity needs, draw up guidelines for managers
which give scope for flexible decision making.
(iii) Introduce mechanisms to deal with all forms of harassment, bullying and
intimidating behaviour. Make it clear that such behaviour will not be tolerated and
set out the consequences of breaking the organisation's behaviour code.
(iv) Make sure that appraisal systems take into account the achievement of diversity
objectives and workplace behaviour.
(v) Support development training to help people to reach levels of competence which
let them release their true potential. Take into account legal requirements under
the Race Relations and Sex Discrimination Acts and Disability Discrimination Acts
regarding positive action, in connection with targeted ethnic group, single sex and
disability training. Take professional advice if necessary.
(vi) Be pro-active in checking for and removing unfair biases in systems, procedures
and their applications; these can restrict the benefits of diversity.
(vii) Focus on essential and objective job related criteria when making employment
and training decisions about people. Remove subjectivity and only use 'desirable
but not essential' requirements to differentiate between candidates of the same
calibre.
 Measure, review and reinforce
(i) Regularly audit, review and evaluate progress and keep qualitative and
quantitative data to chart progress and show business benefits.
(ii) Make use of employee surveys to evaluate the success of initiatives and to
provide a platform for improvement.
(iii) Encourage employee consultation, involvement, good communication and
feedback to make sure the organisation has commitment to diversity
management; this will also help to maintain the momentum of improvements.
(iv) Monitor the equality approaches of other organisations and adopt and adapt
relevant ideas where appropriate.
(v) Celebrate successes and identify learning opportunities from failures; use these
as building bricks
(vi) Remember that managing diversity is a continuous process of improvement, not
a once and for all initiative.

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Diversity – Examples

The following are published statements outlining approaches to diversity:

Nationwide Building Society
"The Nationwide Building Society is firmly committed to remaining a
building society, focused exclusively on the needs of the customer. We
believe that meeting the needs of a diverse customer base requires a
highly skilled, competent and flexible workforce, who all feel that
Nationwide is where they want to work. Nationwide is achieving this
through the ethos of working for equality of opportunity, supported by a
broad range of policies, practices and procedures which aim to recognise
individual contribution and performance, develop each individual's
capability and give everyone an equal opportunity of using their talent and
releasing their potential. Managing the diversity of our customers and
employees is an exciting and rewarding challenge for us all".
Bedfordshire County Council
"Bedfordshire County Council is committed to equal opportunities in
carrying out all its various activities and is opposed to any form of unfair
treatment. Equal opportunities is about the culture of the organisation:
whether it is welcoming and supportive, or hostile and critical. The way that
we treat one another is a critical element in ensuring that we create the
right environment in which people can grow, develop and maximise their
contribution"

D. ADVANTAGES OF AN ETHICAL APPROACH TO

PEOPLE MANAGEMENT AND DEVELOPMENT
Ethics are a code of behaviour considered to be morally correct. Business ethics can
provide businesses with moral guidelines in conducting their affairs. An ethical decision
means doing what is morally right, as opposed to assessing the most profitable course of
action. Sceptics argue that business ethics is little more than an interesting marketing ploy
designed to encourage the consumer to think that the organisation is somehow 'better' than
its competitors and therefore, more worthy of the consumer's custom. However, research
does seem to suggest that there may be some real advantages to the organisation in taking
an ethical view and encouraging ethical behaviour amongst its employees.
Some writers have claimed that values represent the 'corporate DNA', containing the identity
that helps businesses prepare for the future and cope with their challenges. The arguments
in favour of taking an ethical or value-based approach include:
 Values can provide a framework for all the other activities of the organisation
 Values can guide decision making and discussion
 Values enhance the corporate reputation
 Values can enhance recruitment by attracting candidates whose own values are in tune
with the organisation
 Values can also play a role in helping with the management of change by providing a
'theme' that employees can recognise as valid and valued

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 For companies operating in a market containing undifferentiated products, an ethical

stance can provide a unique selling point
 Values can help to enhance a sense of commitment to the organisation and therefore,
are an important part of high commitment management.
The concept of ethics and values in business applies to all the relationships within and
outside the organisation:
 Between the organisation and the outside world generally, value statements might
cover the manner in which the organisation does business; its attitude towards the use
of renewable and non-renewable raw materials; its views of the environment, the
company's attitude towards its social responsibility, etc
 Between the organisation and its customers and consumers, value statements might
cover the way in which it intends to do business
 Between the organisation and its workforce, typical value statements identify attitudes
towards equal opportunities and diversity
 Between management and employees, value statements guide the manager-employee
relationship, identifying the importance of trust, respect and equality
 Between employees, value statements identify how employees are expected to behave
towards their fellow employee.

Case Study 2

Ulster Bank
Ulster Bank group decided a clear set of corporate principles would help its
employees understand and participate fully in the changes planned to
ensure the company remained successful into the millennium.
The top team began the process of brainstorming a set of values they felt
were important. Before the words became set in stone, they organised a
series of workshops to give employees the opportunity to comment. Initial
feedback confirmed they were on the right track – but identified two values
employees felt had been missed off the list. Staff also felt the values were
written in 'management speak' and needed to be described more clearly.
An intensive year-long process of consultation followed, which resulted in a
list of seven corporate values:
 fair and honest
 leadership by example
 added value for our customers
 shared purpose and individual responsibility
 performance and achievement
 innovation and creativity, and (finally)
 our people.
These values all link into Ulster Bank Group's vision, which is "through the
relentless pursuit of excellence, we will be the preferred financial services
group on the island of Ireland".
Source: Professional Manager, November 1999

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E. PROMOTING AND ENFORCING ETHICAL BEHAVIOUR

There are a number of perspectives on ethics in HRM but the stakeholder perspective is the
one most likely to result in the best all round conformity to the principles of ethical behaviour.
It is when one group begins to behave without concern for the rights or views of others that
ethical issues are most likely to arise.
One of the stakeholders for all organisations is their local and national government. In most
countries the government legislates and provides resources to both promote and enforce
ethical HRM. So in Europe there are national minimum wage rates, anti-discrimination
legislation and minimum standards on handling dismissals and redundancies.
Shareholders and to a lesser extent, customers of commercial organisations also apply
pressure to enforce ethical behaviour, e.g. in relation to boardroom pay.
Within the organisation, HR professionals have a role in ensuring the existence,
promulgation and enforcement of good practice on handling discipline, grievances and
whistle blowing.
The organisation may enforce its standards on sub-contractors via contract compliance
(requiring a supplier or subcontractor to demonstrate that it meets basic standards of
employee rights).

F. 'HARD' AND 'SOFT' HUMAN RESOURCE STRATEGIES

The 'hard' approach to HRM sees employees as a measurable commodity, human capital, to
be managed in a detached way as any other resource (such as land, buildings, plant or
equipment) would be managed. This usually results in a close vertical integration between
the business and the HR strategies. The human resource is relatively easily disposable.
The emphasis is upon employee compliance. This is the mechanistic approach.
The 'soft' approach views employees as 'resourceful humans', an invaluable source of
competitive advantage. The emphasis is upon employee commitment. This is the organic
approach.
The perspective adopted will have a strong influence upon the organisation's treatment of its
people. Some organisations take a clear public stance on these issues (international
investment banks for instance will tend to take the hard perspective; creative industries will
adopt the softer approach).

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Study Unit 7
The Strategic Approach to People Resourcing

Contents Page

A. Introduction 121
Integrating Business and Resourcing Strategies 122
Bundling Resourcing Strategies and Activities 122

B. Employment Flexibility 122

Flexible Resourcing Strategies 122
What is the flexible firm? 123
Why might we want to increase flexibility? 123
Does the flexible firm exist in practice? 123
What strategic approaches can be taken towards flexible working? 125
Why are organisations using more flexible working arrangements? 126
What are the potential benefits of flexible working? 126
How should we implement flexible working practices? 126

C. Human Resource Planning 127

Doesn't the flexible firm lead on to strategic questions about the sorts of people an
organisation aims to employ? 127
Human Resource Planning 127

D. How Do We Take a Strategic Approach to Recruitment? 130

Resourcing Plans 130
Recruitment Strategy 130
Recruitment and Selection Techniques 132

E. What Does it Mean to be an 'Employer of Choice'? 132

What is an employer of choice? 132
Is this the same as employer branding? 132
Who decides upon the employer brand? 133
What about the internal employer brand? 133
How does an employer go about influencing its employer brand? 133

(Continued over)

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F. How Do We Take a Strategic Approach to Staff Selection? 133

How do we go about choosing which selection tools to use? 135

G. How Do We Take a Strategic Approach to Staff Deployment? 135

What forms of employment are there? 136
What time-based methods are there? 137
What location-based methods are there? 139

H. How Do We Take a Strategic Approach to Staff Retention? 141

Retention Strategies 141

I. How Do We Take a Strategic Approach to Performance Management? 143

What is performance management? 143
Yes, but how do you do this? 143
Isn't each of these a subject on its own? 144
Is there a connection between performance management and leadership? 144
Do we performance manage only individual employees? 144
Performance Measurement Techniques 145
The Role of Appraisals 146
A Strategic Approach to Performance Management 147

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Objectives
The aim of this unit is to critically evaluate strategies for people resourcing which increase
the available pool of 'talent' within the enterprise.
When you have completed this study unit you will be able to:
 Describe and explain strategies for recruitment
 Describe and explain the development of 'employer of choice' strategies
 Describe and explain strategies for selection and the search for 'talent'
 Describe and explain strategies for the deployment and redeployment of people,
including strategies for redundancy and dismissal
 Describe and explain strategies for people retention
 Describe and explain strategies for coping with issues of poor performance, including
absence

A. INTRODUCTION
Employee resourcing strategy is concerned with ensuring that the organisation obtains and
retains the people it needs and employs them efficiently. It is, therefore, a key part of the
process of human resource management.
The rationale behind employee resourcing is found in the resource based view that we
identified in Study Unit 2. The aim of human resourcing strategy, therefore, is to ensure that
an organisation achieves competitive advantage by employing the right number of people
with the right skills, who will behave in ways that will maximise their contribution. It is
concerned with obtaining and keeping the number and quality of staff required but also with
selecting and promoting people who 'fit' the culture and strategic requirements of the
organisation.
In this study unit we will examine strategies for recruitment; selection; deployment, retention
and reward of staff, to meet corporate needs in the context of the commercial and cultural
environment. We shall:
 Discuss the role of recruitment, selection, deployment, retention and reward strategies
in the achievement of organisational purposes
 Identify appropriate strategies for the recruitment, selection, deployment and retention
of staff in the context of the modern commercial and cultural environment
 Identify the variety of reward strategies available and discuss their application in
different organisational scenarios.
The traditional view of employee resourcing concentrated on obtaining people with the right
range of skills and attitudes for the organisation. This sounds fine in principle but there is a
tendency to interpret this in terms of existing skills and attitudes, so that managers tend to
recruit people who display the same characteristics as themselves. However, as we have
already seen, creativity, innovation and flexibility are key issues in today's modern business
environment and new thinking is not likely to result from people who display the same or
similar characteristics to those already within the organisation. Peters and Waterman,
in In search of excellence suggest that superior organisational performance comes from
employing individuals that are mavericks. In their view, the usual selection methods requiring
evidence of continuous and verifiable employment actually work against the organisation that
is seeking a freethinker.

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The strategic approach to employee resourcing recognises that maintaining the status quo is
not necessarily the best option but it can mean radical changes in thinking about the skills
and behaviours required in the future to achieve sustainable growth and cultural change.

Integrating Business and Resourcing Strategies

Armstrong, in Strategic Human Resource Management: A guide to action, notes that the
integration of business and resourcing strategies is based on an understanding of the
direction in which the organisation is going and the determination of:
 The numbers of people required to meet business needs
 The skills and behaviour required to support the achievement of business strategies
 The impact of organisational restructuring as a result of rationalisation,
decentralisation, delayering, mergers, product or market development, or the
introduction of new technology
 Plans for changing the culture of the organisation in such areas as ability to deliver,
performance standards, quality, customer service, team working and flexibility, which
indicate the need for people with different attitudes, beliefs and personal
characteristics.
As we have seen in Study Units 2 and 3, these factors will be influenced by the type of
business strategies adopted by the organisation and the type of organisation. This is a two-
way process as, not only will employee resourcing strategies be affected by business
strategies; they will affect the selection of appropriate business strategies.

Bundling Resourcing Strategies and Activities

Employee resourcing is not just about recruitment and selection. It is concerned with any
means available to meet the needs of the organisation for certain skills and behaviours. A
strategy to enlarge the skill base may start with recruitment and selection but would also
extend into training and development, to enhance skills and modify behaviours and methods
of rewarding people for the acquisition of additional skills. Performance management
processes can be used to identify development needs and motivate people to make the most
effective use of their skills. Diversity initiatives might permeate throughout the process.
Competence frameworks and profiles can be prepared to define the skills and behaviours
required and used in selection, employee development and employee reward processes.
Thus, supporting strategies should be developed along these lines. This is, you will recall
from Study Unit 4, a process called bundling.

B. EMPLOYMENT FLEXIBILITY
Flexible Resourcing Strategies
At several points throughout this subject area, we have noted how flexibility is a key issue in
human resource management. The concept of 'flexibility' can cover a number of different
aspects. Blyton and Morris, in Human Resource Management and the limits of flexibility,
define flexibility in four different ways:
 Numerical flexibility, which is the ability to vary the numbers employed at short notice in
response to fluctuations in demand for labour. This can be achieved by using a mixture
of different types of employment contract – for example, a combination of full-time
permanent, part-time permanent, full and part-time temporary/fixed term contracts, etc.
 Temporal flexibility refers to variations in the pattern of hours worked, to respond to
business demands and employee needs. Using strategies such as annualised hours is
one way of achieving temporal flexibility.

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 Functional flexibility is where employees may be multi-skilled and involved in a wide

range of tasks, with fewer boundaries between jobs. This type of flexibility encourages
team working practices and in its ultimate form destroys the distinction between craft
and operator jobs and tasks.
 Wage flexibility is where wages offered are individualised rather than standardised, by
the use, for example, of performance related pay or pay for skills offered rather than
tasks allocated. Similar arrangements include 'cafeteria' style benefits where
employees can 'choose' a range of benefits according to their own preferences.
It is important to remember that flexibility, although desirable, can sometimes come at the
expense of other strategies. Torrington and Hall, in Human Resource Management, note that
numerical flexibility, if achieved through the use of temporary contracts and/or outsourcing,
may have an adverse impact on the achievement of a quality strategy.

What is the flexible firm?

Atkinson also split the organisation into two groups:
 The 'core' group, which is permanent, displaying functional flexibility characteristics.
Core workers may display common features and may have firm specific skills that
would be hard to buy in.
 The peripheral workers, who are offered numerical and distance flexibility and are used
and discarded as required by demand. The peripheral worker provides a buffer
allowing functional flexibility to be exploited to the full. Contracting out takes
responsibility for all problems concerning adjustments in contractual arrangement e.g.
wage rates and hours worked. The organisation can then concentrate on its core
activities.

Why might we want to increase flexibility?

 To focus resources and attention on core activities
 To reduce waste by increasing the speed with which the organisation can adapt to
meet changing market needs
 To take advantage of staff available in the external labour market
 To clarify career development routes
 To reduce the power of trades unions.

Does the flexible firm exist in practice?

The flexible firm model is useful in showing what flexibilities organisations might seek and
how they might go about keeping things flexible, research has failed to show a wide scale
adoption of the flexible firm model. So we cannot yet say, 'this is the way everyone
structures their organisation'. However, there is no doubt that the elements of the model are
present in most middle to large organisations, to some degree or another, even if the model
is not adopted in a wholesale fashion.

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Case Study

Pindar Set
Pindar Set is a small family-owned Yorkshire business which has been
typesetting the Yellow Pages directories for many years. A one-customer,
one-site operation, it enjoyed a highly profitable 10-year contract to design
and set advertisements for Yellow Pages' customers. However, in 1995
Yellow Pages indicated that it wanted to move to a shorter-term contract
with tighter margins and greater responsiveness to customer demand.
Pindar Set was asked for new turnaround times, a new emphasis on quality
and customer service and was offered three of Yellow Pages own design
studios to incorporate into its business. It was impossible to achieve the
targets and integrate the new studios without a radical revision of
operations. The way it went about it, putting people management at the
heart of its strategy, earned the company the CIPD People Management
Award in 2000.
The challenges facing the company at the outset were enormous. Not only
was it necessary to rethink the way in which work was carried out, but the
transfer of the three design studios doubled the workforce, resulting in a
mixture of different working practices and a degree of uncertainty on the
part of the new workforce, all at a time of major change.
The company began the process of change by making a thorough review of
its own business, assessing what it was doing and how. One of the first
requirements was to reduce turnaround time for advertisements from 25
days to just 5. The result of the review was that from 1997 the company
set about training its entire unskilled staff to do skilled jobs, phasing out
unskilled text-inputting jobs completely. All the unskilled workers upgraded
as planned, despite some initial wariness of the new accreditation process
that was established to ensure consistent standards across the business.
Remedial training was provided where necessary. Employees were also
trained to follow a job through from start to finish, reducing the internal
'pipeline' from 80 processes to one. Teamworking was also introduced,
which meant creating new team leader roles with team leaders given more
responsibility for financial, operations and people management than before.
This also required the introduction of an 18-month development plan for
new and existing team leaders, at a cost of some £3,000 each. Team
leaders are now recognised at the company's key players.
The second phase of initiatives involved changing working times with the
introduction of a new shift system to replace the previous overtime regime.
A twilight shift operating from 4.30pm to 1am was set up, initially with new
recruits hired on a temporary basis but subsequently on permanent
contracts. This increased the production window from 8 to 16 hours,
making better use of premises and equipment and helping to bring fresh
blood into the company. Pindar Set found that this twilight shift became the
most productive in the company – which it attributed to the fact that there
are fewer interruptions at these times. The change also cut overtime by
two-thirds, and increased Pindar Set's availability to customers.

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Finally, the company introduced a flexible working scheme to help cope

with the uneven flow of work from customers. With one week's notice (and
often much less) employees agree to the hours to be worked the following
week, with built-in safeguards so that they can balance their work and
home lives.
The flexible hours scheme is based upon a form of annualised hours, with
employees expected to work 1680 hours a year and both daylight and
twilight shifts annualised, but the scheme doesn't work to a standardised
format. For example, the company agreed with its staff that they would
never be asked to work more than 45 hours or less than 25 hours a week
or more than five days or less than four days, unless they wanted to do
otherwise. Furthermore, staff who finish their annual hours can choose to
take the rest of the year as holiday, or can volunteer to do additional hours
paid at time and a half, if the need is there. On the other hand, if they are
asked to work fewer than the set hours in a year, the company still pays the
full rate.
Pindar Set themselves note that not all the changes were plain sailing. The
original plant, a traditional print environment which was heavily unionised,
had to be left out of the flexible working arrangements because of
opposition to annualised hours by the union. People weren't forced to join
the scheme and indeed the company found some benefits in retaining
some workers on a more traditional employment basis.
The change programme has delivered real business benefits for Pindar
Set, which has seen pre-tax profits increase, absentee levels decrease and
customer complaints fall from 123 per month to an average now of just 10.

What strategic approaches can be taken towards flexible working?

It depends what upon the context in which the expression is used:
 The flexible labour market see Flexible working (this section)
 Numerical flexibility (e.g. arrangements for varying
the size of the workforce using temporary, fixed see The flexible firm (Study Unit
term and agency staff) 3 – Human Resource Planning)
 Functional flexibility (e.g. multi-skilling).
Here, principally, we mean the organisation's working arrangements in terms of working time,
working location and the pattern of working:
 Part-time working: Anything less than full-time hours.
 Term-time working: A worker remains on a permanent contract but can take paid/unpaid
leave during school holidays.
 Job-sharing: A form of part-time working where two (or occasionally more) people
share the responsibility for a job between them.
 Flexitime: Allows employees to choose, within certain set limits, when to begin and end
work.
 Compressed hours: Compressed working weeks (or fortnights) don't necessarily
involve a reduction in total hours or any extension in individual choice over which hours
are worked. The central feature is reallocation of work into fewer and longer blocks
during the week.

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 Annual hours: The period within which full-time employees must work is defined over a
whole year.
 Working form home on a regular basis: Workers regularly spend time working from
home.
 Mobile working/teleworking: This permits employees to work all or part of their working
week at a location remote from the employer's workplace.
 Career breaks: Career breaks, or sabbaticals, are extended periods of, normally
unpaid, leave of up to five years or more.
Organisations are showing more understanding of employee's responsibilities outside work.
According to a study by the UK government, in 1998 84 per cent of UK managers believed it
was up to an individual employee to balance their work and family responsibilities. By 2004
this had fallen to 65 per cent.

Why are organisations using more flexible working arrangements?

 Its potential value as a recruitment and retention tool in a tight labour market
 The changing profile of the workforce (for example, with more women in the labour
market and an ageing population, it is increasingly common for workers to have caring
responsibilities outside the workplace)
 Advances in technology (facilitating, for example, remote working and hot desking
arrangements)
 An increasing need for businesses to be able to deliver services to customers on a
24/7 basis.

What are the potential benefits of flexible working?

Research by the UK Chartered Institute of Personnel and Development (CIPD) on employee
attitudes and the psychological contract demonstrated a correlation between a flexible
working and positive psychological contract. Workers on flexible contracts tend to be more
emotionally engaged, more satisfied with their work, more likely to speak positively about
their organisation and less likely to leave.

How should we implement flexible working practices?

Effectively communicating and implementing flexible working is likely to require effort and
energy. The kind of challenges you might encounter include:
 Overcoming concerns about operational pressures and meeting customer
requirements
 Line managers' current ability to effectively manage flexible working
 Line managers' current attitudes toward flexible working
 Your existing organisational culture
 A lack of support at senior levels.
Here are some ideas:
 Establish a clear process for how flexible working works in your organisation
 Ensure there clear roles and responsibilities for employees, line managers and HR
 Assess the current levels of support you offer your line managers and ensure it is
sufficient
 Invest in ongoing communication and awareness raising

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 Assess how conducive your organisation culture is to flexible working and take action
accordingly
 Make use of pilots (when introducing new initiatives) and trial periods (for individual
flexible working arrangements) to highlight potential problems with flexible working
arrangements
 Build in opportunities and mechanisms to monitor and evaluate progress with flexible
working.

C. HUMAN RESOURCE PLANNING

Doesn't the flexible firm lead on to strategic questions about the sorts of
people an organisation aims to employ?
Be clear about the sorts of people your organisation should recruit: a high number of low
competence, low pay and high turnover people or a small number of highly competent, high
pay, low turnover people with a long-term career in your sector. Do you need multi-skilled or
specialist people? Does the board agree on this? Do your employment terms support what
you are trying to achieve? For most organisations the answers to these questions will vary
slightly across functions and from one level of hierarchy to another. Nevertheless, a
coherent employer brand usually demands a common stance. A high pay city bank will
demand quality catering and good office cleaners.
Armstrong suggests that the components of employee resourcing strategy should include:
 Human resource planning: An assessment of future business needs and deciding on
the numbers and types of people required
 Resourcing plans: Preparing plans for finding people from within the organisation
and/or for training programmes to help people learn new skills. If needs cannot be
satisfied from within the organisation, preparing longer-term plans for ensuring that
recruitment and selection processes will satisfy them.
 Retention strategy: Preparing plans for retaining the people the organisation needs,
and
 Flexibility strategy: Planning for increased flexibility in the use of human resources to
enable the organisation to make the best use of people and adapt swiftly to changing
circumstances.
Let us now look at each of these in turn:

Human Resource Planning

In simple terms, human resource planning (or manpower planning as it is sometimes called,
although many writers argue that the two terms do not mean the same thing) aims to address
human resource needs in the longer term (although sometimes short-term issues are also
addressed) in both quantitative and qualitative terms, that is, not just the numbers required,
but the nature and type of person, skills etc.
Human resource planning also involves a look at the broader issues of resourcing, such as
the ways in which people are employed and developed to improve organisational
effectiveness.
There are two recognised approaches to human resource planning: the 'hard' and 'soft'
approach. The 'hard' or 'rational' approach is based primarily on numbers; a quantitative
analysis designed to ensure that the right number of the right sort of people is available when
needed.

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The process involves:

1. An evaluation or appreciation of existing manpower resources
2. An estimation of the proportion of currently employed manpower resources which are
likely to be within the organisation by the forecast date
3. An assessment or forecast of labour requirements if the organisation's overall
objectives are to be achieved by the forecast date
4. The measures to ensure that the necessary resources are available as and when
required, that is, the manpower plan.
Stages 1 and 2 represent the supply aspect of manpower. It would include both internal and
external resources and an evaluation of the 'quality' or competencies (skills) available to the
organisation. Stage 3 represents the demand aspect of manpower. Stage 4 is the 'gap' that
is to be filled by measures to recruit, retain or reduce labour.
This can be shown as follows:
The Rational Approach to Manpower Planning

Organisation strategy and targets

Organisation practices and methods

Manpower review and analysis

Internal External

Demand Forecast Supply

Adjust to balance

Recruit - Retain - Reduce

Source: Bratton and Gold, Human Resource Management; Theory and Practice

The 'soft' approach takes a more diagnostic view by looking at the underlying causes of the
supply and demand for labour and how shaping the organisation and its culture can influence
demand and supply, as follows:

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The Diagnostic Approach to Manpower Planning

Manpower plans and policies

Operations

Monitored through qualitative and

quantitative techniques

Understanding of causes

Plan of action to control

Source: Bratton and Gold, Human Resource Management; Theory and Practice

Whichever of the two approaches is adopted, the stages involved are closely interrelated and
often overlap. For example, demand forecasts are estimates of future requirements and
these may be prepared on the basis of assumptions about the productivity of employees.
However, the supply forecast would also have to consider productivity trends and how they
might affect the supply of people.
Although both of these approaches to planning appear logical, it must be said that the extent
to which they are actually adopted by companies is questionable. You might consider
whether they take place in your own organisation. Armstrong quotes Rothwell, who identified
some of the reasons why such activities are not as widespread as might be imagined, when
writing in Human Resource Management, a critical text in 1995, as:
 The impact of change and the difficulty of predicting the future: 'the need for planning
may be in inverse proportion to its feasibility'
 The 'shifting kaleidoscope' of policy priorities and strategies within organisations
 The distrust of theory or planning that is displayed by many managers: they often
prefer pragmatic adaptation to conceptualisation
 The lack of evidence that human resource planning works.
There does seem some, theoretical, advantage in broadly determining future human
resource requirements as a basis for strategic planning and action.

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D. HOW DO WE TAKE A STRATEGIC APPROACH TO

RECRUITMENT?
Resourcing Plans
The analysis of future requirements should indicate what steps need to be taken to appoint
people from within the organisation and what training programmes should be planned. The
analysis will also establish how many people will need to be recruited, in the absence of
qualified employees within the organisation or the impossibility of training people in the new
skills in time.
Internal resourcing should be based on data which is already available, such as
competency frameworks and the outcomes of performance reviews. Such information can
be backed up by internal advertising campaigns, etc.
External resourcing requirements can be met through the development of a recruitment
strategy.

Recruitment Strategy
The aims of this strategy should be:
 To make the organisation attractive to potential candidates by being the 'employer of
choice'
 To plan the best methods of defining what is needed in terms of skills and
competencies
 Concerned with planning the most effective methods of obtaining the number and type
of people required.
The strategy needs to consider:
 The skill and behaviour requirements, ideally identified by conducting a skill and
competence analysis and/or using existing competence frameworks. The advantage of
using such an analysis is that interviews can be structured and selection criteria
identified based upon the requisite skills and behaviours.
 The factors affecting decisions to join the organisation, so that a thorough review of
each can be determined to ensure that the organisation remains or becomes the
'employer of choice' for potential candidates. Such factors might include:
(a) Pay and benefits package
(b) Career opportunities
(c) Training opportunities
(d) Career structure
(e) Technology and equipment available
(f) The design of the job itself
(g) The values of the organisation
(h) The organisation's culture
(i) Reputation of the organisation.
 An analysis of the labour market locally or perhaps nationally, identifying the main
competitors for labour and highlighting any factors which the organisation is able to
offer candidates which are superior to competitors (i.e. the competitive edge) so that
these can be exploited to attract the 'best' candidates. Pay and benefits might not be

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the only factor. Where labour resources are relatively limited, restructuring jobs so that
flexible working hours, job sharing, part-time work, etc. are able to be offered, might
make a whole new sector of the labour market suddenly available to the organisation.

Example 1

In towns where there is a large student population (where there are

colleges of further education or universities) many employers have found a
readily available market of young people anxious to pay their college tuition
fees and supplement grants through working.
Offering part-time and shift work which can be combined with studies, not
only enables the organisation to tap into this source of labour but brings
with it a number of other advantages, such as:
(a) Access to high quality undergraduates who may be persuaded to stay
with the organisation after graduation, bringing with them experience
in the business plus up to date qualifications
(b) High quality workers who are less concerned (whilst studying) with
matters such as job security – important if short-term flexibility is
required
(c) Workers who may view their employment as an extension of their
learning experience, which can help organisations generate and
maintain a 'learning environment'.
An organisation's reputation can be enhanced by being seen to offer
valuable work experience to young people.

 Any alternative strategies available such as:

(a) Outsourcing
(b) Re-engineering
(c) Increasing flexibility
(d) Skills training
(e) Multi-skilling
(f) Downsizing.
We have address many of these developments in Study Unit 5 but, if you are unsure
what they mean, turn back to that Study Unit now as a reminder.
Most of these strategies tend to assume a relatively abundant supply of labour but in
many parts of the country and particularly in rural areas, shortages through
demographic change must be addressed, for example, by aiming to recruit and retain
older workers (in the absence of younger workers) or specifically to recruit and retain
women returners. Alternative strategies might include stepping up retention strategies,
offering 'golden hellos' or attractive relocation packages, or even relocating the
organisation to an area where recruitment prospects are more favourable.

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Example 2

The NHS is an example where specific strategies have been developed to

encourage trained nurses to return to the profession after taking time off to
raise young families. Special recruitment drives, flexible working patterns
and part-time work, special retraining or updating courses, have all been
used to encourage nurses back into nursing.

Recruitment and Selection Techniques

The resourcing strategy also needs to explore methods of identifying suitable candidates by
considering recruitment and selection techniques. You will have studied these techniques in
your studies for human resource management but to remind you, these might include:
 Recruitment sources such as:
(a) Newspapers
(b) Specialist recruitment agencies
(c) Trade journals
(d) The internet
 Skills analysis and competence mapping
 Structured interviews
 Psychometric testing
 Using assessment centres.

E. WHAT DOES IT MEAN TO BE AN 'EMPLOYER OF

CHOICE'?
What is an employer of choice?
Organisations that create an excellent working environment will naturally find that more of the
best people will want to work for them and that, once in the organisation, employees will be
more productive, produce better quality work and be more innovative. These organisations
are employers of choice.
The UK's Sunday Times newspaper lists the '100 best companies to work for'. The list
changes from year to year but has included retailer ASDA and software giant Microsoft, shoe
repairer and key cutter Timpson and not-for-profit Bromford Housing Association. These
employers have created an environment in which employees feel valued and respected; in
which they feel connected to the company, so that they willingly give the effort required to
deliver high performance i.e. discretionary behaviour.

Is this the same as employer branding?

Whether we like it or not, every organisation has a 'brand'. The perception of that brand may
be different within the organisation and outside. The perception may also be different at the
top of the organisation and the bottom. Like the brand of any commercial product, the
employer brand can be influenced and even manipulated by HR's advertising and by
marketing. But it is the hard realities of organisational performance that will probably most
influence the perception of the employer in its key market, the labour market, from which it
draws its new recruits.

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Who decides upon the employer brand?

Some organisations spend a lot of money in external employer branding, particularly when
there is heavy competition for the right people. Armed services (army, navy or air forces) and
those who recruit large numbers of graduates or apprentices are all examples. As well as
the hype in their advertising, these organisations need to ensure that their recruitment
processes send out complimentary messages, so that the public perception is maintained. If
brand and reality are in line, the task is relatively straightforward. If they are not, brand
management will be key.

What about the internal employer brand?

Internal image, the image that employees have of their organisation, is also important.
However, the internal brand is much less susceptible to manipulation, because employees
see the reality every day. This element of the brand is personal to each employee and is
assembled from an enormous number of different encounters that the individual has with
their employer: treatment by management colleagues and customers; the type of work the
organisation does; reward levels and conditions of service; systems and technology; the
physical working environment; the willingness to invest in staff, the handling of conduct and
capability issues and the delivery of the deal on the psychological contract. The list might
also include the reinforcement (or manipulation) of the internal brand by publications, videos
and road shows.

How does an employer go about influencing its employer brand?

A guide to creating a positive employer brand was published by CIPD in 2007 (Employer
Branding – a No Nonsense Approach). It recommends an employer wishing to change their
brand go through four stages:
 Discover Gather perceptions from top management,
employees and the external talent market.
 Analyse, interpret and create Define the brand, create the plan and gather the
resources needed.
 Implement and communicate Ensure the rhetoric of the brand can be delivered
and then begin applying it.
 Measure, maintain and optimise Evaluate progress and adjust.

F. HOW DO WE TAKE A STRATEGIC APPROACH TO

STAFF SELECTION?
Each stage of the recruitment and selection process builds upon the previous stage. The
whole process is founded upon good job analysis: reviewing the job and clearly describing,
via the person specification, what the employer is looking for. One of the key issues in the
person specification is whether the employer is seeking for the finished product (someone
who will arrive fully trained) or someone who is trainable but not yet fully trained. The former
is looking for current competence, the latter for trainability.
This, then, has a profound effect upon the selection process. Testing for competence leads
the employer to design test and ask questions that simulate the post to be filled. Testing for
trainability is much harder because potential is far harder to assess.
“Recruit for attitude and aptitude, train for skills.”
There is very heavy reliance upon selection interviewing. However, whilst the interview is
good because it is interactive and wide ranging, its validity can be low and there are other

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selection tools that give better validity. The annual CIPD Recruitment Survey showed the
main data gathering tools UK employers were using in 2007:

% of organisations
Selection tool
using tool

Interviews following contents of CV/application form (that is,

92
biographical)

Structured interviews (panel) 88

Competency-based interviews 86

Tests for specific skills 80

General ability tests 72

Literacy and/or numeracy tests 70

Telephone interviews 61

Personality/aptitude questionnaires 56

Assessment centres 47

Group exercises (for example, role playing) 46

Pre-interview references (academic or employment) 45

Online tests (selection) 30

Source: CIPD Recruitment Survey, 2007

The following diagram illustrates the value of different forms of selection as a predictor of
future performance:

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1.0 Perfect prediction (1.0)

0.9

0.8

0.7

0.6 Assessment centre - promotion (0.68)

Structured interview (0.62)
0.5 Work sample (0.55)
Ability test (0.54)
0.4 Assessment centre (performance) (0.41)
Biodata (0.40)
0.3 Personality test (0.38)
Unstructured interview (0.31)
0.2

0.1 References (0.13)

Chance prediction (0.00); Graphology (0.00)

Source: Adapted from Anderson and Shackelton,

Successful Selection Interviewing, 1993

How do we go about choosing which selection tools to use?

There are five key issues to consider in deciding a selection strategy:
 Sufficiency. Are you using enough tools to cover the topics on the person
specification? You need to choose the tests that will distinguish between the
candidates (some would call this 'sensitivity')
 Validity. Are you testing what you think you are testing? (Also, face validity; does it
look valid to those involved and is it acceptable?)
 Authenticity. Is this the candidate's work?
 Reliability. If we did this tomorrow, would we get the same results?
 Cost. At what point does the cost of doing more tests exceed the value of the data
they provide?

G. HOW DO WE TAKE A STRATEGIC APPROACH TO

STAFF DEPLOYMENT?
As we have seen, a significant feature of the modern organisation environment is relentless
change. This suggests that the patterns of employment will change but so too, will the ways
in which work is done. For the organisation, alternatives to the traditional "nine to five"
pattern of full-time, permanent working offer the opportunity to provide themselves with more
flexibility at lower cost. For the individual worker, different working patterns offer the
opportunity to fit work in with other responsibilities and interests (domestic and social), as
well as gaining more personal control over their working lives.
There are a great many new patterns of work evolving; some based on computer
technologies but many simply based on building greater flexibility into traditional types of job.

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What forms of employment are there?

(a) Part-time Workers
Part-timers are often cheaper and can be more flexible. Furthermore, the organisation
can lay off part-time workers more easily during slack periods and part-timers have
fewer rights to statutory redundancy payments.
Technology has made it easier for organisations to bring in new working methods. For
example, using a PC and a modem a person who used to come to the office every day
can work from home, making use of e-mail as well as "lower tech" devices such as fax
machines.
(b) Fixed/short-term Contract Workers
Here, workers are taken on for a specified period, to ensure that when the needs of the
organisation change, the complexion of the labour force can be altered to reflect new
needs.
Fixed-term contracts are quite common in positions such as overseas appointments
and domestic senior level/executive jobs. For the former, it means that the person
entering the job knows that the work will last a specific time and enable both them and
the employer to plan accordingly for the next time period. For the latter, this reduces
the damage that can be done by having the wrong person to do the job for any longer
than necessary.
Fixed-term contracts can provide useful flexibility but they do require careful planning
to:
 Avoid getting the period of employment wrong, otherwise the person may stay
too long as an unproductive resource, or alternatively have to have the contract
"rolled over" for a new period
 Avoid losing valuable people who might otherwise stay
 Reduce or eliminate the likelihood of the fixed-term employee going off to a
competitor with valuable intelligence
 Gain the full commitment of the person, who after all will only be with the
employer for a while and cannot be expected to foster the same loyalty as a "full
timer".
(c) Outside Contractors/Sub-contractors
There are several advantages of outsourcing work to independent contractors:
 The organisation only has to pay for what it gets
 The contractor may be negotiable on rates of pay or fees, especially if the
organisation is competing with others for the same contracts
 Contracts can be written precisely to reflect needs and can include clauses to
invoke time or quality penalties
 Often the outsourcing permits both the buyer and seller of the service to
specialise
 Long-term relationships can be built up between buyer and contractor.
Many functions that were traditionally the domain of internal labour are now out-
sourced. These include:
 Catering services
 Information technology services (often put out to bureaux)

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 Printing and stationery

 Specialist advisory units.
(d) Self-employed Labour
Many organisations now have people working for them who work on a self-employed
basis, even if all the work is provided by one source. This is common in life assurance
sales functions, where self-employed persons operate as direct sales personnel
earning mainly commission.
The "employer" has to take great care to ensure that quality standards are maintained
and that the self-employed person does not have any conflicts of interest. Decisions
also have to be taken on methods of pay and who provides any equipment or
machinery.
(e) Agencies
An organisation can give itself more flexibility by using agency labour. There are many
employment agencies, some of which specialise in certain fields of expertise.
There are obvious dangers with quality control, especially when the relationship with
the agency is not well established. The turnover of agency personnel is also high,
which can result in continuity problems.
(f) Get the Customer to do the Work
Technology now enables companies to deliver services on a DIY basis, e.g.
 Scanning your own goods at supermarkets
 Filling up the car with petrol and paying at the pump by debit or credit card
 Internet shopping.

What time-based methods are there?

(a) Shift Working
Shift working allows the production process to be ongoing so that the factory
environment never really shuts down (apart from during holiday periods). It also
enables the effective utilisation of employees and machinery.
Different types of shift working systems include:
 The Continental System
Organisations are increasingly moving over to a continental pattern of shift
working. It involves employees working a rota such as two mornings followed by
two nights followed by two or three rest days. In some companies it means 12
hour shifts on each occasion worked, but it means that employees have "rest
days" to catch up on lost sleep, etc. It is a popular option with some companies
as it gives employees variety, and also means that staff have more time to spend
with their families and on leisure activities.
 Three Shift System
Here employees work a pattern of three shifts: mornings (7 am to 2 pm),
afternoons (2 pm to 10 pm) and nights (10 pm to 7 am). When employees work
the night shift they usually work four nights (Monday to Thursday inclusive) and
go home on Friday morning. Friday nights are left free. As you can imagine the
night shift (as well as shift working per se) puts enormous psychological and
physical stress on individuals.

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(b) Flexi-time
Flexi-time gives employees the opportunity to determine when they come in to work
and when they go home (within certain parameters). "Core time" is the time when
employees are required to be at work (usually between 10.00 am and 4.00 pm). For
example, if their normal working week is 37 hours individuals can determine the hours
they work during each working day, around the core time, as long as the hours at the
end of the week add up to 37. Companies usually have a recording mechanism to
ensure that employees do not abuse the flexi-system.
(c) Job Share
One full-time job is shared between two employees working on a part-time basis,
usually, but not necessarily, dividing the time (and the pay) equally between them. The
earnings are also shared. Tasks are also shared equally between jobholders, thus
increasing personal flexibility for workers.
This is ideal for individuals who only want to work for a proportion of the normal
working week. There is, clearly, a limiting factor in the reaction of many staff who are
dependent on income from full-time employment. There may be practical difficulties of
liaison between the two part-time staff members in some cases but these can be
overcome. Job-sharing is most likely to appeal to staff who have domestic
commitments and so prefer part-time work to full-time work, or to older employees who
may regard part-time work as a compromise between full-time work and retirement.
Job sharing has become popular partly because of equal opportunities awareness. It
provides a format, particularly for women with child care responsibilities, to carry on
with their jobs on a specialised part-time basis.
Many organisations are critical of job sharing and believe that it is more expensive to
run and harder to manage. However, the evidence seems to be that job sharers work
harder and better because they are doing what they want to do and are more
motivated.
Job sharing can be an effective tool to keep staff who might leave because they cannot
or will not work full time any more and can work well for both employer and employees
provided both employees are happy with the continuation of the arrangement.
Difficulties can arise if one employee leaves or wishes to work full time.
(d) Annualised Hours
An annual hours contract requires the employee to supply a given number of hours of
labour over a 12 month period. It is usual to have arrangements to review quarterly or
half yearly, to take account of changes in the organisation. Within the agreement the
actual hours worked can vary from week to week and month to month. For example,
the length of the working day can be varied up to, say, 9 hours a day in a period of
peak demand. The extra hours worked in the busy period can be compensated by
shorter days in the quieter period, or by aggregating the hours into blocks of time off.
From this example you can see that annualised hours is a good strategy for
organisations that have a demand for labour that is predictable but not regular.
Annualised hours contracts were first developed in the pulp and paper industries in
Sweden and Finland. They allowed people to work more hours in the busy times and
less at off-peak periods, without the organisation having to employ more staff on
temporary contracts or pay large overtime payments. They are also highly relevant
when employing parents who wish to manage their time around school hours and
holidays.
Annualised hours contracts are gaining popularity with employees and employers,
although there is a suggestion that administratively they are more complicated to
manage. The introduction of annualised hours can often be part of a change in

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management strategy where the objective is to alter working practices to reduce costs,
increase flexibility and introduce new cultures.
The benefits of annualised hours include:
 A reduction in overtime worked
 Lower labour costs
 Reduced absenteeism
 Greater flexibility
 Increased productivity.
The disadvantages include:
 Reluctance to work "pay back" hours
 Difficulties in organising shift cover
 The complexity of planning shift rotas
 Problems in scheduling holidays.

What location-based methods are there?

(a) Teleworking
Teleworking is working at a distance from one's employer, either at home, on the road,
or at a locally based centre. Teleworkers use e-mail, mobile phones and faxes to keep
in contact with their employers or customers. They can be supported, virtually, by
video and audio conferencing and Internet meetings and also by fast delivery services
for other materials.
It has been the advance of this modern technology that has made it feasible for many
people to carry out their jobs without working from an office. For example, a large
insurance company in Surrey reorganised its sales structure and closed many of its
regional offices after it found that it was far cheaper to set up individuals with the
technology required to work from home than to run expensive offices in large cities.
Many organisations are following suit, including the Nationwide Building Society,
Lloyds/TSB, Scottish Widows, the Co-operative Bank and the Britannia Building
Society.
Certain types of work lend themselves more easily to teleworking e.g. data processing,
sales reps, and clerical work, whilst other jobs are better carried out at head office.
Equally, teleworking is not right for everybody. Teleworkers have to be disciplined and
organised to ensure that the work is completed; they must also be content to work
mostly alone at home.
It is also important to consider the office staff with whom the teleworker has to liase.
They need to be sensitive to the fact that the teleworker may only be in the office
occasionally and that if they need to see them, they must organise themselves to see
them that day. They, too, need to be organised and disciplined in the way they work.
In some organisations teleworkers are retained as staff, whilst in others they work
freelance, which means having to run their own organisation, control budgets, etc.,
which does not suit everyone. For the employer it can be a benefit to employ someone
as a freelance contractor rather than a full member of staff. Staff benefits (e.g. pension
contributions) do not have to be paid; the employer does not need to worry about
National Insurance contributions or tax, as the contractor will handle these.
The contractors can be employed on a series of short-term contracts rather than
earning employment rights as employees. They can be employed just while there is

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work available and then re-employed when there is a further demand, whilst employees
will continue to be employed even through slack periods of work.
The advantages of teleworking include:
 A substantial increase in productivity, generally because of the flexibility the
employee has to work when and where they want, without being confined to the
9.00 am to 5.00 pm restrictions
 No travelling to work; no time wasted waiting for trains or in traffic jams, and no
money spent on commuting
 A considerable reduction in office overheads.
The disadvantages of teleworking include:
 Some organisations are concerned about the security of confidential and
sensitive material
 Technical support has to be organised for the maintenance of complex equipment
 The training of staff has to be organised at a remote facility, or by recalling staff to
the head office
 The difficulty that some people have to maintain the self-discipline and motivation
required to work on their own
 Lack of face-to-face contact with fellow workers.
(b) Hot Desking
Many organisations have staff whose jobs involve them being out of the office for a
significant amount of their working time, attending site visits, visiting clients/customers,
etc. Alternatively, companies may employ consultants or support staff who only come
into the office occasionally but have their own desk available to them permanently.
To save accommodation space and the associated costs, hot desking is a working
system that has been introduced in some companies. No longer does each employee
have their own desk/workstation, with drawers filled with their personal belongings; the
desk is "depersonalised" and available to be used by anyone coming into the office,
usually on a pre-booked basis. Hot desking means that a smaller space produces the
same or better output than before. Savings that result from reduced accommodation
can be significant for organisations but some staff do feel that they no longer have the
security and stability of their own desk in the office and that they lose personal
involvement with their work colleagues. Because of the developments that have taken
place in communications technology, when they are not hot desking the staff can work
from home, the train if they are travelling long distances and even from their car, if
necessary.
(c) Home Working
Home working affords individuals the same benefits as teleworking without the network
of support and the same need for communications. It is essentially used by freelance
or self-employed workers who can carry out their entire business from home, or at least
from a home base. Typical home workers are market researchers; graphic artists;
editors; mobile hairdressers; financial consultants etc.

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H. HOW DO WE TAKE A STRATEGIC APPROACH TO

STAFF RETENTION?
Retention Strategies
Keeping staff, in whom the organisation has invested (training, etc) is an important aspect of
human resource management. Identifying why people remain with the organisation can be
established through attitude surveys and focus groups. Ideally, attitude surveys should be
analysed both in terms of responses of different age groups and also by responses according
to gender.
Many companies try to establish why people leave by conducting exit interviews but these
are rarely sufficiently accurate, as many people will not give the full reason why they are
leaving for fear of jeopardising future reference requirements or because they may wish to
return to the company at some later stage in their career, particularly in rural areas.
The retention plan should address each of the main areas in which dissatisfaction can arise.
Armstrong identifies the following:
 Pay
Uncompetitive, inequitable or unfair pay systems are frequently cited as causes of
dissatisfaction. Possible actions include:
(i) Reviewing pay levels on the basis of market surveys
(ii) Introducing job evaluation or improving an existing scheme to provide for
equitable grading decisions
(iii) Ensuring that employees understand the link between performance and reward
(iv) Reviewing performance-related pay schemes to ensure that they operate fairly
(v) Adapting payment-by-results systems to ensure that employees are not penalised
when they are engaged on short runs
(vi) Tailoring benefits to individual requirements and preferences
(vii) Involving employees in developing and operating job evaluation and
performance-related pay schemes.
 Job Design
Dissatisfaction may be caused by jobs that are unrewarding in themselves. Jobs
should be designed to maximise skill variety, task significance, autonomy and feedback
and they should provide opportunities for learning and growth.
 Performance
Performance assessments must be fair and the standards against which employees
are to be measured must be clear. The following actions might be taken:
(i) Performance targets must be expressed as specific, measurable, attainable and
realistic
(ii) Targets and goals should be agreed, as should the actions needed to attain them,
rather than imposed from above
(iii) Managers should be trained and encouraged to provide regular feedback,
especially positive feedback, so that problems are not kept just for an annual
performance review
(iv) Managers must be trained in performance review techniques such as counselling.

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 Training
It is important to ensure that new employees are given adequate induction training.
Research suggests that new recruits go through a period of 'induction crisis' if they are
not given adequate training when they join the organisation and may leave. Similarly,
all employees who are inadequately trained for the demands made upon them (or who
feel they are inadequately trained) may be dissatisfied or leave.
Armstrong suggests that learning programmes and training schemes should be
developed and introduced which:
(i) Give employees the competence and confidence to achieve expected
performance standards
(ii) Enhance existing skills and competences
(iii) Help people to acquire new skills and competences so that they can make better
use of their abilities, take on greater responsibilities, undertake a greater variety
of tasks and earn more under skill and competence-based pay schemes
(iv) Ensure that new employees quickly acquire and learn the basic skills and
knowledge needed to make a good start in their jobs
(v) Increase employability inside and outside the organisation.
 Career Development
One of the most commonly expressed reasons for leaving an organisation, certainly by
younger members of staff, is dissatisfaction with career prospects. To a certain extent
this is unavoidable and some organisations view it as healthy, as employees move on
to gain experience and skills elsewhere, allowing new employees to bring new ideas
and skills into the company. Even so, there is still a place within most organisations for
a stable core workforce. It is important that those who do not wish to have
advancement do not feel obliged to seek it but Armstrong notes that career
opportunities can be provided by:
(i) Providing employees with wider experience, perhaps by offering secondments or
experience of projects or project management
(ii) Introducing more systematic procedures for identifying potential, such as
assessment or development centres
(iii) Encouraging promotion from within
(iv) Developing more equitable promotion procedures
(v) Providing advice and guidance on career paths.
 Commitment
We identified the high-commitment management model earlier in Study Unit 3 but here
we are concerned primarily with how low levels of commitment amongst employees
can lead to a high turnover of staff. Commitment can be increased by:
(i) Operating clear communication systems so that all staff know the organisation's
mission, values and objectives and have an opportunity to discuss them and put
forward their own ideas
(ii) Using open methods of communication, such as briefings and ensuring
information is passed on expediently
(iii) Providing opportunities for employees to take part in the process of managing the
operation through mechanisms such as suggestion schemes, focus groups, etc
(iv) Ensuring employees are consulted about changes that are likely to affect them

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(v) A team working or group approach can also help to generate or improve
commitment.
 Dissatisfaction with Supervision
Dissatisfaction with supervision or leadership generally, or specific conflict with
individual leaders/managers can result in employees choosing to leave. Some of these
problems can be avoided by:
(i) Using appropriate recruitment and selection techniques for managers and
supervisors, so that those displaying appropriate behaviours are selected
(ii) Providing training for managers and supervisors in interpersonal skills, conflict
resolution, negotiation, etc
(iii) Designing appropriate discipline and grievance procedures that are fair and fairly
applied and ensuring that all people are properly trained in their application.
 Recruitment and Selection
A high turnover of staff can be an indication of ineffective recruitment and selection
practices. Inappropriate selection criteria or an inability to match a candidate's
capabilities with the requirements of the job can lead to a rapid turnover. Similarly,
creating expectations about a job or promotion that cannot be fulfilled, will lead to
dissatisfaction.
If you have changed jobs in the past, why did you do so? If you were dissatisfied with the job
in some way, what could your employer have done to respond to this dissatisfaction? Can
you identify any initiatives within your current employer that are aimed at retaining staff?
How effective are these initiatives?

I. HOW DO WE TAKE A STRATEGIC APPROACH TO

PERFORMANCE MANAGEMENT?
What is performance management?
"How I get my people to do what I want them to do, in the way I want them to do it!"

Yes, but how do you do this?

Organisations that take performance management seriously manage a range of different but
inter-related topics:
 Mission (what your unit is trying to achieve)
 Vision (what things might look like if yours really was a quality outfit)
 Strategy (a long term sense of direction)
 Business plans (more immediate targets and plans for reaching them)
 Values (how people should and should not behave)
 Culture in which improving performance is valued and developed
 Monitoring of performance – at individual, unit and Guild levels
 Feedback of that monitoring to staff
 Clear goals
 A set of competencies (to describe what good performance looks like)
 Appraisal discussions

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 Personal development (anything that would help people perform better: off the job
training, coaching, reading, ‘sitting with Nellie’ etc)
 Management development
 Good job design (creating jobs that satisfy)
 Team working (interaction and mutual responsibility)
 Extrinsic reward and recognition (basic pay, performance pay, awards, saying 'well
done')
 Intrinsic rewards (the satisfaction from doing a worthwhile job reasonably well)
 Effective remedies for under performers.

Isn't each of these a subject on its own?

Yes and many of them are therefore dealt with elsewhere in this study guide. The beauty of
performance management is that it is a way of uniting a wide array of seemingly unrelated
topics so that you can deal with them in a coordinated fashion. This is integration.

Is there a connection between performance management and leadership?

They are very closely linked. Performance management deals with the more tangible
aspects of getting the best out of your people: systems; techniques; team working; structures
etc. It concentrates on the ways to organise your people. It is about management.
Leadership concentrates on the inter-personal dynamics of your relationships with individuals
and groups. Clearly the two intertwine.

Do we performance manage only individual employees?

No. Performance management must take place at several levels:

Organisation
Department
Unit
Team
Individual

That means that there ought to be vertical integration. For example, an organisational
objective to become greener might translate into a departmental plan to reduce transport
miles by x%, a unit plan to reduce their transport miles by an equivalent proportion, a team
initiative to car share and an individual plan to reduce unaccompanied car miles by y%.
Likewise an organisational goal to penetrate new markets in the China might cascade to an
individual as a development plan to learn to converse in Chinese.
'Performance' is a term which we can apply to all aspects of the business, not just to the
people within it and performance management techniques can be used across the spectrum
of business systems. Here, we are concerned with the performance of people, whether
individually or in teams.
Managing the performance of people is concerned with improving organisational
effectiveness on an individual and/or team basis. Performance appraisals are an important

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part of that process but are not the only aspect. Managing performance involves monitoring
how the organisation/team/individual is actually performing and measuring this against how
it/they should be performing, identifying any gaps between planned and actual performance
and putting in place action plans to deal with any detected deficiency.
Performance management, therefore, has an important role to play in employee development
as it forms the basis for identifying training and development needs, so that activities can be
focused on meeting those needs. Armstrong shows the role of performance management in
a simple diagram which demonstrates the integrating role of performance management:
Performance Management as a Focal Point for the Integration of HR Activities

Valuing People

Performance
Paying People Developing People
Management

Involving People

Source: Armstrong, Strategic Human Resource Management: A Guide to Action

Performance Measurement Techniques

When considering individual performance monitoring and review or measurement
techniques, we have a tendency to think simply of performance appraisals. However,
although appraisals have an important role to play, which we will look at further later, it is
important not to think of appraisals as the only approach to measuring performance. The
modern approach is to take a more holistic view of measuring performance by considering a
range of techniques used together.
One attempt at formalising this approach is through the balanced scorecard approach first
identified by Kaplan and Norton in Harvard Business Review in January 1996. This
technique involves reviewing the business from four main perspectives:
 The customer perspective, which seeks to identify the key elements of the
organisation's performance through the eyes of its customers. It identifies what
customers expect from the business, sets objectives to meet those expectations and
measures performance against these objectives.
 Internal business perspective, which identifies the business processes and
technologies which are critical to success, such as manufacturing capability, quality etc.
and sets objectives based upon these critical success factors.

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 Financial perspective, which considers factors of relevance to the financial health of

the business and to providers of finance, such as shareholders. Objectives are again
set to reflect these factors.
 Innovation and learning perspective, which addresses the question "how do we
continue to grow and improve" and therefore, considers the future needs of the
business. Measurements here might be associated with factors such as staff morale,
emotional intelligence, information sharing etc.
The balanced scorecard approach provides an approach towards the management of
individual and team performance by measuring and valuing qualitative factors such as
creativity, learning and flexibility rather than the traditional quantitative methods of measuring
individual output, for example.

The Role of Appraisals

You will have studied performance appraisal systems in your studies for Human Resource
Management so should be familiar with the different forms of appraisal systems and how
they can be operated. If you cannot recall the main basic formats for appraisal systems, you
should review that part of the course now.
Performance appraisals have an important role to play in performance management as they
provide an opportunity for both measuring and providing feedback on individual performance.
They provide an opportunity for praise and recognition, which plays an important role in
motivation. They have an essential role to play in employee development, as they provide
the basis for identifying training and development needs. We have also mentioned, several
times throughout this subject area, the role of appraisals in reinforcing desired performance
by measuring and ultimately rewarding, those attributes, behaviours and skills. In view of
this pivotal role in performance management, it is perhaps surprising that appraisal systems
in the United Kingdom seem to be poorly perceived and operated and frequently fail to
deliver the benefits they should. In fact, Tom Peters, in Thriving on Chaos in 1989, referred
to appraisals as "downright dangerous"!
Appraisals fail because:
 They are poorly designed. This is probably the most common problem with appraisal
systems, particularly prevalent where the system has been based upon another
company's system or some 'model' rather than designed for the organisation itself. It is
absolutely vital that the factors that are being assessed are relevant to the business
and more specifically, relevant to the business strategy. For example, if the
organisation aims to increase diversity, appraisal systems should be designed so that
initiatives to encourage diversity are a factor which is assessed and therefore
discussed during the appraisal.
Another common design fault is that appraisals become too backward looking. There
is little point concentrating on last year's disasters (or successes) other than to learn
lessons from them to apply in the future. Even so, a feature that is commonly missed
from appraisals is target setting for the future. In well designed systems, 90% of the
appraisal concentrates on future needs and goals rather than past events.
 They are poorly operated. To operate effectively, appraisers and appraisees must be
trained how to use the system. Training should include interview and listening skills,
giving and receiving feedback and counselling, as well as the basic operation of the
system. A well designed system will fail if the individuals involved are not committed to
its success or ill equipped to apply it. Furthermore, appraisals must be conducted in an
atmosphere of trust.
 They are poorly communicated. Lack of understanding of the role and purpose of
appraisals can result in appraisals being perceived as nothing more than a paper
system.

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A Strategic Approach to Performance Management

A strategic approach to performance management aims to provide the means through which
better results can be obtained from the organisation, teams and individuals. Performance
management strategy, therefore, is concerned with four main elements:
 Improving performance
 Employee development
 Satisfying the needs of all stakeholders – employees, managers, customers,
shareholders, suppliers, the general public, etc
 Communication and involvement.

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Study Unit 8
The Strategic Approach to Learning and Development

Contents Page

A. Introduction 150

B. How Do We Take a Strategic Approach to Staff Induction? 151

C. How Do We Take a Strategic Approach to Training and Development? 153

Attitudes towards Training and Development 154
The Strategic Role of Human Resource Development 154
Integrating Human Resource Development Strategies with other Human Resource
Strategies 155
Components of Strategic Human Resource Development 156

D. How Do We Create a Learning Organisation? 160

Aspects of a Learning Organisation 160
Criticisms of the Concept 160

E. How Do We Take a Strategic Approach to Appraisal? 161

What does appraisal cover? 161
What is the purpose of appraisal? 161
Does appraisal have to be formal? 162
Does appraisal have to concentrate on the hard issues? 162
What about 360-degree appraisal? 162
Does a review concentrate upon an appraisee's performance against objectives or
competencies? 162

F. How Do We Take a Strategic Approach to Management Development? 162

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Objectives
The aim of this unit is to critically evaluate strategies for people training, learning and
development which maximise the skills and contribution of people.
When you have completed this study unit you will be able to:
 Describe and explain strategies for induction, training/learning and development
 Describe and explain strategies for creating the learning organisation through self-
managed learning, the promotion of 'intellectual capital' and knowledge management
 Describe and explain strategies for performance review (as a tool for individual and
organisational development)
 Describe and explain strategies for management development.

A. INTRODUCTION
The traditional view of employee development was very much that it was an expense or cost.
In times of financial hardship, training and in particular employee development, was always
the first item to be cut from the budget. Training to ensure employees could undertake
specific tasks was somewhat more acceptable but it was and is difficult to demonstrate the
link between employee development and organisational performance.
In many organisations this traditional view of training and development is being challenged.
The tendency, now, is to refer to employee development as an 'investment' rather than an
'expense'. This change is probably due, in part, to changes in the labour market, both
internally and externally and also because of changes in the perception of people as a
resource. Attitudes towards diversity are also relevant. These factors, government initiatives
and external support for employee development, have led to a greater emphasis on training
and development at a strategic level. Our early model of human resource management,
devised by Fombrun, Tichy and Devanna, in Study Unit 1, attempted to show the relationship
between human resource development and organisational performance and other human
resource management activities.
Throughout this subject area, we have stressed the dynamic nature of the environment in
which organisations operate and how this inevitably leads to change, if the organisation is to
survive. Change requires an investment in training and development and successful change
requires a culture that recognises and values development. From a slow start, this is
increasingly being recognised by both large and small organisations in the United Kingdom.
The concept of the learning organisation (outlined in Study Unit 3) is the ultimate evidence of
this change in attitude towards employee development.
In this study unit, we will look at strategies for ensuring employees' skills remain relevant to
the changing demands of work and that motivation and effective performance are
maintained. We shall:
 Discuss the role of employee development strategies in the achievement of
organisational purposes and in the context of the modern commercial and cultural
environment
 Identify appropriate strategies for developing staff and improving/maintaining employee
motivation and performance
 Evaluate the investment of resources in employee development activities.

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B. HOW DO WE TAKE A STRATEGIC APPROACH TO

STAFF INDUCTION?
Induction can be defined as:
A planned and systematic process, structured and implemented by the organisation, to
help new employees settle into their new jobs quickly, happily and effectively.
The term 'induction' is generally used to describe the whole process whereby employees
adjust or acclimatise to their jobs and working environment.

Orientation Socialisation
Specific course or training event that new The ways in which new employees build up
starters attend. working relationships and find roles for
themselves within their new teams.

Source: Stephen Taylor, People Resourcing, CIPD, 2005

To take a strategic approach to induction, it must be seen as an integral part of the

organisation's performance management processes. Induction is the employees' entrance
porch into the culture and systems of the new organisation. It must integrate vertically by
imparting understanding and acceptance of the organisation's mission, values and business
plans. It must also integrate horizontally by enmeshing with other hard HR processes such
as health and safety, objective setting, reward, learning and development and particularly
appraisal. It must also integrate horizontally with the softer systems, for example the
psychological contract.
One of the key ways to create a strategic approach to induction is to use it to establish good
practices in employee learning and development.
Those involved in planning induction must decide:
 Policy: How flexible the system must be to accommodate the range of different
employees that will join. (It is usually helpful to design a process that gives maximum
control to the new member of staff, because they can then tailor it to their needs)
 Training needs analysing: What knowledge, skills and attitudes a new member of
staff requires (each person will be slightly different)
 Design: How the new employee can effectively acquire the required knowledge, skills
and attitudes
 Delivery: Who is to be responsible for the learning and how they can be required and
enabled to carry out their induction role effectively
 Evaluation: How the learning will be reviewed and further learning identified and
fulfilled.

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The horizontal integration of induction means that it leads on to other HR processes:

Area Topic Following start at induction

Resourcing Selection Probationary reviews that confirm the

selection decision
Appraisal Work and developmental objective
Formal and informal reviews with
manager

Development Competency framework Assessing and learning to meet

competencies
Continuing professional Lifelong self managed learning
development
Talent management/ Induction will be first part of processes
management development/
fast tracking

Reward Contingent pay Awareness of standards and systems

Relations Compliance e.g. health and Awareness of standards and systems

safety
Employee involvement/ Getting staff over the induction crisis and
engagement/commitment/ promoting positive relationship with
positive psychological employer
contract
Awareness of standards and systems
Conduct Awareness of standards and systems.
Where probation reveals incapability or
conduct issues it will lead into
disciplinary action.

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Case Study 1

HM Courts Service (HMCS) in the UK

says the following to all new staff
You can expect your Induction Programme to include:
 A positive welcome to the office and the team
 Information about HMCS (National and Regional)
 Clear messages about HMCS culture and current initiatives
 A clear Induction plan
 A timetable of Induction events which is flexible to meet your needs
and meets Induction targets
 Information about Polices, Procedures and administrative systems
 Information about Performance Management Systems (appraisal),
including objectives and competencies
 Early opportunities to meet colleagues, mentors, buddies etc
 Visits to Courts or other relevant visits to build Regional knowledge
 A clear understanding of role and responsibilities (job description,
initial objectives and supporting competencies (where appropriate)
 Time to read and reflect
 An Induction Programme that meets individual learning styles
(activist, pragmatist, theorist, reflector)
 A clear conclusion to the Induction Process and an opportunity to
evaluate its effectiveness.

C. HOW DO WE TAKE A STRATEGIC APPROACH TO

TRAINING AND DEVELOPMENT?
The phrases 'training’ and ‘development' are often used by organisations to mean the same
thing but is there a difference between the two?
Traditionally, the term 'training' has been used to identify a process whereby a person
acquires the necessary skills to carry out a job or task. In an industrial setting, for example, a
machine operator would be 'trained' to operate the machine. This training would include all
the essential sequence of events to ensure the machine operates to the standard or output
required and would also ensure that the operator is able to use the equipment safely. Some
basic maintenance procedures might also be included.
In the past 'development' was a term more usually applied to managers (hence the term
'management development') and tends to refer to a more holistic approach to ensuring the
manager is able to carry out their role, now and in the future. Development is less concerned
with physical skills and more concerned with the knowledge, values, attitudes and behaviour
in addition to specific skills. Development is a continuous process whereas training has a
specific objective which, once achieved, is considered completed.
Training, in the traditional sense, is still very much a part of modern commercial and
industrial life but more and more organisations are realising that training alone is insufficient

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to meet the needs of the organisation, or indeed the expectations of workers. In the modern
dynamic environment, companies need workers who are able to look to the future and are
comfortable with change. Fostering an environment where constant improvement (and self-
improvement) is considered the norm can facilitate the process of change. Thus developing,
rather than just training employees (not just managers) is now recognised as the way to
deliver real business benefits.
Furthermore, workers now view development as a 'benefit' of considerable value.
Organisations that are able to offer development opportunities are able to attract better
quality candidates, so human resource development becomes an integral part of employee
resourcing strategies and indeed an integral part of human resource management strategies.
Human resource development (as it is called) is seen by many organisations as the
triggering mechanism for the progression of other human resource management policies.

Attitudes towards Training and Development

As we have already seen, traditional attitudes towards training and development view
training as an expense to be suffered rather than an investment. There is a great deal of
literature and evidence to show the main disadvantages of taking this approach:
 Where a traditional view of training is prevalent, the emphasis is on training to bring
employees up to the desired level of competence but no further, often as cheaply as
possible. The organisation becomes adept at maintaining the status quo but is not able
to effect change when it is needed or to react to changes in circumstances. Sometimes
the rationale for this approach is that new skills can be purchased. Where skills are
readily available this is a realistic strategy but if not, the organisation will be restricted in
its own development.
 If no direct relationship between the cost of training and increase in productivity or
performance can be demonstrated, the tendency is to cut the cost of the training. The
long term effects of this accounting based approach to justifying training are a lowering
of skill standards generally and a de-skilling of the workforce. There is clear evidence
that multinationals and overseas investors are currently encountering the results of this
approach.
Partly as a result of difficulties of low skill levels in the UK, there have been a number of
government initiatives to raise awareness of the benefits of training and development.
Probably the best known of these initiatives is the Investors in People (IIP) scheme, which
was launched in 1991. IIP requires organisations to develop business plans that include
plans to develop all employees and evaluate the results. Achieving the standards for IIP
does require considerable effort and investment on the part of the organisation. The
organisation is required to:
 Make a public commitment from the top to develop all employees to achieve the
organisation's business objectives
 Regularly review the training and development needs of all employees
 Take action to train and develop individuals on recruitment and throughout their
employment
 Evaluate the investment in training and development to assess achievement and
improve effectiveness.
Organisations are also encouraged to develop their own solutions and methods but to use
the national standards as benchmarks against which to evaluate their achievements.

The Strategic Role of Human Resource Development

Strategic human resource development is concerned with the development of a learning
organisation and the provision of learning, development and training opportunities to improve

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individual, team and organisational performance. It takes a broad and long term view about
how human resource development strategies can support the achievement of business
strategies. Thus, human resource development strategies flow from business strategies.
Torrington and Hall noted that, where organisations take a strategic view of development,
they see it as a means of implementing business strategy, which means that there is an
emphasis on identifying development needs from an organisational perspective rather than,
but not at the expense of, individually identified development needs.
You will have studied the basic format for assessing training needs in your studies for Human
Resource Management. If you cannot remember how to perform a training needs
assessment, you should revise that section now.
Identifying development needs for an organisation can be carried out using the same
process but on an organisational basis rather than an individual one. If you refer back to the
case study in Pindar Set in the previous study unit, you will see that the management at
Pindar Set used the organisation's objectives and strategic plan to identify what change was
required in order to achieve those objectives. This review resulted in identifying a key role for
team leaders and from this came the recognition that a development programme was
required for these key employees.
Adopting a strategic approach to development means that a consistent approach to
assessment and development is generated. Some organisations have created development
centres, similar to assessment centres, where individual development plans are drawn up for
each participant related to their current levels of competence and potential career moves and
key competencies required by the organisation.

Integrating Human Resource Development Strategies with other Human

Resource Strategies
As we have already noted, development opportunities are valued by employees and
prospective employees, so human resource development strategies can have a large impact
on recruitment and retention strategies. Torrington and Hall point out that sometimes this
impact is not always positive. If development opportunities are selectively offered, it can
have the reverse of the intended impact.
Not all employees see the need for, or value of, development and this means that the
organisation's reward systems need to be supportive of the development strategy. If
employees need to learn new skills or become multi-skilled, skills development needs to be
rewarded rather than rewards for the job currently undertaken.
Promotions and career moves also need to reflect the development strategy by providing
career pathways if the strategy is to encourage a multi-functional, creative perspective in the
development of future general management. Not only do the pathways have to be available,
they also have to be used and this means encouraging managers to use them for their staff.
Human resource development strategies have an impact on and are influenced by diversity
strategies. In the past, organisations with an apparently good track record for training and
development were highly restrictive in the extent to which training and development was
available to all employees. Typically, training and development would be offered to a very
limited group (say young and generally male employees).

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Example

Until quite recently, one high street supermarket offered staff the
opportunity to gain an NVQ in retailing by providing full support. However,
only staff under the age of 25 were offered this opportunity. It is difficult to
justify such an arbitrary restriction on access to training and development.

Such attitudes are more commonly found where the organisation subscribes to the 'expense'
approach to training and development. Similar evidence exists where quite inventive barriers
were employed to restrict training opportunities to selected, usually male, employees.
Holding courses at times when those with family responsibilities would be unable to attend is
a commonly quoted example.

It is important that development strategies and techniques reflect the diversity strategies
employed by the organisation. This might mean employing differing training techniques,
providing specialist equipment or providing greater flexibility in the methods used.
Finally, an organisation needs to reinforce the skills and competencies that it wishes to
develop by appraising those skills and competencies rather than something else.
Developmentally based appraisal systems can be of use here. We will look at these further
later in this study unit.

Components of Strategic Human Resource Development

The main aim of strategic human resource development is to produce a coherent and
comprehensive framework for developing people. Development activities may include
traditional training programmes but many writers argue that the emphasis should be much
more on developing intellectual capital and promoting organisational, team and individual
learning. There should also be a planned approach to the encouragement of self-
development (sometimes called self-managed learning) with appropriate support and
guidance from the organisation. The importance of increasing employability, particularly with
the growth of the 'professional' organisation, with its core of key personnel and periphery of
flexible staff, is also considered a key issue.
Armstrong suggests that the main components of strategic human resource development
should be aimed at:
 The development of individual learning strategies
 The development of organisational learning and the learning organisation
 Knowledge management
 The development of intellectual capital
 Developing managers
 The development of emotional intelligence
 The development of strategic capability.
We will now look at these in a little more detail.
Individual Learning Strategies
The starting point for developing individual learning strategies should be the sort of skills and
behaviours that will be required to achieve business goals. The strategy should cover:
 How learning needs will be identified (perhaps through appraisal systems or through
assessment via development centres)

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 The role of personal development planning and self managed learning

 The support that should be provided for individual learning. Typically, organisations
might offer all or some of the following:
(i) Guidance
(ii) Coaching
(iii) Learning resource centres
(iv) Mentoring
(v) Internal courses designed to meet the needs of groups of employees
(vi) External courses designed to meet the needs of the individual.
Organisational Learning Strategies
An organisational learning strategy aims to develop the organisation by using the knowledge,
skills and experience of the workforce for the benefit of all employees and importantly, the
organisation as a whole.
The process of organisational learning is the basis for the concept of the learning
organisation, which we described briefly in Study Unit 3. Pedler, Burgoyne and Boydell
identify the following as characteristics of a learning organisation:
 Learning Approach to Strategy
The organisational development process (or strategic process) must be designed as a
learning process. There must be opportunities for experimentation and feedback
mechanisms must be built in. An environment where mistakes are valued rather than
criticised is a clear requirement for such an approach.
 Learning Climate
This describes how the function of management changes to that of supporting rather
than controlling or leading and encourages the direct involvement of all workers in a
more participative style of management. For example, if there is a problem with the
distribution process, those most knowledgeable about that process are likely to be
those actually operating it. By actively seeking and encouraging participation from
those people by providing support, problems can be quickly and accurately identified
and solved.
 Self Development
Training and development has a high priority in a learning organisation, as it increases
the flow of information and ideas and develops the skills that can make use of them. In
Motorola, for example, senior executives take part in a mentoring scheme that involves
mentoring younger managers, particularly in less developed areas of the world. In
effect, the senior managers are being used as role models to educate young managers
and pass on their experience and knowledge to the next generation of managers.
 Inter-company Learning
Inter-company learning involves looking at best practice within the industry generally
and adopting and developing techniques and systems for use within the organisation.

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Case Study 2

Motorola University discovered as part of a study in South Africa that one

organisation was able to explore difficult ideas and concepts with students
through the use of theatre and drama. This concept was developed and
used to good effect in the Philippines where national cultural effects made it
difficult to encourage workers to offer constructive criticism (as culture
within the Philippines promotes a deferential attitude towards those senior
or older). By using theatre and drama, workers are encouraged to
exchange their views in an environment that is deliberately outside the
normal working environment and where, therefore, workers feel they can
talk freely.

 Informatting
Pedler, Burgoyne and Boydell use this term to describe the use of information as a
resource rather than a control mechanism. This is sometimes referred to as knowledge
management and is discussed further, below.
 Enabling Structures
This concept views organisational structures as temporary rather than fixed; able to
change and respond to changed conditions and exploit opportunities.
 Environmental Scanning
In a learning organisation, monitoring opportunities within the environment is not just
the role of a specialist department but is encouraged throughout the organisation.
Thus, if one department deals with a particular internal or external customer, any
opportunity to develop that opportunity elsewhere within the organisation is identified
and passed on to the appropriate department.
 Participative Policy Making
You may be more familiar with this idea under the heading of stakeholder influence. In
effect, all those with an interest in the organisation (the term 'interest' being widely
defined) should have a right to participate in the policy setting of the organisation.
 Reward Flexibility
In a learning organisation there is a flexible and open approach to reward systems.
Changing the rewards offered to participants (workers) and making the rationale behind
the reward system open, the balance of power within the organisation shifts away from
salary as an indicator of power.
Motorola recognised that, to become a learning organisation, they needed to encourage:
 A systematic problem solving by adopting a scientific approach to diagnose and resolve
problems
 Experimentation by looking for innovative approaches to problem solving
 Learning from past experiences by conducting post incident reviews and encouraging
reflection, not as a means of allocating blame or bouquets but with the intention of
identifying the success or failure factors from which to learn
 Learning from others by looking at best practice and using benchmarking and by
exploring learning opportunities offered by customers, suppliers etc
 Disseminating knowledge throughout the organisation through education and training
programmes and a shared approach to information.

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All of these factors suggest a fundamental change in the way the organisation is structured;
its culture and its processes. Not an easy task! Those organisations that have made a
success of it have done so by ensuring that their human resource strategies clearly support
its ideals. A team based structure that supports and encourages communication, rewards
initiative and offers training to use and adapt learning are usual features.
A learning organisation strategy will be based on the belief that learning is a continuous
process rather than a set of discrete training activities.
Knowledge Management
We noted above that knowledge management (referred to by Pedler as 'informatting') is a
key feature of the learning organisation.
Knowledge management involves transforming knowledge resources by identifying relevant
information and then sharing it so that learning can take place. The aim is to unlock the flow
of knowledge and then make it flow faster in the direction of individual learners and away
from the organisation. Knowledge management strategies, therefore, promote the sharing of
knowledge by linking people with information so that they learn from other experiences.
Traditional methods of sharing knowledge include meetings; workshops; courses; written
publications, videos and tapes. The intranet provides an additional and very effective
method for communicating information.
The Development of Intellectual Capital
Intellectual capital consists of the intangible assets an organisation possesses, such as
brands; loyalty; corporate expertise; accumulated knowledge; trade secrets; systems and
methodologies; know-how; capability, skills, etc. Organisations can identify intellectual
capital by means of techniques such as a position audit.
Mayo, talking at the 1998 CIPD annual conference, drew up a balance sheet of human
capital (shown below) and went on to explain that any strategy for developing intellectual
capital needed to concentrate on promoting the asset side of the balance sheet and
minimising the liabilities.
The Balance Sheet of Human Capital

Examples of assets Examples of liabilities

 Continuous learning  Spasmodic training

 Up-to-date expertise  Out-of-date experience
 Continuity of teams  Constant instability
 Shared accessible knowledge  Knowledge localised
 Mistakes shared/learnt from  Blame culture
 Extensive collaboration  Insularity
 Low loss rate of talent  High staff turnover
 Cross-boundary careers  'Silo' progression
 Open and customer-focused  Consumed with internal issues
 Flexible organisation  Rigid hierarchy

Source: Armstrong, Strategic Human Resource Management: A Guide to Action

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D. HOW DO WE CREATE A LEARNING ORGANISATION?

The idea of a learning or thinking organisation was put forward by the management expert
Senge but has been given wider application by other experts.
Senge argues that organisations should have the sort of culture that allows them to shape
their own futures to a far greater degree than has been the case in the past. Organisations
must be constantly improving their performance and to do this, both management and
employees must be actively seeking ways in which they can improve performance. They
must not be content to be "just doing their job".
Pedler summarises a wide ranging approach by defining a learning organisation as one that
facilitates learning of all its members and continuously transforms itself. Pedler draws
attention to the fact that a learning organisation is more than the sum of the learning
individuals who work in it, crucial though those individuals are. A learning organisation must
have a culture and a structure suitable for learning to take place.
Learning organisations, then, bring together ideas of culture, structure and leadership. The
idea of learning organisations is a logical follow-up to organic theories that compare
organisations with human bodies. Organisations are made up of functioning parts that
should act in harmony. They adapt to and can influence their environments. Learning
theorists go one step further by talking about listening and learning organisations. Learning
assists organisations to survive and develop.

Aspects of a Learning Organisation

 The culture of a learning organisation should be liberating for those who work in it.
Employees should be empowered; they should be involved in decision making, there
should be bottom-up contributions to the development of the organisation.
 Excellence theorists like Peters emphasise the importance of encouraging staff not to
be afraid to make mistakes. There should not be a culture of blame. The emphasis is
on continuous experiment and improvement.
 Another approach to culture is the suggestion to view and treat employees as
customers. The root of this idea is found in stakeholder theory that sees customers as
the dominant stakeholder; the learning approach brings employees to the centre of
attention, they should be encouraged to learn from their work.
 Learning theorists argue that a flat structure making use of multifunctional teams
linked by efficient IT and open communications is conducive for organisations to
learn. Many of the ideas of excellence theorists on flat, flexible structures can be used
to guide a learning structure. The culture and structure of learning organisations are
quite different from those of tall, bureaucratic, authoritarian organisations.
 Leadership should be democratic/participative; sharing a vision of the way forward.
Leaders should set an example of risk taking and learning from mistakes. Leaders
should be enablers, helping staff to learn and develop.
To create a learning organisation, management must recognise the need for change. The
areas where change may be needed are: leadership; structure; culture, empowerment of
employees and an obsession with improving quality.

Criticisms of the Concept

Despite the popularity of the learning organisation concept, there are critics of this approach.
From the outset there have been problems with defining a learning organisation. Some
definitions focus on individuals learning how to learn, while others emphasise the culture and
structure of the organisation.

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Perhaps the most frequently voiced criticism is that managers only pay lip service to the
concept of a learning organisation; they make only cosmetic changes, e.g. they introduce
carefully controlled organisational development (OD) schemes.
Radical critics, like R. Harrison, argue that many managers jealously guard the control of
learning. If the distribution of power remains in the hands of top management, the culture of
the organisation cannot be conducive to learning.
Finally, critics argue that it is difficult to measure the degree to which a given organisation is a
learning organisation.
In summary, to make the learning organisation an effective idea, measurable changes must
take place in leadership, structure and function. In addition, individuals need development;
encouragement to be risk takers, to be obsessed with quality and above all, to embrace
change and learning with enthusiasm. An assessment of the success of a learning
organisation may be obtained by benchmarking against other excellent organisations in
similar spheres of activity.

E. HOW DO WE TAKE A STRATEGIC APPROACH TO

APPRAISAL?
Earlier in this unit we suggested that induction is the entrance into the new organisation and
that it should lead seamlessly into the appraisal process. We have also suggested,
elsewhere, that performance management is at the heart of an organisation's HRM
processes. If we add that appraisal is itself at the heart of performance management we
create an argument that a well run appraisal process is at the very centre of good HRM.
Appraisal must, therefore, be regarded as a strategic activity. The problem is that appraisal,
by whatever title it is known, is rarely treated that way. All too often it is viewed as a waste of
time, imposed upon reluctant staff and their managers by HR professionals who are remote
from the real activities of the organisation.

What does appraisal cover?

The three areas commonly covered by appraisal are:
 Performance
 Potential
 Reward.
Any strategic approach to appraisal ought to consider the balance between these three; in
particular, the tendency for reward reviews to reduce the level of openness and engagement
in the process by the appraisee.

What is the purpose of appraisal?

The title 'appraisal' is considered to emphasise the top-down process, whereby something is
done to you by your manager and emphasises the outcome; a judgement. The word 'review'
is becoming increasingly common because it better describes more the process.
'Review' has the disadvantage of emphasising the retrospective nature of the process and
'review and planning' would be more accurate. However, that would result in a formal title of:
‘Performance, potential, reward, review and plan'.
This is clumsy; even if abbreviated to PPRRP! So we may be stuck with 'appraisal' or the
slightly inaccurate 'Performance and Development Review' (PDR).

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Does appraisal have to be formal?

No. Indeed the processes of appraisal (setting objectives, providing resources, evaluating
performance, giving feedback, providing reward and keeping records) are what a good
manager will do less formally on a day to day basis. The benefit of stepping back from the
day to day activities is that it enables the appraisee and manager to look at the longer terms
issues both backwards (in retrospect) and forwards. In other words, appraisal is a strategic
planning tool.

Does appraisal have to concentrate on the hard issues?

No. Although research is suggesting that there is increasing emphasis upon the more
measurable (harder) aspects of appraisal in the list below.
Harder
 Link between business and individual objectives
 Measurement of performance contribution including performance
against objectives and associated reward
 The performance agreement between employer and employee
 Identification of training and development needs and how they can
be met
 Career and succession planning
 General discussion about the working environment.
Softer

What about 360-degree appraisal?

It is widely accepted that the traditional 'tell and share' appraisal process (manager tells
employee what gradings they have awarded and these are then discussed with the
appraisee) places too much emphasis upon the views of the line manager. The perspective
of the appraisee must be given greater weight. Once the stranglehold of top down manager
to appraisee has been broken, it allows organisations to consider the views of other potential
participants, including colleagues, customers and subordinate staff. The objective is to
assemble a balanced picture of the employee's performance for the purpose of career and
development planning.

Does a review concentrate upon an appraisee's performance against

objectives or competencies?
Both, so any overall assessment of performance must take account of both.

F. HOW DO WE TAKE A STRATEGIC APPROACH TO

MANAGEMENT DEVELOPMENT?
Management development is a key component of a strategic response to human resource
development. Even in organisations that take a more traditional approach to training and
development, the development of managers is generally recognised as a component of
organisational success. At a strategic level, management development strategies should
take a long term view about approaches to increase the effectiveness of the organisation.
Armstrong suggests that the strategic aims for management development should be:

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 Ensuring that managers understand what is expected of them, agreeing with them
objectives against which their performance will be measured and areas where
competence levels need to be improved
 Identifying managers with potential; encouraging them to prepare and implement
personal development plans and ensuring that they receive the required development,
training and experience to equip them for more demanding responsibilities within their
own locations and elsewhere in the organisation
 Providing for management succession and creating a system whereby this is kept
under regular review.
One of the potential areas of difficulty is that management development should be business
led, even though it will be concerned with development of the individual. The organisation
needs to decide what sort of manager it needs, to achieve its strategic goals and how best to
obtain and develop these managers. Where the emphasis is on self-development, as it
should be, it is for the organisation to indicate the direction in which self-development in
terms of the acquisition of skills and knowledge and behavioural modification should go.
As with any training and development, the process of identifying management development
needs involves:
 Assessing present and future management needs, taking into account present and
future business strategy.
 Assessing current and potential skills and effectiveness of managers against the
identified needs
 Producing plans and strategies to address the gap between the current skills etc. and
those required for the future.
The following notes on the development of emotional intelligence also have bearing on
strategies for developing management potential.
Emotional Intelligence
We noted the development of the concept of emotional intelligence in Study Unit 3 when we
considered current human resource responses to the changing working environment. To
remind you, the term 'emotional intelligence' was defined in 1999 by Goleman at the CIPD
Annual Conference as "the capacity for recognising our own feelings and those of others, for
motivating ourselves, for managing emotions well in ourselves and in our relationships".
Emotional intelligence is seen as a necessary attribute for effective leadership. Therefore,
strategies for developing emotional intelligence are viewed as an important component of
management development and indeed for development in all workers.
Goleman defined four components of emotional intelligence:
 Self-management: The ability to control or redirect disruptive impulses and moods and
regulate own behaviour, coupled with a propensity to pursue goals with energy and
persistence.
Six competencies are associated with this component:
(i) Self-control
(ii) Trustworthiness/integrity
(iii) Initiative
(iv) Adaptability
(v) Openness to change
(vi) The desire to achieve.

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 Self-awareness: The ability to recognise and understand your moods, emotions and
drives as well as their effect on others. The competencies associated with this aspect
are:
(i) Self-confidence
(ii) Realistic self-assessment
(iii) Emotional self-awareness.
 Social awareness: The ability to understand the emotional make-up of other people
and skill in treating people according to their emotional reactions. The competencies
associated with this aspect are:
(i) Empathy
(ii) Expertise in building and retaining talent
(iii) Organisational awareness
(iv) Cross cultural sensitivity
(v) Valuing diversity
(vi) Service to clients and customers.
 Social skills: Proficiency in managing relationships and building networks to get the
desired result from others and reach personal goals and the ability to find common
ground and build rapport. The competencies associated with this aspect are:
(i) Leadership
(ii) Effectiveness in leading change
(iii) Conflict management
(iv) Influence/communication
(v) Expertise in building and leading teams.
Goleman went on to identify the steps necessary to develop emotional intelligence:
 Assess the requirements of jobs in terms of emotional skills
 Assess individuals to identify their level of emotional intelligence; 360 degree feedback
can be a powerful source of data
 Gauge readiness; ensure that people are prepared to improve their level of emotional
intelligence
 Motivate people to believe that the learning experience will benefit them
 Make change self-directed; encourage people to prepare a learning plan that fits their
interests, resources and goals
 Focus on clear, manageable goals; the focus must be on immediate, manageable
steps, bearing in mind that cultivating a new skill is gradual with stops and starts; the
old ways will re-assert themselves from time to time
 Prevent relapse; show people how they can learn lessons from the inevitable relapses
 Give performance feedback
 Encourage practice, remembering that emotional competence cannot be improved
overnight
 Provide models of desired behaviours
 Encourage and reinforce; create a climate that rewards self-improvement

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 Evaluate; establish sound outcome measures and then assess performance against
them.
Strategic Capability
Strategic capability is the ability to select the most appropriate strategy and the courses of
action required to implement it. Harrison, writing in Employee Development, a CIPD
publication, in 1997, identified that a human resource development strategy for enhancing
strategic capability involves planning the kind of learning activities that will improve:
 Understanding of rapidly changing business environments
 The ability to create a strategic vision
 Understanding of strategic decision-making tools and processes
 Understanding of strategy-making models
 The selection and assessment of strategic decision-makers
 The link between strategy and operational implementation
 The quality of strategic thinking and learning
 The management and development of the organisation's knowledge base.
Clearly, all these strategies are interlinked and in some cases almost impossible to identify as
separate study areas. Integration of all development strategies is essential.

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Study Unit 9
The Strategic Approach to Employee Relations

Contents Page

A Introduction 168

B. What are the Different Strategic Approaches to Employee Relations? 169

How has employee relations developed? 169
What is the psychological contract? 170
How has the HRM approach changed employment relations? 173
The Big Idea 174

C. What can be Gained from Partnership Working? 174

D. How do we Promote Employee Engagement? 175

Trade Unions 176
The Role of Law 176
What about employee involvement? 177

E. How do we Increase Discretionary Behaviour? 178

F. How do we Take a Strategic Approach to Communicating with Employees? 180

What are the strategic choices when it comes to communicating? 180

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Objectives
The aim of this unit is to critically evaluate strategies for employee relations which optimise
the likelihood of generating positive attitudes throughout the workforce.
When you have completed this study unit you will be able to:
 Explain alternative approaches to employee relations, with a focus on the benefits to be
gained from 'partnership'
 Describe and explain the mechanisms to promote employee involvement and
engagement, and the willingness to undertake discretionary (Organisational
Citizenship) behaviour, including consultation/participation strategies and partnership
agreements
 Examine strategies for communicating with the workforce, including grievance
management.

A INTRODUCTION
Employee relations is concerned with:
 Building a stable and co-operative relationship with employees that minimises conflict
 Achieving commitment through involvement and communication processes
 Developing mutuality; a common interest in achieving the organisation's goals through
the development of organisational cultures based on shared values between
management and employees.
The term 'employee relations' should not be confused with 'industrial relations'. This latter
term generally is used to refer to the relationship between the organisation and trade unions,
whilst the term 'employee relations' is concerned with the wider implications of relationships
with employees, including their trade union representatives. In fact, the more modern term to
use is 'employment relations', which does help to stress the fact that we are talking here
about the relationship between employees and the organisation, not just on an individual
level but on a collective level, whether represented or not. It also highlights the fact that this
is an area of rapid change and one that is trying to throw off its rather confrontational image
of the past. For this reason, we have chosen to use the term 'employment relations' for this
study unit, although you may find other textbooks will continue to refer to 'employee
relations'.
Research suggests that organisations that out perform their competitors do so because they
apply a coherent set of people management and development practices, appropriate to their
needs. Research by the CIPD suggests there is a positive relationship between managerial
strategies on employment relations and employees' identification with and support for
performance improvement and organisational change. Successful organisations are
increasingly those that have a constructive relationship with employees and a management
approach that enables them to develop and draw on the full potential of their people.
In this study unit we will look at the way in which individual and collective relationships
between employees and employers are changing and suggest a framework for organisations
to develop strategies for improving employment relations. We shall:
 Discuss the role of employee relations strategies in the achievement of organisational
purposes and in the context of the modern commercial and cultural environment
 Identify the objectives of and evaluate appropriate strategies for employee
communications and for employee consultation, involvement and participation.

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B. WHAT ARE THE DIFFERENT STRATEGIC

APPROACHES TO EMPLOYEE RELATIONS?
How has employee relations developed?
To understand the context of modern employment relations, it is necessary to look at some of
the history surrounding this subject.
The relative freedom of employers and employees to determine their own relationships has
been a characteristic of British industrial life. Even within the bounds of contractual
relationships, the tendency has been for both sides to see what might be done to squeeze
more out of the other. These patterns of behaviour are now being questioned, in favour of a
more co-operative approach.
Until the end of the 1970s the pattern of relationships within British industry was that of
conflict resolution. It was accepted that for each management issue there should be a trade
union counter view and a trade union based representative body to pursue it. Trade unions
and employers were adversaries and although some initiatives were undertaken aimed at
bringing trade unions and employers together, they lacked support from both employers and
trade unions alike.
Paradoxically, while adversarial industrial relations lay at the heart of the conventional picture
of employment relations in the 1970s, few organisations experienced industrial action. Lack
of serious competitive pressure meant that many employers adopted employment relations
strategies aimed at buying off trouble and maintaining output. There was little need for
employers to seek to improve performance or look for employee support for organisational
change.
However, by the end of the 1970s a new pattern was emerging. Disorderly collective
bargaining played its part in bringing down the elected government and began a period
during which much of the legislation underpinning trade union influence was removed and
replaced by new legislation limiting the scope for industrial action. In other European
countries, their employment relations systems were seen as contributing to competitive
success rather than hindering it. The result was European Union directives having
increasing influence in the UK.
Since the 1970s attitudes to work and relationships at work have changed, partly as a result
of economic pressures and competitive pressures on organisations. Customers have
become more demanding, wanting high quality service and low prices. Fast moving markets,
which include large parts of retail distribution and the leisure industries, as well as
manufacturing, require a speed of change within supplying organisations that is beyond
anything which could have been anticipated in the 1970s.
Many people recognise the need for change in the way organisations operate but change
initiatives tend to prove difficult or impossible to implement or implement quickly enough.
Research on behalf of the CIPD found that employers felt that employees do not own the
corporate objectives and too often want to stand aside from the process of change.
The modern approach to management has, as we have noted on several occasions, moved
towards a greater emphasis on allowing employees the freedom to use their skills and
abilities for the benefit of the organisation. Management becomes a facilitator of individual
and organisational development rather than commander and controller of activities.
However, for this style of management to work, employees must be willing to contribute
towards the success of the organisation and willing contribution is unlikely if employees are
unclear of the direction the organisation is taking or are not committed to its success.
It would be wrong to suggest that the old adversarial approach to employment relations no
longer exists. Industrial Relations Services found, in 1994, four common approaches
adopted by employers:

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 Adversarial. The organisation decides what it wants to do and employees are

expected to fit in. Employees only exercise power by refusing to co-operate.
 Traditional. A good day to day working relationship but management proposes and
the workforce reacts through its elected representatives.
 Partnership. The organisation involves employees in the drawing up and execution of
organisational policies but retains the right to manage.
 Power sharing. Employees are involved in both day to day and strategic decision
making.
Adversarial approaches are much less common than in the 1970s. The traditional approach
is still the most typical but more interest is being expressed in partnership. Power sharing is
rare.
Against the background of a preference for one of the four approaches above, employment
relations strategy will be based on an organisation’s philosophy about the sort of
relationships wanted between management and employees and their unions and how those
relationships should be handled. A partnership strategy will aim to develop and maintain a
positive, productive, co-operative and trusting climate of employment relations.
The remainder of this unit is based upon aiming for a partnership approach, as this
represents current 'best practice'. However, you must remember that this is not the only
approach you will find evidence of.

What is the psychological contract?

Some writers talk about the 'psychological contract' between employers and employees.
This is a difficult thing to define but it expresses the combination of beliefs held by an
individual and their employer about what they expect of one another. Generally unwritten, it
was described by Guest on behalf of the CIPD in 1996 as:
"concerned with assumptions, expectations, promises and mutual obligations".
The psychological contract is dynamic; it changes as experience accumulates, employment
conditions change and employees re-evaluate their expectations.
Guest's research, which was reported in People Management in 1997, demonstrated that:
 The key elements of good people management practice are job design, skills
development and a climate of regular, systematic involvement
 Good people management practices are associated with a positive psychological
contract based on trust, fairness and delivery of the deal
 An organisation culture in which employees believe their employer will look after their
interests has positive outcomes for work performance.
In other words, there seems to be a business case for arguing that good relations with
employees bring positive results for the business.
A way of showing this in model form might be as follows:

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The Relationship between Good People Management Practices and Business Success

People Management Practices

 job design
 skills development
 involvement climate
Organisation culture supportive to
employees

Positive psychological contract

 trust
 fairness
 delivery of the deal

Commitment
Motivation
Willing contribution
Satisfaction

Productivity
Profitability
Agility

Source: CIPD position paper, Employment Relations into the 21st Century, 1997

The psychological contract is a convenient way to describe the relationship between an

employee and an employer. It depends upon:
 Employee trust
 Perceptions of fairness
 Delivery of the deal.
Therefore, it reflects all aspects of the relationship with employees, including:
 Reward. The fairness of the process within which it is determined and the outcome in
relation to other employees

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 Job satisfaction. The intrinsic interest of the job, its design and the degree of control,
empowerment and relationships with customers and fellow employees
 Skill development and technology. Upgrading adds significantly to a sense of self
worth
 Relationships with managers. Direct relationships and in cross functional structures,
are particularly important
 Well being. A sense of employment security with the same or another employer,
involvement and trust that management decisions are being taken in ways which
reflect, as far as possible, the best interests of employees.
All of this adds up to a total employment experience.
Kessler and Undy, writing in The New Employment Relationship: Examining the
psychological contract, a CIPD publication, in 1996, described the dimensions of the
employment relationship as shown below:
Dimensions of the Employment Relationship

Parties
Managers
Employees
Employees' representatives

Substance
Individual:
job
Operation
THE reward
level EMPLOYMENT career
process RELATIONSHIP communications
style culture
Collective
joint agreements
joint machinery

Structure
Formal rules/procedures
Informal understandings
Informal expectations
Informal expectations

Source: Armstrong, Strategic Human Resource Management: A Guide to Action

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How has the HRM approach changed employment relations?

The human resource management approach to employment relations involves co-ordinating
(or bundling) strategies to promote the psychological contract and improve involvement and
communication. Armstrong suggests the following model for employment relations:
 A drive for commitment. Winning the 'hearts and minds' of employees to get them to
identify with the organisation, to exert themselves more on its behalf and to remain with
the organisation, thus ensuring a return on their training and development.
 An emphasis on mutuality. Getting the message across that 'we are all in this together'
and that the interests of management and employees coincide (i.e. a unitarist
approach).
 The organisation of complementary forms of communication, such as team briefing,
alongside traditional collective bargaining i.e. approaching employees directly as
individuals or in groups rather than through their representatives.
 A shift from collective bargaining to individual contracts.
 The use of employee involvement techniques such as quality circles or improvement
groups.
 Continuous pressure on quality; total quality management.
 Increased flexibility in working arrangements, including multi-skilling, to provide for the
more effective use of human resources, sometimes accompanied by an agreement to
provide secure employment for the 'core workers'.
 Harmonisation of terms and conditions for all employees.
 Emphasis on teamwork.
Guest describes four options policy options that need to be considered when developing an
employment relations strategy.
 The new realism. A high emphasis on HRM and industrial relations.
The aim is to integrate human resource management and industrial relations. This is
the policy of such organisation as Nissan and Toshiba. New collaborative
arrangements in the shape of single table bargaining are usually the result of employer
initiatives but both employers and unions are often satisfied with them. They have
facilitated greater flexibility, more multi-skilling, the removal of demarcations and
improvements in quality. They can also extend consultation processes and accelerate
moves towards single status.
 Traditional collectivism. Priority to industrial relations without HRM.
This involves retaining the traditional pluralist industrial relations arrangements within
an eventually unchanged industrial relations system. Management may take the view
in these circumstances that it is easier to continue to operate within a union since it
provides a useful, well established channel for communication and for the handling of
grievance, discipline and safety issues.
 Individualised human resource management. High priority to HRM with no industrial
relations.
According to Guest, this approach is not very common, except in North American
owned firms. It is, he believes, 'essentially piecemeal and opportunist'.
 The black hole. No industrial relations.
This option is becoming more prevalent in organisations in which human resource
management is not a policy priority for management and where they do not see that
there is a compelling reason to operate within a traditional industrial relations system.

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When such organisations are facing a decision on whether or not to recognise a union,
they are increasingly deciding not to do so.

The Big Idea

An employee relations issue that has gained popularity in the first decade of the 21st century
is the concept of the organisation's Big Idea. This is a significant concept that people within
the organisation are fired up about. In the engineering firm Rolls Royce the Big Idea is
quality; in the Nationwide Building Society (investing and lending finance for property) it is
mutual ownership. Big Ideas include world class; customer experience; making clients smile;
year on year growth, unbeatable quality and making this a better place to live.

C. WHAT CAN BE GAINED FROM PARTNERSHIP

WORKING?
There is no agreed definition of 'partnership' in this context but the Trades Union Congress
(TUC) has suggested 'a sense of common action and purpose'. It suggests the development
of a longer term relationship, in which the partners will be more concerned with maximising
growth than with short-term negotiations over shares of the results.
In good partnership agreements, each has regard to the needs of the other and to the needs
of customers and investors. In this sense, a partnership approach with employees seems to
contain elements of the 'balanced scorecard approach'.
Not all employees will have or want trade union representation but where a majority of
employees in a relevant business unit want to have a trade union recognised to represent
their interests, the CIPD recommends that the employer should reach such an agreement
although it concludes that "partnership has more to do with an approach to the relationship
between employers and employees individually and in groups, than it has to do with trade
unions as such."
Armstrong suggests that a partnership agreement may be one way of getting employment
relation strategies into action and CIPD research suggests that a number of companies are
developing partnership arrangements with trade unions and that the elements of good
practice which are emerging match up to the requirements of good employment relations. In
general, the employer recognises that employee security is an issue and offers some
reassurance, for example, by undertaking that there will be no compulsory redundancies.
Trade unions, for their part, commit themselves to working with management to improve
business performance. These commitments are supported by mechanisms for
communication and involvement.
Research in the United States suggests that where the following five key values are
addressed in partnerships, the companies can expect productivity gains; quality
improvements, a better motivated and committed workforce and lower absenteeism and
turnover rates:
 Mutual trust and respect
 A joint vision for the future and the means to achieve it
 Continuous exchange of information
 Recognition of the central role of collective bargaining
 Devolved decision making.
The Department for Trade and Industry and the Department for Education and Employment
reported on partnerships at work in 1997. Their report concludes that partnership is central
to the strategy of successful organisations. It was based on interviews with managers and

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employees in 67 private and public sector organisations identified as 'innovative and

successful'. Five main themes or 'paths' were identified as producing a balanced
environment in which employees thrived and sought success for themselves and their
organisations:
 Shared goals: 'understanding the business we are in'
All employees should be involved in developing the organisation's vision, resulting in a
shared direction and enabling people to see how they fit into the organisation and the
contribution they are making. Senior managers, in turn, receive ideas from those who
really understand the problems and the opportunities.
 Shared culture: 'agreed values binding us together'
In the research, organisations acknowledged that a culture has to build up over time; it
cannot be imposed by senior executives but must rather be developed in an
atmosphere of fairness, trust and respect until it permeates every activity of the
organisation. Once achieved, a shared culture means that employees feel respected
and so give of their best.
This supports the view of the importance of maintaining and developing the
psychological contract we discussed earlier.
 Shared learning: 'continuously improving ourselves'
Key business benefits of shared learning include an increasing receptiveness to
change and the benefits of increased organisation loyalty brought by career and
personal development plans.
 Shared effort: 'one business driven by flexible teams'
Change has become such an important part of our daily lives that organisations have
learnt that they cannot deal with it in an unstructured way. The response to change
cannot be purely reactive, as business opportunities may be missed. While team
working 'leads to essential co-operation across the whole organisation', care must be
taken to ensure that teams do not compete with each other in a counter productive
way. It is essential that the organisation develops an effective communication system
to ensure that the flow of information from and to teams enhances their effectiveness.
 Shared information: 'effective communication throughout the enterprise'
While most organisations work hard at downward communication, the most effective
communication of all 'runs up, down and across the business in a mixture of formal
systems and informal processes'. Many organisations with unions have built
successful relationships with them, developing key partnership roles in the effective
dissemination of information, communication and facilitation of change. Others have
found representative works councils useful in consulting employees and providing
information.

D. HOW DO WE PROMOTE EMPLOYEE ENGAGEMENT?

The fundamental question to be addressed is a political one: which perspective is your
organisation going to adopt?
 Pluralist. The aspirations of the employer and the employee are essentially opposite
(as much work for as little money vs. as much money for as little work) and the 'war'
must be controlled by establishing rules (the left wing approach).
 Unitary. Prosperous employers make for prosperous employees, so both parties share
the same objective, the success of the business (the market driven, right wing
approach).

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The next question is:

 Does the organisation want direct participation or indirect representation?
With the decline of collective bargaining, many organisations now concentrate on
communication with employees individually, rather than on a collective basis.
Communication and involvement are generally more meaningful at the level of the job or
team than at higher levels. However, most people like to feel that their interests are being
taken into account when important decisions are being considered. Particularly in larger
organisations, in which it is not easy for all employees to meet informally, some form of
machinery to represent employees collectively, whether procedural or structural, can offer
useful reassurance on this score. Need and purpose should be the criteria by which the
desirability of representation arrangement should be determined.
Employee representation should not be confused with that of trade union recognition or the
role of trade unions in the workplace. Some UK companies operate effective representation
arrangements, although they do not recognise trade unions. Within the UK, an employee's
right to be represented at grievance or disciplinary hearings is already recognised by
industrial tribunals. Employees also have rights to be consulted on health and safety, major
redundancies or business transfers but there is no requirement that this should be through a
trade union.
Recent analysis by the CIPD suggests that management practices are more important than
trade union membership in determining whether employees feel fairly treated.

Trade Unions
The decline in trade union membership has continued throughout the 1990s. The trade
union role in determining actual pay and conditions has declined in many organisations.
Opportunities for trade unions to negotiate detailed changes in working arrangements and in
some cases to exercise an effective veto, have largely gone. The pace of change, the need
to respond to competitive pressures, the decentralisation of decision making and the wider
involvement of employees in operational decisions have helped to undermine workplace
bargaining between managers and trade unions.
Trade unions are developing new roles beyond the workplace. They now offer a range of
benefits to members, such as insurance, banking and financial services. Some unions offer
help with job finding and advice about pension rights. They also continue to provide services
such as representation in grievance and disciplinary procedures and bringing claims under
employment protection or health and safety legislation. Some unions now market their
services to employers as consultants on training and employment matters.
The CIPD suggests that the role of trade unions is likely to develop towards a 'social
partnership' with employers in developing national employment policies, building on their
involvement at European level. Trade unions are well placed to contribute to discussions
about issues including 'fairness', productivity and investment. This suggests that in future
trade unions will have more of a role in strategic issues and strategic decision making within
organisations.

The Role of Law

Current legislation and case law on employment relations in the United Kingdom is extensive
and is likely to grow. In recent years, measures such as the Working Time Regulations; Part-
time Workers Regulations; changes to the National Minimum Wage, the Human Rights Act
and stakeholder pensions have all been introduced. Within the UK, industrial tribunals and
courts regularly add to the weight of case law and advice to employers on employment law is
a major growth industry.

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Most successful organisations view the minimum requirements of legislation in matters such
as 'fairness' as secondary to moral and ethical practice but in some organisations the
minimum standards represent challenges.
The theories of employee relations in the western world have changed dramatically since
1980 (although some would argue that the underlying politics remains unchanged and
despite the rhetoric, the behaviour of employers, employees and their representatives has
remained largely unchanged).
What about employee involvement?
Employee involvement grew during the final quarter of the twentieth century and is generally
characterised by four things:

Form of communication Purpose Methods

Downward communication To create educated staff and Team briefing

from employer to employee to enable them to engage in
Internet / Intranet /
problem solving
Corporate email
Informal communication
Written media- report,
journal, newsletter
Video

Upward problem-solving To widen the pool of Quality circle

knowledge used to solve
Action team
problems. Knowledge
management is a fuller blown Suggestion scheme
version of this Attitude survey

Task participation and team To devolve responsibility for Team working

working problem-identification and
Autonomous working group
problem-solving

Financial involvement To give employees a stake in Profit sharing

the success of the
Share ownership
organisation through
Bonus scheme

More recently the concept of the 'employee voice' has become fashionable. HR
professionals are often the driver for this and the variety of channels through with this voice
may be heard is large. The idea recognises the value of employees' contributions across a
range of issues and in Europe the concept has been enshrined in the somewhat prescriptive
legislation requiring organisations to set up Works Councils if they do not already have them.

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E. HOW DO WE INCREASE DISCRETIONARY

BEHAVIOUR?
Alongside employee involvement in decision making organisations have moved from
employee compliance (do as we say or we will punish you; keep out of trouble and you can
have a job for life) to employee commitment (you are expected to show commitment to this
organisation and to be creative in solving problems).
Discretionary behaviour is voluntary performance over and above the minimum required. It is
this that promotes excellence (as opposed to mediocrity) and this is a critical ingredient in
organisational success.
It is usually expressed as:
Discretionary behaviour = Ability x Motivation x Opportunity
= AMO
Guest suggests that strategies for developing a positive psychological contract should
include:
 Provision of opportunities for learning, training and development
 Focus on job security, promotion and careers
 Minimising status differentials
 Fair reward systems
 Comprehensive communication and involvement processes.
Practices that can be incorporated into the strategy include:
 During recruitment interviews, presenting the unfavourable as well as the favourable
aspects of a job in a realistic job preview.
 In induction programmes, communicating to new starters the organisation's personnel
policies and procedures and its core values; indicating to them the standards of
performance expected in such areas a quality and customer service and spelling out
requirements for flexibility.
 Issuing and updating employee handbooks that reinforce the messages delivered in
induction programmes.
 Encouraging the development of performance management processes that ensure that
performance expectations are agreed and reviewed regularly.
 By encouraging the use of personal development plans that spell out how continuous
improvement of performance can be achieved, mainly by self-managed learning.
 By using training and management development programmes to underpin core values
and define performance expectations.
 By ensuring, through manager and team leader training, that managers and team
leaders understand their roles in managing the employment relationship, through such
processes as performance management and team leadership.
 By encouraging the maximum amount of contact between managers and team leaders
and their team members, to achieve mutual understanding of expectations and to
provide a means of two-way communications.
 By adopting a general policy of transparency, ensuring that on all matters which affect
them, employees know what is happening, why it is happening and the impact it will
make on their employment, development and prospects.

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 By developing human resource procedures covering grievance handling; discipline;

equal opportunities, promotion and redundancy and ensuring that they are
implemented fairly and consistently.
 By developing human resource policies covering the major areas of employment,
development, reward and employee relations.
 By ensuring that the reward system is developed and managed to achieve equity,
fairness and consistency in all aspects of pay and benefits.
 Generally, by advising on employment relations procedures, processes and issues that
further good collective relationships.
You will have noticed that these strategies for managing the employment relationship by
developing the psychological contract cover all aspects of people management!
We have talked about high commitment management in an earlier study unit. Commitment
refers to feelings of attachment and loyalty and as such, plays an important part in human
resource management philosophy and in approaches to employment relations.
Commitment is said to have three factors:
 A strong desire to remain a member of the organisation
 A strong belief in and acceptance of the values and goals of the organisation
 A readiness to exert considerable effort on behalf of the organisation.
There are some accepted difficulties with the concept of commitment, or at least managing it.
This is because organisations are made up of people with differing interests, rather than a set
of shared interests. Furthermore, we have noted that a mixture of different interests and
values encourages flexibility and creativity, so aiming for shared interests and beliefs may not
be in the best interests of the organisation. That being said, there is no doubt that having a
workforce that supports the values of the organisation is a useful thing.
Strategies for improving commitment are concerned with:
 Communication
 Education and training programmes
 Initiatives to increase involvement and 'ownership'
 Performance and reward management processes.
CIPD research in 1994 suggested that a strategy for building trust is the only basis upon
which commitment can be generated. It commented that, in many organisations, there is a
difference between what is said and what is done, to the extent that trust is destroyed and
once compromised, is very difficult to renew.
Armstrong suggests that a strategy for creating a climate of trust should be based on the
understanding that management is more likely to be trusted by employees when the latter:
 Believe that the management means what it says
 Observe that management does what it says it is going to do; suiting the action to the
word
 Know from experience that management delivers the deal; it keeps its word and fulfils
its side of the bargain
 Feel they are treated fairly, equitably and consistently.
Many writers argue that trust cannot be 'managed' as any attempt to 'create' it effectively
destroys the basis of trust. What do you think?

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F. HOW DO WE TAKE A STRATEGIC APPROACH TO

COMMUNICATING WITH EMPLOYEES?
What are the strategic choices when it comes to communicating?
Most communication to individuals or groups falls into one of four categories:

Negotiating Joint problem Consultation Communication

solving

Management and staff (or staff Management Management tell

representatives) come together sound out others the staff what is
without a predetermined about their ideas. to happen
solution

Opposing
Yes No Probably Probably
objectives

The power to Shared Management Management Management

choose (joint) (veto) (moderate) (powerful)

Example Pay Redundancies Policy change Financial

performance
Grievance Recognition Reorganisation of
settlement agreement work Takeover
announcement

The key issues are:

 Do the two parties have opposing objectives?
 Who holds the balance of power?
The terms 'consultation', ' communication' and 'negotiation' are often used carelessly and
sometimes deliberately misused to create a false impression. For example, management will
pretend to consult when really they have made up their mind, so it is really communication,
or the power of one party is so strong that the outcome of a 'negotiation' is a foregone
conclusion.

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Study Unit 10
The Strategic Approach to Reward and Recognition

Contents Page

A. Introduction 182

B. What are the Purposes of Reward and Recognition? 183

What is in a reward strategy? 184

C. How Do We Take a Strategic Approach to Reward and Recognition? 185

Developing a Reward Strategy 185
Practical Reward Strategy 186

D. How Effective are Financial and Non Financial Rewards? 187

What is the reward mix? 187
What is total reward? 188
Components of Total Reward 188
Why adopt total reward? 188
How widely is total reward taken up by employers? 189
Why are employers considering total reward? 189
What might be included in a total reward scheme? 189
What are the perceived advantages of total reward? 190
What are the perceived problems with total reward? 190
What is employer branding? 190

E. How Do We Evaluate Performance Management? 191

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Objectives
The aim of this unit is to critically evaluate critically evaluate strategies for people reward
which bring added-value benefits to the organisation in excess of their costs.
When you have completed this study unit you will be able to:
 Examine the purposes behind reward and recognition strategies
 Assess the methods through which the purposes of reward/recognition strategies may
be accomplished
 Explain the effectiveness of both financial and non-financial rewards and benefits
 Evaluate Performance Management (measuring performance for added value),
including performance appraisal as a tool for measuring contribution and recognising
achievement.

A. INTRODUCTION
Throughout this subject area, we have frequently mentioned the magic word 'reward'.
Reward is recognised by practitioners and academics alike as one of the key features of
human resource management yet probably one of the most difficult features to design and
'get right'.
Torrington and Hall (who prefer the term 'payment' to reward) note that our attitude to pay (a
term which they use to refer also to elements such as pensions and benefits such as health
care schemes) is bound up in historical views on pay and attitudes towards capitalism. The
concept of 'a fair day's pay for a fair day's work' is generally accepted but few people can
define the term 'fair'.
There is also a fundamental difference in the way employers and employees view the role of
rewards/pay:
 Employees view pay firstly in terms of its purchasing power and secondly in terms of
the relative level of reward compared to other people. For most people, the pay
cheque or salary cheque represents their main source of income and is required to
maintain a certain standard of living. Inflation and rising expectations mean that
employees will constantly seek to increase the amount they are paid. Furthermore,
employees have a need for a relatively stable income to meet basic living expenses as
they fall due.
An employee's definition of 'fair' will depend upon their perception of their role and
relative importance within the organisation compared with others. Most people see
their payment arrangements as part of the recognition of their contribution towards the
success of the organisation. A trade union might argue that employees have a 'right' to
a share of the wealth of the organisation that they have helped to create.
An employee, who feels underpaid, feels undervalued and is likely to react by
withdrawing, or looking for another job. Absenteeism, carelessness and other similar
difficulties may result. While this might suggest that pay is a motivator, your studies for
Human Resource Management should have identified that most evidence suggests
otherwise.
 Employers also have differing views of pay/rewards. Whilst the absolute cost of
paying staff is an important factor, many organisations take pride in being ' a good
payer'. In a similar way to the employee perception of 'fair' this concept is often applied
in a relative sense as being 'good' in comparison to the competition.

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Pay is also seen as a means of controlling operating costs. The traditional approach of
using piecework payment is rare nowadays but cost control through the pay packet in
terms of how reward structures are set up still exists.
Despite some evidence to the contrary, pay is still seen very much as a motivator or
means of improving performance. Incentive payments and performance related pay
are well established and well used within industry in the UK.

B. WHAT ARE THE PURPOSES OF REWARD AND

RECOGNITION?
There are four outputs that employers are looking for from their reward strategy:

Recruitment Providing a steady flow of new employees into the organisation but
without breaking the bank.

Retention Keeping people loyal but not keeping staff who are no longer
offering best value for money.

Motivation Employee commitment. This is slightly different from retention

and is an element of the psychological contract for a fair day's work
for a fair day's pay.

Fairness. Or at least a sense of 'felt fairness' (i.e. it may be hard

to justify. objectively that it is fair but the employees sense that it
is).

Image. Some employees want a reputation as the best payers

around. Others want to emphasise the importance of flexibility or
creativity.

Control Controlling cost. Pay is usually the largest element of an

organisation's budget and therefore the area offering scope for the
largest belt tightening when needed.

Maintaining internal relativities. Strengthening the hierarchy of

power within the organisation.

Supporting organisational change. Change reward structures

and employees sit up and take notice! So linking pay to
performance focuses attention on what performance. Creating a
broad banded structure draws attention to career development.

Reducing power of trades unions. For example, by devolving

pay determination to local managers and particularly by
individualising pay, the central power of unions is eroded.

Increasing the power of line managers. Especially through local

pay determination.

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This will be achieved by concentrating upon three processes:

 Service
The focus on service is characterised by open ended agreements about continuity of
employment, incremental pay scales and annual reviews.
 Skills
The focus on skills produces higher rates of pay with greater or rarer skills.
 Performance
The focus on performance emphasises target setting, adapting to change and a close
relationship between what the employee achieves and what the employee is paid.

What is in a reward strategy?

As we have already noted, management attitudes towards the purpose of reward systems,
coupled with the nature of the organisation and the historical approach to reward, will provide
a framework for the design of a reward system.
Armstrong notes that a reward strategy will generally be concerned with:
 The demands of the business strategy, including cost constraints
 How business performance can be driven by influencing important individual and
organisational behaviours
 Helping to achieve culture change
 Meeting objectives for ensuring the organisation gets and keeps high quality
employees
 Aligning organisational core competences and individual competence
 Underpinning organisational changes, for example, introducing broad banding following
a delayering exercise
 The development of competitive pay structures
 Ensuring that reward policies are used to convey messages about the expectations
and values of the organisation
 Achieving the right balance between rewards for individual, team and organisational
performance
 Evolving total reward processes that incorporate the best mix of financial and non
financial rewards and employee benefits
 Achieving the flexibility required when administering reward processes within fast-
changing organisations, existing in highly competitive or turbulent environments
 Fitting reward processes to the individual needs and expectations of employees.

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C. HOW DO WE TAKE A STRATEGIC APPROACH TO

REWARD AND RECOGNITION?
Armstrong points out that a reward strategy can make an important contribution to the
achievement of corporate goals if it:
 Provides for the integration of reward policies and processes with key strategies for
growth and improved performance
 Underpins the organisation's values, especially those concerned with innovation,
teamwork, flexibility, customer service and quality
 Fits the culture and management style of the organisation as it is or as it is planned to
be
 Drives and supports desired behaviour at all levels by indicating to employees what
types of behaviour will be rewarded, how this will take place and how their expectations
will be satisfied
 Provides the competitive edge required to attract and retain the level of skills the
organisation needs
 Enables the organisation to obtain value for money from its reward practices.

Developing a Reward Strategy

According to Armstrong, when developing reward strategies, three key questions need to be
answered:
 How will the strategy fit the business strategy and support the achievement of business
goals?
 How can the impact of reward strategies be maximised by integrating reward
processes with other human resource processes so that they are mutually supportive?
 How can we be certain that the reward strategy will enhance the organisation's
strategic capability?
John Bratton, in Japanisation at work; managerial studies for the 1990s, quotes a simple
example, which highlights the role of reward management in supporting organisational goals.
At Flowpack Engineering, the company substituted the individual performance related pay
system for a straightforward payment by time arrangement, to encourage co-operation and to
tap the synergy from team working. The Human Resource Director described the cultural
change on the factory floor like this:
"As soon as people realised that there was no personal, peculiar advantage in hiding
bits of knowledge, being flexible, hogging the good jobs, and all that …. it was like
suddenly turning the key."
Reward strategies deal with issues concerning:
 Pay structures
 Job evaluation
 Keeping pace with market rates
 Pay for individual performance, competence or skill
 Team pay
 Relating bonuses to organisational performance
 Benefits, including flexible benefits and pensions.

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In practice, reward strategies come in all shapes and sizes, as there is no single reward
package which offers a 'best practice' approach. Legislation requires reward systems to be
'fair' and non discriminatory, although the concept of 'equal pay for equal work' can be difficult
to work in practice. There is also a requirement under legislation for basic components (up to
the statutory minimum) for elements such as maternity pay; sick pay; access to pension
schemes, paid holidays and for payments to at least equal the national minimum wage. A
decision may well be necessary in many organisations as to whether to exceed the statutory
minimum or not.
Generally reward systems include some or all of the following:

Type of reward Type of effort

Individual rewards Basic wage

Time: Maintaining work attendance
Overtime
Piece rate
Commissions Energy: Performing tasks
Bonuses
Merit Competence: completing tasks without error
Paid leave
Benefits

Team rewards Team bonuses

Co-operation: Co-operation with co-workers
Gainsharing

Organisational Profit sharing

rewards
Share ownership Co-operation: Co-operation with co-workers
Gainsharing

Source: Bratton and Gold, Human Resource Management: Theory and Practice

Practical Reward Strategy

In Strategic ‘Human Resource Management: A guide to Action’, Armstrong quotes several
examples of different approaches towards reward management. Some of these are
reproduced below:
Glaxo Wellcome
At Glaxo Wellcome the key features of the new reward strategy developed in 1995 were
expressed as:
 Competitive market rates to attract, develop, motivate and retain quality staff
 Levels of reward that vary, depending on the contribution of the individual, team and
operating company to overall business success
 Designed to maximise the potential contribution of all employees (a strong emphasis
on continuous development)
 Cost-effective employee choice in determining component parts of their own benefits
package.

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BOC Gases (UK)

The business strategy at BOC was to increase profitability. The reward strategy was to
develop a new incentive pay plan based upon both the achievement of individual profit
targets and wider business targets.
Halifax plc
The aims of the reward strategy are:
 Change the emphasis from measuring the job and its accountabilities to recognising
the person and the contribution they make to the business
 Reflect the way the organisation is changing by encouraging staff to be more
responsive and flexible to customers' needs
 Improve reward for excellent performance by freeing up salary ranges.
Finally, we must not lose sight of the fact that employers are interested in the absolute cost of
payment and its bearing on the profitability or cost effectiveness of their organisation. The
importance of this varies with the type of organisation and the relative cost of employees. In
a heavily mechanised environment such as petrol refining, employment costs are modest. In
teaching or health care, both of which are very labour intensive, the costs are substantial.
The indirect costs of employing people can also be substantial.

D. HOW EFFECTIVE ARE FINANCIAL AND NON

FINANCIAL REWARDS?
Herzberg suggested that money is not a motivator but a hygiene factor; you do not notice it
when it is present but you become dissatisfied when there is not enough of it. Hence,
reasonable pay alone is not a motivator and once people are used to their existing level of
reward they become dissatisfied with it and want more. Herzberg suggested that high
performance comes by providing motivators such as personal development and intrinsic
motivation. These are rarely linked to financial reward.
Financial reward is clearly a significant cost to an organisation and for most organisations it
is their largest cost. However, as well as cost, employee reward provides a major
opportunity to improve performance. Many forces are at work: economic, legal, social etc
and the reward mix is always changing.

What is the reward mix?

The total reward package that takes account of all the benefits that an employee gets from
working:
 Financial (wages or salary, pension, bonus, expenses etc.)
 Benefits (leave, accommodation etc.)
 Social (work relationship and social status)
 Developmental (professional and personal)
 Intrinsic job satisfaction (doing something considered worthwhile and an additional
purpose for living)
 A structure to daily life.
A comparison of financial and non-financial benefits might include the following elements:

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Financial benefits Non-financial benefits

Sickness pay Leave entitlement

Superannuation scheme Flexible working hours
Season ticket loan Career breaks
Removal expenses Additional maternity/paternity leave
Lease car or car allowance Crèche
Clothing allowances Education facilities and study leave
Private medical insurance. Sports and social club facilities.

In addition, certain organisations provide incentive schemes linked to non monetary rewards,
such as additional leave for long service.

What is Total Reward?

Components of Total Reward

Base pay Recognition

Variable Opportunities
pay Non to develop
Financial Total Total
rewards Share =
remuneration + financial Career =
reward
ownership rewards opportunities
Quality of
Benefits
working life

Source: New Dimensions in Pay Management, CIPD, 2001

Why adopt total reward?
Total reward is:
 Holistic: It focuses on how employers attract, retain and motivate employees to
contribute to organisational success using an array of financial and non financial
rewards.
 Best fit: It adopts a contingency approach; total reward programmes need to be
tailored to the organisation's own particular culture, structure, work process and
business objectives.
 Integrative: It delivers innovative rewards that are integrated with other human
resource management policies and practices.
 Strategic: It aligns all aspects of reward to business strategy; total reward is driven by
business needs and rewards the business activities, employee behaviour and values
that support strategic goals and objectives.
 People-centred: It recognises that people are a key source of sustainable competitive
advantage and begins by focusing on what employees' value in the total work
environment.
 Customised: It identifies a flexible mix of rewards that offers choice and is better
designed to meet employees' needs, their lifestyle and stage of life.

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 Distinctive: It uses a complex and diverse set of rewards to create a powerful and
idiosyncratic employer brand that serves to differentiate the organisation from its rivals.
 Evolutionary: It is a long term approach based on incremental rather than on radical
change.

How widely is total reward taken up by employers?

In 2007, nearly four in 10 UK employers had adopted or were implementing a total reward
approach, with a higher proportion among larger private sector firms.

Why are employers considering total reward?

Both new and old economy companies have to rethink their reward strategies. Traditional
companies had a paternalistic approach to reward; one benefit for employees was that they
could be relatively confident of staying with the same employer for as long as they wished,
possibly for their entire working careers. Newer companies (particularly those in the hi-tech
sectors) rewarded employees with exciting and challenging surroundings but with no
guarantee of job security. They also offered significant financial rewards, in the form of stock
options. Now that the stock options have to be expensed on the profit and loss account and
the traditional companies have stopped providing a job for life, both have to look at new ways
of attracting and retaining key personnel. Demographic changes have resulted in a more
diverse workforce demanding different returns from work. Total reward is a mindset that
enables employers to look at the bigger picture.
Flexible benefits (see below) are important but are seen by many as little more than an
extension to the existing salary package and something, therefore, that can be matched by
rival companies. To obtain maximum effect from these benefits, they have to become part of
a bigger business strategy.
At present, pay and benefits may be covered under a single and controllable, flexible benefit
scheme but the employer is still faced with the prospect of having to meet demands for a
wide range of other benefits, including better office accommodation or more training. In a
fully integrated total reward package, all the elements of the employee's work become part of
a single flexible package. It is only when all the elements of the reward package (that is total
rewards) are considered within the context of business and HR strategies that the total cost
of each employee's job can provide the most valuable return to the organisation. Thus, total
reward links cost control with the demand by employees for greater choice and flexibility in
the workplace. It also offers employers the opportunity to differentiate and create cultural
brand and thence competitive advantage; it is hard to replicate.

What might be included in a total reward scheme?

Broadly, total reward encompasses pay and benefits (generally in the form of a flexible
benefits scheme), the working environment and career and personal development. In more
detail it may include some, or all, of the following elements:
 Flexible benefits
 Access to professional and career development
 A challenging role at work
 Freedom and autonomy at work
 Opportunity for personal growth
 Recognition of achievements
 Preferred office space
 Being able to raise matters of concern

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 Being involved in decisions that affect the way work is done

 Preferred office equipment and mobile phone
 Flexible working hours
 Home or teleworking
 Secretarial support.
Clearly, some of these rewards are more easily provided than others and some are more
quantifiable than others. One difficulty in a total reward package, beyond the challenge of
supplying these less tangible rewards, is attempting to balance them against one another.

What are the perceived advantages of total reward?

The benefits are those of reward in general: recruitment, retention, motivation and control.

What are the perceived problems with total reward?

Total reward may be regarded as the next logical step after flexible benefits have been
implemented. As only relatively few companies in the UK are successfully operating flexible
benefits schemes at present (though increasing numbers are considering such schemes), the
number that could even contemplate introducing a total reward scheme is even smaller. As
with other reward solutions, no ‘off the shelf’ package is available for companies simply to
plug into their operation. To develop an appropriate programme would be enormously
complex and would not be without risks in its implementation, so it is an area that would
almost certainly benefit from help provided by consultants. Within the field of total reward,
there is currently serious debate over where to draw the line between choices related to
personal needs (such as life assurance) and choices that are strictly business-related (such
as the choice of computer).
Clearly, existing flexible benefits schemes already have grey areas, such as holidays, where
the employee's decision is not without an impact on the rest of the organisation. However,
when it comes to choosing, say, a computer, some employers (and experts) believe that this
is not an appropriate area for employee choice but should be a purely business decision.
Similarly, the choice of office accommodation may occasionally lend itself to a trade off where
limited office space is rationed according to who is prepared to sacrifice other benefits to
obtain it but (unlike, for example, life assurance) office accommodation is a finite and not
particularly flexible resource. In this case, it would often be very difficult to meet everyone's
requirements, regardless of how much they were prepared to sacrifice by way of other
benefits.

What is employer branding?

Every organisation has a brand as a potential employer; the way it is perceived in the labour
market. Providing the right mix of pay, prospects (for internal promotion and career
development for the next job outside), intrinsic motivation, status and management style all
help determine the employer brand.

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E. HOW DO WE EVALUATE PERFORMANCE

MANAGEMENT?
A performance management strategy has five stages:

Plan for performance  Exploit all elements of performance management

(see below)
 Set objectives for work and development
 Define competencies to complement the objectives
 Communicate what good performance looks like.

Manage the day-to-day  Manage individual employees' behaviour

performance issues
 Manage team behaviour
 Deal with under performance.

Monitor your people's  Have a systematic approach to monitoring individuals

performance and teams.

Evaluate your people's  Look for causes and cures, not just symptoms
performance
 Review Ability, Motivation and Opportunity
 Create interesting jobs
 Evaluate team performance.

Create a high performance  (See Study Unit 3 – The Alternatives to Strategic

culture HRM).

The 18 elements of performance management are:

 Mission (what your unit is trying to achieve)
 Vision (what things might look like if yours really was a quality outfit)
 Strategy (a long term sense of direction)
 Business plans (more immediate targets and plans for reaching them)
 Values (how people should and should not behave)
 Culture in which improving performance is valued and developed
 Monitoring of performance at individual, unit and Guild levels
 Feedback of that monitoring to staff
 Clear goals
 A set of competencies (to describe what good performance looks like)
 Appraisal discussions
 Personal development (anything that would help people perform better – off the job
training, coaching, reading, sitting with Nellie etc)
 Management development
 Good job design (creating jobs that satisfy)

© ABE and RRC

192 The Strategic Approach to Reward and Recognition

 Teamworking (interaction and mutual responsibility)

 Extrinsic reward and recognition (basic pay, performance pay, awards, saying 'well
done')
 Intrinsic rewards (the satisfaction from doing a worthwhile job reasonably well)
 Effective remedies for under performers.

Each of these can be evaluated independently and in relation to its fellow activities.

© ABE and RRC