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fourth edition


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Fourth Edition
Edited by

Ian Beardwell, Len Holden and Tim Claydon
De Montfort University, Leicester

Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk

First published in Great Britain in 1994 Second edition published in 1997 Third edition published in 2001 Fourth edition published in 2004 © Longman Group Limited 1994 © Financial Times Professional Limited 1997 © Pearson Education Limited 2001, 2004 All rights reserved. No part of this publication may reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 0 273 67911 2 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 08 07 06 05 04 Typeset in 10pt Sabon by 30 Printed and bound by Scotprint, Haddington The publisher’s policy is to use paper manufactured from sustainable forests.

Professor Ian Beardwell 1946–2002 In memoriam
Sadly, Ian Beardwell died suddenly just after work had begun on this edition. Ian made a great contribution to the study and practice of HRM through his research and writing, his teaching, and his close engagement with the Chartered Institute of Personnel and Development, where he was Vice-President for Membership and Education from 1997 to 2001. Part of that contribution was his role in developing an HRM textbook that was scholarly and critical in its approach, yet accessible to students. This edition of that book is dedicated to his memory.


Glossary of terms and abbreviations

Preface Guided tour of the book Plan of the book How to use this book Contributors Acknowledgements
The resource-based view of SHRM Best-practice SHRM: high-commitment models High-performance work practices Conclusion Summary Activity Questions Case study: Jet Airlines Useful websites References and further reading 49 56 59 67 68 69 69 70 71 71


Introduction to Part 1

3 Human resource management in context
Audrey Collin

75 75 75 79 84 91 101 102 103 104 104 105 106

1 An introduction to human resource management: strategy, style or outcome
Ian Beardwell (revised by Julie Beardwell and Ian Clark)

4 4 4 14 15 17 24 27 28 29

Objectives Introduction Some assumptions about human resource management The search for the defining characteristics of HRM The origins of human resource management Human resource management: the state of the debate Summary Activity References and further reading

Objectives Introduction The immediate context of HRM The wider context of HRM Ways of seeing and thinking Conclusion … and a new beginning? Summary Activity Questions Exercise Case study: Awkward squad promises a rough ride at Blackpool References and further reading

Part 1 Case study Marks and Spencer


2 Strategic human resource management
Nicky Golding


32 32 32 34 35 41

Objectives Introduction to strategic human resource management Understanding the business context Approaches to the strategy-making process The rise of strategic human resource management Exploring the relationship between strategic management and SHRM: the best-fit school of SHRM

Introduction to Part 2


4 Human resource management and the labour market
Tim Claydon

115 115 115


Objectives Introduction

Contents The nature of labour markets and employment systems Externalisation or internalisation of employment? The rise and fall of internalised employment systems? The future of employment systems: theory and evidence Conclusion Summary Activity Questions Case study: ‘Fears for the thread of industry’ References and further reading The nature of discrimination Why be concerned with equality and diversity? Equal opportunity policies Devising equality and diversity policies Institutional discrimination The process of discrimination in an organisation Concluding comment Summary Questions Case study: Safe Future Finance References and further reading 231 233 238 242 248 251 253 253 254 255 256


116 120 134 142 150 151 152 153 153 154

Part 2 Case study Employers exploit agency work boom


5 Human resource planning
Julie Beardwell

157 157 157 158 159 172 181 182 183 185 186 186 187 187

Objectives Introduction Defining human resource planning The traditional approach to HRP Human resource planning – a contemporary approach The advantages and disadvantages of human resource planning Human resource planning in practice HRP and strategic HRM Future directions Summary Questions Case study: ASDA and staff retention References and further reading


Introduction to Part 3


8 Learning and development
Audrey Collin

266 266 266 267 271 276 287 295 303 304 305 306 306 307 309

6 Recruitment and selection
Julie Beardwell and Mary Wright

189 189 189 190 198 204 224 225 225 227 227

Objectives Introduction The external context The internal context Developments in the systematic approach to recruitment and selection Conclusion Summary Activity Questions References and further reading

Objectives Introduction The changing world of work and organisations Learning and development The outcomes and process of learning The process of development The organisation as context for learning and development Controversial issues Conclusions Summary Questions Exercises Case study: Appoint in haste, repent at leisure References and further reading

9 Human resource development: the organisation and the national framework
Len Holden

313 313 313 314 317 329 333

7 Managing equality and diversity
Mike Noon

230 230 230

Objectives Introduction

Objectives Introduction The need for training Creating a human resource development plan The learning organisation HRD and the national framework for vocational education and training


Contents VET in the leading industrialised nations VET in Britain Controversial issues Summary Activity Questions Exercises Case study 1: Wealden District Council Case study 2: Smart cookies References and further reading 335 341 350 353 354 355 355 355 356 358 The contract of employment Discrimination in employment The regulation of working time Termination of the employment contract Enforcement of contractual and statutory employment rights New rights at work? Conclusion Summary Questions Case study: The pitfalls that follow a failure of best practice Useful websites References and further reading 429 442 445 447 450 453 459 460 461 461 463 463

10 Management development
Mike Doyle

361 361 361 362 363 365 370 374 386 407 411 411 412 412 413

Objectives Introduction Defining management development Management development as a strategic imperative Organisational approaches to management development Organising management development programmes Implementing and evaluating management development programmes Management development for different contexts and special needs The future for management development: the need for new thinking and new practices? Summary Questions Exercises Case study: Management development in Mid County NHS Trust References and further reading

12 Establishing the terms and conditions of employment
Sue Marlow and Trevor Colling

465 465 465 468 469 470 472 476 477 480 488 493 494 495 495 496

Part 3 Case study Transforming Anglian Water



Objectives Introduction Collective bargaining – history, definitions, analyses and criticisms The collective agreement The development of collective bargaining in Britain 1945–80 Changes in collective bargaining since the 1980s HRM and collective bargaining ‘New Labour’ and the contemporary employment relationship Establishing the terms and conditions of employment in the public sector Establishing terms and conditions of employment in non-union organisations Summary Questions Exercises Case study: Business views two-tier workforce agreement as dynamite References and further reading

Introduction to Part 4


13 Reward and performance management
Julia Pointon and Alan J. Ryan

500 500 500 501 502 504 517 519 523

11 The employment relationship and employee rights at work
Ian Clark

426 426 426 427

Objectives Introduction Distinguishing contractual and statutory employment rights

Objectives Introduction The development of reward systems Design and debates Motivation as a mechanism New day, new way, new pay? The psychological contract HRM and performance management

Contents Conclusion Summary Questions Exercises Case study: Widgets Are Us References and further reading 533 534 534 535 535 536 International HRM HRM in multinationals Conclusion Summary Questions Case study: All change at Linkz References and further reading 606 624 629 629 630 630 632


14 Employee involvement and empowerment
Len Holden

539 539 539 541 544 557 562 565 574 575 575 576 576 577 578

16 Human resource management and Europe
Len Holden and Tim Claydon

637 637 637 638 644 664 669 669 670 670 672

Objectives Introduction HRM and employee involvement Employee involvement and communication Empowerment Controversy: does employee involvement work? The case of TQM International aspects of employee involvement Summary Activity Questions Exercises Case study 1: Total quality management Case study 2: Empowerment at Semco References and further reading

Objectives Introduction European Union issues The Social Charter Eastern Europe Summary Activity Questions Case study: A human resource strategy for Europump Ltd References and further reading

17 Human resource management in Asia
Len Holden and Linda Glover

675 675 675 677 684 695 697 702 705 706 707 707 709

Part 4 Case study Malone Superbuy Ltd


Introduction to Part 5

15 HRM in multinationals: a comparative international perspective
Phil Almond, Ian Clark and Olga Tregaskis

Objectives Introduction Japan: economic growth and HRM China: economic growth and HRM Hong Kong: economic growth and HRM South Korea: economic growth and HRM Singapore: economic growth and HRM Summary Activity Questions Case study: Yummee Biscuits References and further reading

587 587 588 589 599

Objectives Introduction National business systems (NBSs) Comparative HRM

Part 5 Case study Global and local: the case of the inoperable HRM strategy 712 Glossary of terms and abbreviations Index
714 722

Glossary of terms and abbreviations

I know that Ian Beardwell was as surprised as the rest of the writing team by the fact that this book reached four editions. In doing so it has reflected developments in the field of Human Resource Management over a decade. It will also serve as a monument to Ian in that the book played a modest role in shaping conceptions and understanding in the thoughts of a large number of students and lecturers. A textbook, while reflecting on and critiquing the leading edge in HRM research, also acts as an interpreter of often complex trends. We hope that this edition maintains the analytical and critical standard of previous ones. Since the first edition of this book the role and function of human resource management within organisations have become more complex and the issues and policies which have become associated with it have multiplied considerably. The continuing devolvement of HRM functions to line managers has had some commentators predicting the death of the personnel/HRM department and in the second edition there was consideration of the important questions about the role of the HRM professional in changing organisations. The second and third editions raised concerns about strategic policy-making and the strategic nature of not only HRM, but those areas and disciplines associated with it, such as human resource development (HRD), management development and performance management. It also examined the role and nature of HRM in relation to culture change schemes such as total quality management (TQM), customer service programmes, business process re-engineering (BPR), investors in people (IIP) and performance-related pay (PRP). These add to the role confusion and uncertainty for HRM practitioners, as well as for middle and line managers and supervisors with expanded HRM functions. The third edition also reflected on the rise in popularity of the learning organisation and its sister concept the knowledge-based organisation as well as empowerment initiatives, all of which constitute types of organisational style and culture and exist as entities within themselves resting on HRM and related practices. HRM has also become more ambiguous in relation to other managerial initiatives which place emphasis on employee flexibility and teamwork aimed at enhancing commitment through empowerment policies. The contradictions inherent in its role and function remain, not least in the conflicting ethical positions which are often posed by changing economic circumstances. A decade of growth in HRM popularity has also revealed its changing nature. There is less interest in finding a universal paradigm or model of HRM than in understanding how it operates in diverse situations and what contribution it can make to the effectiveness and the profitability of the organisation. In addition, the growing uncertainties of work in the flexibilised world of portfolio and vendor workers aligned with the decreasing core of permanent employees has also directly and indirectly impacted on HRM policy, posing new forms of employee relations associated with short-term contracts, part-time working, agency and outsource working. The inconstancy of the organisational form is continually reshaping HRM role and policy, and HRM models rooted in the certainties of previous decades no longer apply. The history of the employment relationship over the past decade and a half indicates some kind of ‘managerial revolution’ and within this movement the influence of HRM has not been small. The role and function of HRM beyond the millennium have continued to evolve, fuelling debate amongst practitioners and academics. What is and will



remain certain is the working out of its role and function against a backdrop of contradictory and in some cases conflicting change, which is part of the inherent dynamics of global capitalism. We have sought to add new areas to the book. Most notably, a chapter on the developments in strategic HRM critically examines concepts such as high-performance work systems, the resource-based view of HRM, the balanced scorecard concept and ‘bundles’ of HR policies. In this edition these concepts are explored much more fully. While equal opportunities has always been part of previous editions we offer a new chapter that devotes itself entirely to this in the context of what is now increasingly being retitled ‘managing diversity’. There is also a new chapter on international HRM which examines it from an institutional and business systems perspective, and reshapes and updates the international organisational context of HRM. There is a new chapter on human resource planning and, while the chapter on job design has been dropped, this has been briefly tackled in the chapter on employee involvement. There is a totally new chapter on the important area of reward and performance. All of the remaining chapters have been updated but it is inevitable that one single volume cannot encompass the huge area in and around the HRM sphere, and we apologise for any omissions. Nevertheless, we have covered the broad sweep of the HRM field and some aspects in considerable detail. We hope that our readers like the new design and layout of the book which we believe enhances user friendliness without compromising academic standards. We would once again like to thank our group of trusty and willing authors who worked valiantly to get this edition to press under the difficult circumstances that the present world of higher education continues to impose. We would also like to thank our partners and families as well as our colleagues whose patience and perseverance enabled the production of this book. Finally, we dedicate this volume to Ian’s memory.





New, vibrant text design, colourfully highlighting key pedagogical features

Human resource management in context
Audrey Collin
To indicate the significance of context for the understanding of human resource management. To discuss ways of conceptualising and representing the nature of context generally and this context in particular. To analyse the nature of the immediate context of HRM: the nature of organisations and the need for management. To indicate the significance of context for the understanding of HRM. To discuss ways of conceptualising and representing the nature of context generally and this context in particular. To analyse the nature of the immediate context of HRM: the nature of organisations and the need for management. To indicate the significance of context for the understanding of human resource management.

Objectives provide an overview of the topics to be covered in each chapter, giving a clear indication of what you should expect to learn

The marketing intelligence system – which provides data on developments in the external marketing environment (which you will remember from Chapter 2). This system includes the scrutiny of newspapers and trade publications, reports from sales representatives and distributors, the purchase of information from specialist organisations and the establishment of a bureau within the organisation to collect and disseminate such marketing intelligence. In many respects this agenda has posed the most fundamental threat to established patterns of Personnel Management and Industrial Relations in the post-1945 era. Any assessment of the emergence of Human Resource Management has, at least, to take account of this changing context of employment and provide some explanations as to the relationships that exist between the contribution HRM has made to some of these changes on the one hand and, on the other hand Any assessment of the emergence of Human Resource Management has, at least, to take account of this changing context of employment and provide some explanations as to the relationships that exist between the contribution HRM has made to some of these changes on the one hand and, on the other hand sent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tem-

The immediate context of HRM


The scope and variety of marketing research operations as an aid to management in this way can best be illustrated by one or two examples. As this edition was being prepared, the author was notified that RSL (Research Services Ltd), a British marketing research organisation of the type described in Chapter 3, had recently completed the following research projects. Or again, imagine that a business organisation approaches a marketing research agency with the question: ‘Is it better to advertise our products on television or local radio?’ The agency’s answer could be defined as ‘information’ and after carrying out the necessary investigation the agency might well reply as follows.


● Read the case study, Jet Airlines, at the end of the chapter. Which of the approaches

identified by Whittington best describes Jet Airline’s approach to strategy formulation?

Activities appear throughout the text to reinforce learning with problems and practical exercises

● Why do you think it is important to concider the nature of strategy to aid our under-

standing of strategic human resoure management?

In many respects this agenda has posed the most fundamental threat to established patterns of Personnel Management and Industrial Relations in the post-1945 era. Any assessment of the emergence of Human Resource Management has, at least, to take account of this changing context of employment and provide some explanations as to the relationships that exist between the contribution HRM has made to some of these changes on the one hand and, on the other hand, the impact that such changes have had on the theory and practice of HRM itself. If you are reading this book in preparation for an examination it might be helpful to memorise the AMA definition, or the stages of the research process set out below it. This should help you to deal with a question on research in a comprehensive way. Professor Philip Kotler,1 the international authority on marketing, regards marketing research as

Figure 3.1

Model of strategic change and human resource management
External influences Include: • Trade • Investment • Conquest

Figures are used to illustrate key points, models, theories and processes

Societal culture Accounting subculture Accounting system Voluntary and required practices Institutions Include: • Trade • Investment • Conquest Accounting regulations

Domestic/ ecological influences Include: • Trade • Investment • Conquest

Source: Storey (1992: 38). Reproduced by kind permission of Chapman & Hall, a division of International Thomson Publishing Services.

Guided tour of the book



Chapter 4 • Human resource management and the labour market

● The immediate significance of the emergence of HRM, certainly in the British context, is to have opened up a vigorous debate about just what constitutes the change from traditionally conceived employee management policies to those which are claimed to be derived from a different mix of managerial concerns. ● Among the more prominent aspects which have been claimed for HRM are that it is derived from a more focused managerial perspective which is often strategically driven, and that it represents a more unified and holistic approach than the ‘technicalpiecemeal’ approach of Personnel Management. ● In this manner HRM is depicted as having an agenda which addresses ‘business-related’ issues, and thereby contributes to the overall success of the organisation in a proactive manner, while Personnel Management is depicted as having an agenda set for it by the more mundane requirements of the day in a more reactive manner. Neither of these type-cast approaches are wholly correct, of course, but they do indicate the arena within which debate has occurred. ● Managing human resources is one of the key elements in the coordination and management of work organisations. Whatever means are used to ensure the creation and delivery of services and goods in modern economies, the role of individuals and groups as employees and the ability of management to effectively deploy such a resource is vital to the interests of both employee and organisation alike.

The Summary allows you to recap and review your understanding of the main points of the chapter

1 Why do the ‘segments’ (i.e. sections) of the market that look most promising to target? 2 What product ideas that appear to be the most promising; the ideas that warrant further investment of time and money? 3 How many ‘segments’ (i.e. sections) of the market that look most promising to target? 4 Why do the product ideas that appear to be the most promising; the ideas that warrant further investment of time and money?

Questions can be used for self-testing, class exercises or debates

1 ABC & Sons is one of the key elements in the coordination and management of work organisations. Whatever means are used to ensure the creation and delivery of services and goods in modern economies, the role of individuals and groups as employees and the ability deal of the analysis of how organisations are run. 2 Consider one of the key elements in the coordination and management of work organisations. Whatever means are used to ensure the creation and delivery of services and goods in modern economies, the role of individuals and groups as employees. 3 Outline which is one of the key elements in the coordination and management of work organisations. Whatever means are used to ensure the creation and delivery of services and goods. 4 Decide which product ideas that appear to be the most promising; the ideas that warrant further investment of time and money.

Exercises can be used to test your learning of theory and concepts

References and further reading


Case study
ASDA and staff retention
Asda, the supermarket chain, uses a variety of methods to gather information on employee attitudes, including attitude surveys, ad hoc focus groups and questionnaires to staff who have left the organisation. These various sources of information indicated that lack of career progression was seen as a problem: for example, in the attitude survey conducted in 1997, fewer than half of hourly-paid staff (the vast majority of Asda employees) agreed with the statement ‘there is ample opportunity for promotion at Asda’. In response, Asda developed a new programme to train hourly-paid staff to become managers. Staff nominate themselves for the programme but must meet stiff entry criteria in terms of skill and training levels before being accepted; for example, they must have reached the final stage of the job ladder for their current role. The programme consists of three stages: Stage 1 – staff attend an open day that explains the good and bad aspects of being a manager. Staff also complete four off-the-job courses in communication skills, coaching, training and organising work. At the end of each course participants complete a small project. Once they have been satisfactorily completed, staff attend a one-day development centre where they are assessed against the competencies required for managers. Once they have reached a certain level of competence they progress to stage 2. Stage 2 – staff undertake four weeks of full-time training in store. This includes both on- and offthe-job training and focuses on people management skills, including how to give feedback and conduct appraisal interviews. Once this training is successfully completed, they spend the next four weeks undergoing in-depth management training in one of eight ‘stores of learning’, chosen for being well run by highly experienced managers. A self-learning package is included here as well as more on and off-the-job training. On successful completion, participants move directly to stage 3. Stage 3 – appointment to a departmental manager post. Asda believes that the new programme has contributed to reduced turnover rates amongst hourly-paid staff and managers. In addition, the proportion of hourly paid staff who agreed that Asda offers ample opportunity for promotion had increased to 64% in 2000.
Source: IDS (2000).

Case studies at the end of each chapter help consolidate your learning of major themes by applying them to real-life examples

1 To what extent is this programme likely to reduce turnover? 2 In what circumstances might Asda find it difficult to retain staff and what could they do about it?

References and further reading support the chapter by giving printed and electronic sources for additional study

References and further reading
Armstrong, M. (2001) A Handbook of Human Resource Management Practice, 8th edn. London: Kogan Page. Arthur, J. (1992) ‘The link between business strategy and industrial relations systems in American steel minimills’, Industrial and Labor Relations Review, Vol. 45, No. 3, pp. 488–506. Bartholemew, D. (ed.) (1976) Manpower Planning. Harmondsworth: Penguin. Beaumont, P. (1992) ‘The US human resource management literature’, in Salaman, G. et al. (eds) Human Resource Strategies. London: Sage. Bennet, A. (1991) ‘Downsizing doesn’t necessarily bring an upswing in corporate profitability’, The Wall Street Journal, 6 June, p. 1. Bevan, S. (1997) ‘Quit stalling’, People Management, 20 Nov. Bevan, S., Barber, L. and Robinson, D. (1997) Keeping the Best: A Practical Guide to Retaining Key Employees. London: Institute for Employment Studies. Boxall, P. and Purcell, J. (2003) Strategy and Human Resource Management. London: Palgrave. Bramham, J. (1988) Practical Manpower Planning, 4th edn. London: IPM. Bramham, J. (1989) Human Resource Planning. London: IPM. Bramham, J. (1994) Human Resource Planning. London: IPD. Brews, P. and Hunt, M. (1999) ‘Learning to plan and planning to learn: resolving the planning school/learning school debate’, Strategic Management Journal, Vol. 20, pp. 889–913. Buckingham, G. (2000) ‘Same indifference’, People Management, 17 Feb, pp. 44–46. Cascio, W. (1993) ‘Downsizing: what do we know, what have we learned?’, Academy of Management Executive, Vol. 7, No. 1, pp. 95–104.

Glossary of terms and abbreviations


Chapter 1 An introduction to human resource management: strategy, style or outcome Chapter 2 Strategic human resource management Chapter 3 Human resource management in context

Chapter 4 Human resource management and the labour market Chapter 5 Human resource planning Chapter 6 Recruitment and selection Chapter 7 Managing equality and diversity

Chapter 8 Learning and development Chapter 9 Human resource development: the organisation and the national framework Chapter 10 Management development

Chapter 11 The employment relationship and employee rights at work Chapter 12 Establishing the terms and conditions of employment Chapter 13 Reward and performance management Chapter 14 Employee involvement and empowerment

Chapter 15 HRM in multinationals: a comparative international pespective Chapter 16 Human resource management and Europe Chapter 17 Human resource management in Asia

Glossary of terms and abbreviations

This text is designed to meet the needs of a range of students who are studying HRM either as a core or option subject on undergraduate degrees in Business and Social Science, MBAs, specialised Masters programmes, or for the CIPD professional qualification scheme. All the chapters are designed to take a critically evaluative approach to their subject material. This means that this is not written in a prescriptive or descriptive style as are some other HRM textbooks, though there will be sections that must necessarily incorporate aspects of that approach. Some chapters will be more easily absorbable by the novice student than others. For example, Chapters 1 (Introduction to HRM) and 2 (Strategic HRM) are good introductions to the subject, while Chapter 3 takes a more unusual perspective on HRM in an organisational context and for the able student will prove both rewarding and stimulating. This is similarly the case for Chapter 4 on HRM in the labour market. Likewise, Chapter 8 is a demanding and stimulating introduction to the processes of learning and development, while Chapter 9 contains more elements of what the student might expect in a chapter on HRD. In this edition there are also activities and ‘Stop and think’ exercises peppering the text. These are to give students pause for thought and enable them to reflect on the ideas and knowledge to help them absorb and understand the concepts and ideas in both a practical and theoretical context. As in the first edition, there are case studies, exercises, activities and questions at the end of most chapters and a longer case study at the end of each Part. These can be given by lecturers as course work exercises and the Lecturers Guide that accompanies this volume gives detailed suggested answers. Additional material is also available on the companion website (www.booksites.net/beardwell). The outlines which follow are intended to indicate how the material in this book can be used to cover the requirements of these varying programmes; the one exception to this scheme is an outline for undergraduates, because of the multiplicity of courses at this level which individual tutors will have devised. Nevertheless, it is hoped that these suggested ‘routes’ through the book will be helpful guidelines for tutors who have responsibility for some or all of these courses.

MBA Route
Introduction: Chapters 1, 2, 3 Core: Chapters 4, 5, 6, 9, 11, 12, 13, 14, 15 Options: Chapters 7, 8, 10, 16, 17

MA/MSc Route
Introduction: Chapters 1, 2, 3, 4 Core: Chapters 5, 6, 9, 11, 12, 13, 14, 15 Options: Chapters 7, 8, 10, 16, 17

CIPD Professional Development Scheme (PDS)
Introduction: Chapters 1, 2, 3 People Management and Development: Chapters 4, 5, 6, 7, 8, 9, 12, 13 People Resourcing: Chapters 1, 2, 3, 4, 5, 6, 7, 13 Employee Relations: Chapters 1, 2, 3, 4, 7, 11, 12, 14 Learning and Development: Chapters 8, 9, 10 Employee Reward: Chapter 13 Advanced Practitioner Standard: Chapters 1, 2, 15, 16, 17 The available range of CIPD specialist modules may be supported by the use of the relevant chapter or part, thus Management Development and Vocational Education and Training can be supported by the whole of Part 3.

Ian Beardwell, BSc, MSc, PhD, CCIPD. For the first three editions of this book Ian was Professor of Industrial Relations and Head of the Department of Human Resource Management at Leicester Business School. In 2002 he took up the post of Professor of Human Resources and Co-ordinator of Institutional HR Strategy at North East Wales Institute of Higher Education. Experienced in industrial relations and manpower policy with the CBI, CIR and NEDO, he researched and published in the areas of low pay, public recognition, public sector labour relations and the management of industrial relations. He gave formal evidence to both the Megaw Committee of Inquiry into Civil Service pay (1981) and the Review Body for Nursing Pay (1987). His more recent work included an ESRC-supported study of non-union firms in the UK and contemporary developments in ‘new’ industrial relations. Ian died on 25 June 2002. Len Holden, BSc, MPhil, CIPD, CertEd, PhD, is Principal Lecturer in Human Resource Management at Leicester Business School, De Montfort University. He has lived and worked in Eastern Europe and has written on the changes which have taken place there since 1989. He has also researched, lectured and written on Western Europe, specialising in aspects of Swedish human resource management. He has recently returned to writing about the car industry but is also a member of a research project based at Leicester Business School examining mechanisms for transfer of HRM in US MNCs to a European context. Tim Claydon, BSc, MSc(econ), PhD, is Principal
Lecturer in Industrial Relations in the Department of HRM at De Montfort University. He has written on trade union history, union derecognition, union–management partnership, and ethics and human resource management. His current teaching and research interests include contemporary changes in work and employment, international and comparative human resource management and current developments in trade unionism in the UK, Europe and the USA.

Phil Almond, BSc, MA, PhD, is a lecturer in Human Resource Management at De Montfort University. His main research interests are in comparative and international HRM, and comparative industrial relations. He is currently a member of the team on an ESRC-funded project investigating HRM in US multinational corporations in the UK. He also has an active research interest in industrial relations in France. Julie Beardwell, BA, MA, is Principal Lecturer in Human Resource Management at Leicester Business School, De Montfort University. She joined the university after ten years’ experience in the retail sector. She currently contributes to a range of professional and postgraduate courses, teaching employee resourcing and interpersonal skills. She is also course director of the MA in Personnel and Development and an FCIPD. Her research interests include HRM in non-union firms and personnel careers. Ian Clark, BA, MA, PGCE, PhD, is Principal Lecturer in Industrial Relations in the Department of HRM, De Montfort University. Ian is currently a member of the department’s team of ESRC-funded researchers examining employment relations in subsidiaries of US multinationals in Europe. Ian has published widely on the issues of economic performance and industrial relations, the effects of sector on management techniques and the management of human resources in engineering services. Audrey Collin, BA, DipAn, PhD, is Emeritus Professor of Career Studies, De Montfort University. Her early career was in personnel management, and she is now MCIPD. She was awarded a PhD for her study of mid-career change; she has researched and published on career and lifespan studies, mentoring, and the employment of older people. She has coedited (with Richard A. Young) two books on career which reflect her questioning of traditional understandings of career and commitment to interpretative research approaches. Now formally retired, she continues her writing on career for the international academic readership, while also addressing the relationship between theory and practice.



Trevor Colling, BA, MA, is Senior Research Fellow in the Department of Human Resource Management, De Montfort University, Leicester. He has written and published widely on public sector industrial relations, particularly the implications of privatisation and contracting out. His current research interests include employment practice in US multinational companies and trade union roles in the enforcement of individual employment rights. Mike Doyle, BA, MA, is Principal Lecturer in Human Resource Management, De Montfort University. He teaches on a range of postgraduate management programmes in the area of management development and organisational change. His current research interests include the exploration of major change initiatives in public and private sector organisations and the selection and development of middle managers as ‘change agents’. Linda Glover, BA, MBA, is Principal Lecturer in
Human Resource Management, De Montfort University. She teaches undergraduate and postgraduate programmes and is involved in a number of research projects. Linda has managed industry-funded research projects that have been investigating employee responses to quality management and HRM. She is working with Olga Tregaskis and Anthony Ferner on a CIPD-sponsored research project that is examining the role of international HRM committees in transferring HR knowledge across borders within multinational companies. She has collaborated with Noel Sui of Hong Kong Baptist University on a project examining the human resource issues associated with the management of quality in the People’s Republic of China. She has written on the human resource problems associated with managing the subsidiaries of multinational companies.

interest in women in self-employment, labour management, employment regulation, and training and development issues. Along with two colleagues, she is currently editing a book for Routledge on employment relations in smaller firms and has recently been invited to the USA as a Visiting Professor to lecture on entrepreneurship and gender issues.

Mike Noon, BA, MSc, PhD, is Professor and Head of the Department of Human Resource Management at Leicester Business School, De Montfort University. He has previously researched and taught at Imperial College (University of London), Cardiff Business School and Lancaster University. He has published widely in academic journals, and his recent books are: The Realities of Work (second edition, 2002, coauthored with Paul Blyton, published by Palgrave); Equality, Diversity and Disadvantage in Employment (2001, co-edited with Emmanuel Ogbonna, published by Palgrave); A Dictionary of Human Resource Management (2001, co-authored with Ed Heery, published by Oxford University Press). Julia Pointon, BA, MA, PGCE, CIPD, is a senior
lecturer in Organisational Behaviour at De Montfort University teaching on a range of undergraduate and professional courses. Julia has particular research interests in professional roles and responsibilities in multidisciplinary health-care teams. She is a committee member of the local CIPD branch, a member of the CIPD National Upgrading Panel and serves on the CIPD Membership and Education Committee.

Nicky Golding, BA, MSc, is a Senior Lecturer in
Human Resource Management, De Montfort University. She teaches on a range of postgraduate and post-experience programmes in the area of Strategic Human Resource Management and Learning and Development. She is involved in a range of consultancy projects and her current research interests are in the relationship between strategic management and human resource management.

Sue Marlow, BA, MA, PhD, is Reader in HRM at De Montfort University, Leicester; she teaches gender studies, industrial relations, and entrepreneurship and innovation on both undergraduate and postgraduate programmes in Leicester, the Far East and France. Susan Marlow has researched and published extensively in the area of small firms, with a particular

Alan J. Ryan, BA, is a Senior Lecturer in the Department of HRM at De Montfort University. His teaching is focused on the implications of legal change for the management of people at work and the development of managerial responses to legislative activity. He teaches courses at undergraduate and post-graduate level as well as being actively involved in courses and programmes delivered to HMP service, Ford, and UK Interpreters’ Service as well as other local businesses. His research interest lies in the development of soft systems analysis as a way of understanding changes in managerial behaviour following the introduction of legislation. He has undertaken some consultancy work in both the private and the voluntary sector. He has written on reward management, participation regimes in SMEs and the legal implications of flexibility. Olga Tregaskis, BSc, MSc, PhD, is Senior Research Fellow in International Management at De Montfort University’s Leicester Business School. A University of



Ulster Psychology graduate, Olga gained her masters in Applied Psychology from Cranfield University. After spending some time working within the Industry Training Organisation (ITO) network in the UK, Olga returned to Cranfield where she worked in the research Centre for European HRM and was awarded her PhD in International HRM from Cranfield School of Management. Olga teaches HRM on a range of postgraduate courses and has undertaken research projects sponsored by the European Commission, national funding bodies, private organisations and the CIPD. She is a frequent contributor to international

conferences as speaker, referee and/or session chair and publishes academic and practitioner pieces in the areas of International HRM, Comparative HRM, Employee Development and Flexible Working.

Mary Wright, BA, MBA, FIPD, is Principal Lecturer in Human Resource Management at De Montfort University. She has wide experience of teaching on under-graduate and professional courses and is actively involved with the CIPD at local level. She has researched and written on international executive search and selection.

Glossary of terms and abbreviations


The editors would like to thank the contributors to this volume who have valiantly met deadlines despite a demanding year within the HRM department at De Montfort University. We would also like to thank their partners and families for their forbearance. In addition we convey a special thank you to Margaret Spence (the De Montfort University HRM departmental secretary) who has put in considerable time and effort in creating earlier editions and has been of great service to many of us on this one. Thanks also go to our commissioning editors and other staff at Pearson Education for their patient support in helping this edition towards the printing press and website. The support, help and advice of Louise Lakey and David Cox, who took over from Louise, and did an excellent job in picking up the threads is greatly appreciated. Thanks also go to Amanda Thompson, Nicola Chilvers, Jacqueline Senior and Alison Kirk who were ever helpful and diplomatic in dealing with our gripes and moans.

Publisher’s acknowledgements
Table 1.1 from New Perspectives on Human Resource Management, Routledge (Storey, J. 1989), Table 2.1 and Figure 2.3 from What is Strategy and Does it Matter? 2nd Edition (Whittington, R. 2001), Figure 5.4 from Human Resource Management: A Critical Text, Routledge (Rothwell, S. 1995), Figure 14.1 from Towards A New Industrial Democracy: Worker’s Participation in Industry, Routledge & Kegan Paul (Poole, M. 1986), with permission of Thomson Publishing Services; Table 1.2 and Figure 1.5 from Developments in the Management of Human Resources: An Analytical Review, Blackwell (Storey, J. 1999), Table 2.8 and Figure 2.1 from Contemporary Strategy Analysis: Concepts, Techniques, Applications, 4th Edition, Blackwell (Grant, R. M. 2002), Table 17.4 and Table 17.5 from ‘Re-inventing China’s industrial relations at enterprise level: an empirical field-study in four major cities’, Industrial Relations Journal, Vol. 30, No. 3, pp. 243–260 (Ding, Z & Warner M. 1999), Figure 6.3 Successful Selection of Interviewing, Blackwell (Anderson, N. & Shackleton, V. 1993), with permission of Blackwell Publishing Limited; Table 2.2 from Academy of Management Executive by Schuler & Jackson, Table 2.3 from Academy of Management Journal by Delery & Doty, Table 2.6 Academy of Management Journal by Becker & Gerhart, copyright 1987, 1996 and 1996, respectively, by Acad of Mgmt, reproduced with permission of Acad of Mgmt in the format Textbook via Copyright Clearance Center; Table 2.4 from Competing for the Future (Hamel, G. and Prahalad, C. 1994), reprinted by permission of Harvard Business Review, © 1994 by the Harvard School of Publishing Corporation, all rights reserved, Figure 2.2 from ‘Crafting strategy’, Harvard Business Review, July–August, pp. 65–75 (Mitzberg, H. 1987), copyright © 1987 by the Harvard Business School Publishing Corporation, all rights reserved; Table 2.5, this material is taken from People Management and Development, 2nd Edition (Marchington, M. & Wilkinson, A. 2002), Table 6.6 from ‘Recruitment and retention’, Survey Report, p. 12 (CIPD, 2002a), Table 6.7 from ‘Recruitment on the internet’, Quick Facts (CIPD, 2002c), with the permission of the Chartered Institute of Personnel and Development, London; Table 2.7 from Strategic Human Resource Management Practice, A Guide to Action, 2nd Edition, Kogan Page (Armstrong, M. and Baron, A. 2002), Figure 5.5 from A Handbook of Human Resource Management, 8th Edition, Kogan Page, p. 363 (Armstrong, A. 2001); Table 6.3 from ‘Human resource issues of the European Union’, Financial Times, p. 247 (Leat, M. 1998), Chapter 13. p. 510 from Organizational Behaviour: An Introductory Text, 4th Edition, Financial Times, Prentice Hall (Huczynski, A. A. and Buchanan, D. A. 2001), Figure 2.4 from Human Resource Management, 4th Edition (Torrington, D. and Hall, L. 1998), Figure 5.1 from People Resourcing: Human Resource Management in Practise (Pilbeam, S. and Corbridge, M. 2002), with permission of Pearson Education Limited; Table 6.4 from Social Trends 2002, Table 9.3 from Department of Education and Science ‘International statistics comparisons of the education and training of 16 and 18 year olds’ Statistical Bulletin 1/90, January: DES and Table 13.1 from New


Acknowledgements Earnings Surveys 1993–1997, reproduced with permission of the Controller of HMSO; Table 6.5 from Recruitment and Selection, Advisory Booklet No. 6. (ACAS 1983), with the permission of Advisory, Conciliation & Advisory Service, London; Table 9.5 from ‘Does strategic training policy exist? Some evidence from ten European countries’, Personnel Review, Vol. 21, No. 1, pp. 12–23 (Holden, L. and Livian, Y. 1992), Table 17.6 from ‘Globalisation and a new human resource policy in Korea: transformation to a performance based HRM’, Employee Relations, Vol. 19, No. 4, pp. 298–308 (Kim, S. and Briscoe, D. R. 1997), Figure 8.1 from ‘Design for learning in management training and development: a view’, Journal of European Industrial Training, Vol. 4, No. 8, whole issue (Binsted, D. S. 1980), with permission of MCB UP Limited; Table 10.1 from ‘Management development for the individual and the organisation’, Personnel Management, June, pp. 40–44 (Burgoyne, J. 1988), Figure 5.2 from ‘Quit stalling’, People Management, November, p. 34 (Bevan, S. 1997), with the permission of People Management Magazine (formerly Personnel Management) Limited; Table 14.3 from ‘Total quality management and employee’, from Human Resource Management Journal Vol. 2, No. 4, pp. 1–20 (Wilkinson, A. et al. 1992) and Table 17.3 from ‘Human resources in the People’s Republic of China: the “three systems reforms”’, Human Resource Management Journal, Vol. 6, No. 2, pp. 32–43 (Warner, M. 1996), reproduced by permission of Reed Elsevier (UK) Limited, trading as Lexis Nexis UK; Table 15.1 adapted from OECD Employment Outlook 2002, Organisation for Economic Co-operation and Development, Paris; Table 15.3 from ‘Strategic human resource management: a global perspective’, in R. Piper (ed.) Human Resource Management: An International Comparison (Adler, N. and Ghadar, F. 1990), permission granted, Walter de Gruyter GMBH & Co. KG; Table 17.1 from ‘Changes in labour supply and their impacts on human resource management: the case in Japan’, International Journal of Human Resource Management, Vol. 4, No. 1, pp. 29–44 (Sasajima, Y. 1993) and Figure 1.4 ‘Human resource management: an agenda for the 1990s’, International Journal of Human Resource Management, Vol. 1, No. 1, pp. 17–43 (Hendry, C. and Pettigrew, A. 1990), reproduced with permission of Taylor & Francis Ltd, http://www.tanf.co.uk/journals/routledge/09585192.html; Figure 1.2 from ‘A framework for a strategic human resource management’, in M. A. Devanna, C. J. Forburn and N. M. Tichy, (eds) Strategic Human Resource Management, copyright © 1984 John Wiley, this material is used by permission of John Wiley & Sons, Inc. (Devanna, M. A. et al. 1984); Figure 1.3 from Managing Human Assets, Free Press, reproduced with permission of B. Spector (Beer, M. et al. 1984); Figure 4.3 from The ‘Flexible’ Firm (Institute of Employment Studies, 1985); Figure 6.2 from Human Resource Management: Rhetoric and Realities (Legge K. 1995) and Figure 7.2 The Realities of Work, 2nd edition (Noon, M. and Blyton, P. 2002), with permission of Palgrave Macmillan; Figure 9.2 from Training Without Trainers? How Germany Avoids Britain’s Supply-side Bottleneck with permission of Anglo-German Foundation for the Study of Industrial Society (Rose, R. and Wignanek, G. 1990); Figure 14.2 from Developments in the Swedish Labour Law, The Swedish Institute, © Anders Suneson, www.technadebilder.se. (Edlund, S. and Nystrom, B. 1988); Figure 15.2 from ‘An integrative framework of strategic international human resource management’, Journal of Management, Vol. 19, No. 2, with permission of Elsevier (Schuler, R. et al. 1993). Investors in People for extracts from case studies on The Cumberland Hotel and Wealden District Council; Labour Research Department for an extract from ‘Employers exploit agency work boom’ published in Labour Research 1st August 2002; The Sentinel, Stoke-on-Trent, for an extract from ‘Fears for the thread of industry’ by Stephen Houghton published in The Sentinel 4th May 2003; and Jane Bird for the case study Inside Track Enterprise: Appoint in haste, repent at leisure, from Financial Times, 9 January 2003, © Jane Bird. Extract on p. 75 from John Webster’s 1985 advertisement for the Guardian, reproduced with kind permission of The Guardian/BMP DDB. Extracts on pp. 271 and 272 taken from Effective Mentoring and Teaching by L. A. Daloz, copyright © 1986 John Wiley & Sons Inc. This material is used by permission of John Wiley & Sons Inc. We are grateful to the Financial Times Limited for permission to reprint the following material: Box 2.5, How BMW put the Mini back on track, © Financial Times, 19 March 2003; Chapter 3 Case study, Awkward squad promises a rough ride at Blackpool, © Financial Times, 9 September 2002; Part 1 Case study, Retailer derided for ‘moving the deckchairs’ at a crucial time – fears of double-digit fall in sales, © Financial Times, 22 December 1999; Chapter 12 Case study, Business views two-tier workforce agreement as dynamite, © Financial Times, 14 February 2003; Box 16.1, Hire and fire, is no recipe for Europe, © Financial Times, 12 November 2002. In some instances we have been unable to trace the owners of copyright material and we would appreciate any information that would enable us to do so.

Pa r t


1 ■ An introduction to human resource management: strategy, style or outcome 2 ■ Strategic human resource management 3 ■ Human resource management in context Part 1 Case study

Introduction to Part 1
Human resource management has become a pervasive and influential approach to the management of employment in a wide range of market economies. The original US prescriptions of the early 1980s have become popularised and absorbed in a wide variety of economic settings: there are very few major economies where the nature of human resource management, to include its sources, operation and philosophy, is not actively discussed. As a result, the analysis and evaluation of HRM have become major themes in academic, policy and practitioner literatures. These first three chapters are strongly related in that they consider the nature of HRM from a number of perspectives. The first chapter looks at the antecedents of HRM in the USA and its translation to other economies, with particular emphasis on Britain – where the HRM debate has been among the most active and has involved practitioner and academic alike. There are many unresolved questions in HRM: What sort of example is it? Can it be transposed from one economy to another? Does it have qualities that make it truly international? Is it a major contribution to strategic management? The second chapter continues this last theme in examining the strategic nature of HRM in depth: how it is aligned to and configured with organisational strategy and how the debate has moved through a number of incarnations, from the ‘best-fit approach’ to the ‘configurational approach’ to the ‘resource-based view’ and ‘best practice approach’. In making claims for the importance of the strategic nature of HRM it raises questions as to its efficacy in helping meet organisational objectives, creating competitive advantage and ‘adding value’ through what has now become known as ‘high-performance’ or ‘high-commitment work practices’. Whether or not the claims for these approaches are supportable, it is becoming clear that no one system or approach can be applied to all organisations owing to the increasing complexity of organisational forms and organisational contexts. The third chapter continues this contextual theme and examines the context in which human resource management has emerged and in which it operates. This is important in understanding some of the assumptions and philosophical stances that lie behind it. The purpose of the discussion is to create a critical awareness of the broader context in which HRM operates, not simply as a set of operational matters that describe the functional role of personnel management, but as part of a complex and sophisticated process that helps us to understand the nature of organisational life. The type of questions raised by HRM indicates the extent to which it has disturbed many formerly accepted concepts in the employment relationship. For some it has become a model for action and application; for others it is no more than a map that indicates how the management of employees might be worked out in more specific ways than HRM can adequately deal with.



An introduction to human resource management: strategy, style or outcome
Ian Beardwell (revised by Julie Beardwell and Ian Clark)
To outline the development of HRM as an area of practice and analysis in terms of: – strategy – style – outcomes. To debate the nature of the HRM phenomenon and the different perspectives from which it is viewed: – as a restatement of existing personnel practice – as a new managerial discipline – as a resource-based model – as a strategic and international function. To review and evaluate the main models of HRM, and to assess current developments.

The fourth edition of this book provides an opportunity to reflect on the extent of the debate about human resource management, the changing nature of the employment relationship, and the consequences for how organisations and individuals are managed. It is now over a decade since the idea for a comprehensive treatment of HRM was conceived by the authors, and a great deal of the prevailing analysis and data that was available at that time was derived from such sources as the 1984 WIRS 2, the 1988 Company Level Survey and MacInnes’ Thatcherism at Work (MacInnes, 1987). The story was broadly one of change, but not so much that a radical reshaping of the employment relationship had occurred. Rather, the effects of deflation and recession in the early and late 1980s had wrought greater damage to the infrastructure of employment than any legally enforced reform, while the move to privatisation, and a stronger role for market-based models of economic activity, had shifted the primary scope of industrial relations away from job regulation and collective bargaining towards coping with outsourcing and downsizing. Despite all these shifts, however, a large part of the analysis and discussion that constitutes the HRM debate today had yet to reveal itself. Some initial studies of non-unionism were only just beginning to see the light of day (McLoughlin and Gourlay,



1994), while the role of HRM in transforming and adding value to organisational performance (Pfeffer, 1994, 1998), the relationship between HRM ‘bundles’ and business performance (McDuffie, 1995; Huselid, 1995), the role of the psychological contract in gaining employee assent (Guest and Conway, 1997) and wider changes in the infrastructure of the employment relationship (Cully et al., 1999) would come later in the decade. The situation is now one of a rich and complex diversity of analyses, in which UK-based research and analysis is playing as significant a contribution as that of the USA – even if some of the policy and research initiatives still derive, prima facie, from a US agenda. What is striking about the HRM debate of the past decade is that two common themes have persisted, and yet neither has turned out to be the determining feature of the way the employment relationship is managed. The first theme is that of HRM’s replacement of the older traditions of personnel management and industrial relations. The approach of what might be termed the ‘Desperately Seeking HRM’ school of analysis seeks to explore the incidence, volume and influence of HRM-based approaches and practices, and to assess whether they are supplanting the historical patterns of UK employee management (Sisson, 1993). The second theme is concerned to examine the specific impact of focused types of HRM – such as high-commitment management – in order to assess their superiority over both more generalised HRM interventions and traditional methods. While there are obvious limitations in seeking to assess the total impact of HRM, whether by large-scale survey material or by case analysis, there are similar limitations to measuring discrete choices of ‘tools’ with the aim of achieving ‘best practice’, as Purcell (1999) has noted. Thus we have entered the new millennium without a universal model of HRM on the one hand, but, on the other, with a range of HRM activities that are under sustained examination in order to assess their efficacy in achieving superior organisational performance. What is clear is that the HRM agenda still continues to develop and provide opportunities for analysis and prescription. For some commentators HRM seems to have hit its high water mark and is now on the ebb (Bach and Sisson, 2000), while for others (such as Guest, 1997) there is fragmentary but clear evidence that ‘HRM works’, but we need to put flesh on the bones to consolidate that assertion.

■ A framework for HRM analysis: strategy, style and outcome
How can we attempt to construct a framework to encompass these divergent views about the relative strength and vitality of HRM? As the subtitle of this chapter suggests, there are at least three approaches to looking at the phenomenon that might help to explain different groups of arguments, based on whether the analysis focuses on the role of strategy, style or outcomes in the conduct of HRM.

● HRM as strategy
The strategic emphasis has by far the longest pedigree in the HRM debate; indeed, it is probably the strategic aspirations of the US models that were the defining feature of HRM as it emerged in the 1980s (see also Chapter 2). As we shall see later in the chapter, strategy has been seen as one of the touchstones of HRM’s viability. The extent to which HRM has come to play a role in the direction and planning of organisations has been a persistent theme not simply in the academic literature but in practitioner activity too. For example, the HRM Initiative in the UK National Health Service stresses the key role that HR practitioners will play at both national and regional levels in achieving nationally determined and nationally assessed goals for health care delivery. A key part of this initiative is the integration of HRM with the strategic goals of the NHS. Within strategic approaches two further strands might be noted. The first remains centred around macro-strategic issues and the general location of HRM within organisational


Chapter 1 · An introduction to human resource management: strategy, style or outcome

structures overall – perhaps best summed up by the debate over whether HRM has a seat on the Board. The second strand has been more concerned with the formal inputs that HRM can provide – such as better recruitment and selection procedures or better alignment of reward systems with activity – as a way of providing linkages that are demonstrable and robust. In the NHS, for example, a major factor in stimulating these closer linkages is the realisation that variability of treatment rates between different hospitals may be as much to do with the management of the clinical personnel as with their access to medical technology. Thus the health service provides an excellent example of the strategic positioning of HRM and the linkage of its inputs. This brings together their respective relationships in the debate over the role of HRM in the health service overall. A contemporary explanation for HRM’s strategic positioning has emerged in the use of the term business focus. This has become a popular and widely used phrase to describe a wide range of organisational activity into which HRM is expected to link. However, it has an ambiguity and a potential for use across not only strategy, but also style and outcomes. If it has a meaning, it is probably best viewed as a general description of the territory that HRM now inhabits, rather than the technically defined and narrower role of personnel management of a quarter of a century ago.

● HRM as style
The second approach, based around styles of HRM, has also had an active life, and one that has attracted much discussion within the UK. Some of the antecedents to this can be traced back through the analysis of personnel as a function and personnel managers as actors within organisational settings. Thus Watson’s (1977) analysis of the professional role of personnel managers and Legge’s (1978) analysis of their political location within organisational roles can be seen as important precursors of this approach, while Tyson and Fell (1986) further refined the styles of personnel managers within their tasks. Other antecedents can be traced back to the industrial relations tradition, with the ‘unitarist–pluralist’ analysis of Fox (1966) and the ‘traditionalist/sophisticated paternalist/sophisticated modern/standard modern’ formulation of Purcell and Sisson (1983). The idea that style of personnel management or industrial relations can materially affect the operation of the function is deeply rooted in UK analysis, and suggests too that it has proved difficult to change over time, except through profound disturbance or acute threat. In these contexts the reason why UK management has not demonstrated a greater interest in, or success with, strategic approaches to HRM (in contrast to the USA) is largely attachment to a style that is the product of history and institutions over time, each of which is now an embedded feature of the British business system. The analysis of HRM in terms of style has also revolved around whether it can be regarded as hard or soft (Legge, 1995) in its intent. Hard HRM is sometimes defined in terms of the particular policies that stress a cost-minimisation strategy with an emphasis on leanness in production, the use of labour as a resource, and what Legge calls a ‘utilitarian instrumentalism’ in the employment relationship; at other times hard HRM is defined in terms of the tightness of fit between organisational goals and strategic objectives on the one hand and HRM policies on the other. Soft HRM, by contrast, is sometimes viewed as ‘developmental humanism’ (Legge, 1995) in which the individual is integrated into a work process that values trust, commitment and communication. What is probably more at issue than either of these two characterisations is the question of whether they are equally routes to work intensification and greater demands on the employment relationship by the organisation at the expense of the employee. As Legge points out, it is quite feasible that hard HRM variants can contain elements of soft practice, while the criticism that can be made of soft variants is that they can be held to deliver hard outcomes in terms of the tightness of the fit with business strategy that is sought. Indeed, just as with the broad definition and usage of the term ‘business focus’,



noted earlier, so with the meaning and use of the term ‘fit’. Each of the three descriptions of HRM discussed here – strategy, style and outcome – is concerned with fit and the extent to which each achieves it, with the result that ‘fit’ has itself become an infinitely flexible term, and one that becomes increasingly difficult to apply to HRM as a single concept. A more recent approach to the question of style can be found in the work of Ulrich (1998). The tradition that sought to present practitioner roles in terms of the organisational location of their work provides a good background to Ulrich’s model of the HRM profession and its contribution to the business. For Ulrich, there are four possible styles or routes that HRM can take. The first is in what he terms work organisation, which involves the practitioner servicing the needs of the organisation in as efficient a manner as possible, but no more than that. In this mode, the style of HRM is as a support function ‘doing the job right’ but with little opportunity to add value or contribute to organisational performance. It might be that minimal HRM mistakes will be made, but conducting HRM in this manner will not provide any particular competitive advantage for any one organisation. The second style is to become the employee champion. In this mode the HR practitioner takes on the role of ‘voice’ for employees, seeking to reduce the frictional differences between the organisation and its staff and ensuring that senior management are aware of the concerns of employees. While this might be a different role from the maintenance function of work organisation, it still places the practitioner in a servicing role and does not necessarily create a role with added value; the emphasis is still on reducing dysfunctions. In the third mode, that of agent for change, the practitioner becomes the protagonist in active change management that has the capacity for added value, while in the fourth mode of business partner the practitioner becomes a fully contributing member of the management team, who is able to participate in the corporate planning process and bring the expertise of HRM into the equation with the responsibility to demonstrate how HRM can add value and give competitive advantage. For Ulrich the danger for HRM lies in its inability to move on from work organisation and seize the developmental opportunity of becoming the business partner. The attractions of this approach to style for practitioners are obvious, with its message of hope and a promise of a substantial role at the heart of organisational structures, and Ulrich’s work has become particularly popular in the professional associations for HR managers in both the USA and the UK.

Stop and think

Consider the role of HR in an organisation known to you. How closely does it fit with Ulrich’s model of the profession and its contribution to the business?

● HRM as outcomes
Over the second half of the 1990s, a further turn in the HRM debate saw a move away from attempts to define what its ‘input’ characteristics might be in favour of examining what consequences flowed from applying HRM in fairly tightly defined circumstances. Whereas both strategic and style approaches to HRM analysis had been concerned with its architecture, an ‘output’-based model concerned itself with examining those organisations that not only constructed their HRM in particular configurations but also found that resultant outcomes could give them a competitive advantage. The impetus for this approach was predominantly American, in particular the work of Arthur (1992, 1994), McDuffie (1995) and Huselid (1995), although UK work has also developed in this area, West and Patterson (1997) in particular. The unifying theme of these studies is that particular combinations of HRM practices, especially where they are refined and modified, can give quantifiable improvements in


Chapter 1 · An introduction to human resource management: strategy, style or outcome

organisational performance. Arthur’s work studied 54 mini-mills (new technology steel mills using smaller workforces and new working practices) and demonstrated that firms using a ‘commitment’ model of HRM saw higher productivity, lower labour turnover, and lower rates of rejected production. In other words, it took the HRM style element a stage further in order to establish whether there was an output effect that could benefit the firm. McDuffie’s work examined 70 plants in the world car industry, and the use of HR techniques that were regarded as innovative. His analysis argued that it is when practices are used together, rather than simply in isolation or only for the specific effect of some more than others, that superior performance can be achieved. An important part of this analysis is the extent to which employees gave ‘extra’ in the form of discretionary effort that would otherwise have not been forthcoming without the effect of the chosen practices. Three factors were noted in particular: buffers (the extent to which plants adopted flexibility), work system (the work arrangements that complemented flexibility), and HRM policies (the HRM practices that complemented flexibility). The marked effect on performance was in the combined impact of all three factors working together. This approach moves the impact of HRM from being concerned with strategic choice or style per se to following the output consequences of constructing what have come to be known as ‘bundles’ of HR practice. Huselid’s study examined the relationships between the HR system (the groups of practices rather than individual practices), outcome measures (such as financial performance as well as HR data on turnover and absence), and the fit between HR and competitive strategy in 986 US-owned firms employing more than 100 employees. Huselid’s results indicated a lowering of labour turnover, higher sales performance, improved profitability and higher share valuations for those firms that performed well on his indices. In the UK the study by West and Patterson (1997) indicated that HR practices could account for 19 per cent of the variation between firms in changes in profitability and 18 per cent of the variation in changes in productivity. Once again, the complementarity of HR practices was held to be significant. As a result of these types of analysis a great deal of attention is now being paid to what constitutes a ‘bundle’ of HR practices that will afford firms superior performance. But this is no easy matter to settle conclusively. What is obvious about each of these studies is that they were examining patterns of HR strategies, choices, applications and refinements after their introduction. We have little information about how all these factors came to be in place in some firms and not in others. For practitioners there is no easy or readily available checklist that can be applied. For each firm contemplating an output model of HRM there has to be a difficult internal process of selecting and testing the bundle that will work in their own circumstances. The mere application of a group of practices, without some assessment of their interconnectedness, is unlikely to have discernible beneficial outcomes. Claims for the contribution of HRM to enhanced organisational performance have been criticised on a number of grounds. Richardson and Thompson (1999) raise several concerns about the research studies. They question the lack of consensus in the measures used to define HRM; the apparent arbitrary selection of items included in HRM ‘bundles’; and the assumption that all HR practices are equally important. Furthermore, they suggest that many of the studies ignore other measures of managerial effectiveness and thus risk overstating the impact of HRM. Whitfield and Poole (1997) express doubts over attributions of causality; i.e. is it that HRM leads to better organisational performance or is it that better performing organisations are able to invest more time and effort into the management of human resources? Thus the debate over HRM, whether it is pursued by analysts, academics or practitioners, continues to expand and develop. So far from reaching the high-water mark and ebbing, HRM as a phenomenon continues to thrive. Indeed, the fusion of HRM with



business focus, noted above, has ensured that many major organisational changes now intimately involve HRM as part of the equation. These changes provide the background against which human resource management has emerged as the predominant contemporary influence on managing employment relationships. It is now commonplace to describe HRM as a managerially derived and driven set of precepts with both line and HR managers actively involved in its operation. What is distinctive about the debate, and perhaps explains its capacity to renew itself after each wave of analysis has been assessed and absorbed, is the shift from the broad question of whether HRM exists at all to more focused analyses – for example, whether particular combinations of HRM policies produce better results in output or services so that competitive advantage might accrue to those organisations that adopt them. Thus HRM continues to provide agendas and prescriptions for debate amongst both practitioners and analysts that are contentious and compelling, and have no settled orthodoxy. Why should this be so? Part of the answer lies in the perspective brought to bear upon HRM: there is a diversity in the HRM debate, derived from the manner in which particular participants view the essential elements of HRM and what they believe it is representing, that colours the discussion. For the purposes of this analysis four broad perspectives are set out here:
● ● ●

that HRM is no more than a renaming of basic personnel functions, which does little that is different from the traditional practice of personnel management; that HRM represents a fusion of personnel management and industrial relations that is managerially focused and derives from a managerial agenda; that HRM represents a resource-based conception of the employment relationship, incorporating a developmental role for the individual employee and some elements of cost minimisation; that HRM can be viewed as part of the strategic managerial function in the development of business policy, in which it plays both a determining and a contributory role and is particularly so for multinational firms.

■ HRM as a restatement of existing personnel practice
It is possible to view this first standpoint as a basic but natural reaction to a new and somewhat threatening reformulation of traditional functions. There is, perhaps, an understandable scepticism that HRM can, or ever could, live up to the wider claims of its ability to transform the employment relationship so totally that some of the inherent problems of managing a volatile set of employee issues can be resolved more satisfactorily than by approaches that have grown out of the historical development of personnel management. Throughout the past 15 years this view has remained as a strong reaction to what is seen as the renaming pretensions of HRM. In large part such a reaction can be explained in terms of the gulf that appears to exist between personnel management ‘on the ground’ and the rather more theoretical and ‘strategic’ nature of a great deal of the discussion surrounding human resource management. For many practitioners the notion that their roles and functions can be seen in anything other than a highly pragmatic light is no more than wishful thinking: there is an important, if straightforward, task of recruiting, selecting, rewarding, managing and developing employees that must be carried out as ‘efficiently’ as possible. In this sense, HRM might be viewed as no more than another trend in the long line of management prescriptions that have each enjoyed a vogue and then lost favour, while the pragmatic nature of established personnel management has ensured that the operational tasks have been accomplished.


Chapter 1 · An introduction to human resource management: strategy, style or outcome

■ HRM as a new managerial discipline
The second perspective contains more diversity and complexity, and incorporates such issues as the philosophies of personnel and industrial relations, the professional desire to present the management of employees as a holistic discipline (akin to the inclusive approaches of accounting and marketing, for example), and the belief that an integrated management approach can be provided by HRM. This would not only unite the differing perspectives of PM and IR but also create a new and broader discipline as a result of the fusion of these traditional elements. An important outcome of this approach is to view some of these traditional components as now irrelevant or outdated and as dealing with problems that typify past, as opposed to current, practice: this is perhaps most noticeable in the renaming of functional activities so that industrial relations becomes ‘employee relations’, and training becomes ‘employee development’. This retitling is not designed solely to update an image, although that is important in itself, but is more specifically aimed at expressing the nature of the employment relationship in what are seen as changed circumstances. Thus industrial relations is seen as expressing a relationship based upon a manual, manufacturing (and, often by implication, male) unionised workforce – rather than the supposedly wider concept of ‘employee relations’, which involves a total workforce that includes white-collar and technical staff, of whom many will be female and some or all non-union. A further significant shift in thinking connected with this second approach is that of the desire by management to extend control over aspects of the collective relationship that were once customarily regarded as jointly agreed between employees (usually via their unions) and management. Treating employees as a primary responsibility of management, as opposed to the jointly negotiated responsibility of both unions and management, suggests an approach that is concerned to stress the primacy of the managerial agenda in the employment relationship, and marks a shift away from one of the fundamental assumptions of the approach (after the Second World War) to managing collective workforces. This shift was underlined in the 1993 employment legislation, which removed from ACAS the duty, originally given to it on its inception in 1974, to promote collective bargaining. In reality, this duty was a reflection of a deeply rooted presumption stretching back throughout most of the twentieth century and, in the UK at least, largely shared by employers, unions and the state, that collective bargaining represented a ‘politically’ acceptable compromise between management and labour; for more discussion of this see Clark (2000). Over recent years, the UK professional body for practitioners, the Chartered Institute of Personnel and Development, has sought to establish an agenda that is concerned to show this integration into a business-led managerial discipline and the added value that can accrue from effective people management. The annual autumn conference is now the largest management conference held in Europe, and it attracts the most well-known ‘guru’ speakers; its annual HRD spring conference is as influential, and presents as extensive a range of speakers within the learning and development domain, while setting the programme in a business context. With membership now well over 110 000 the Institute was successfully granted a Royal Charter in 2000, in recognition of its role as a major professional management association. Within this framework HRM is one factor in transforming personnel management into a powerful managerial role in its own right. To that extent it is part of a ‘transformation’ within the profession, which sees a move away from technical specificity towards a more rounded and sophisticated contribution to wider organisational objectives. The extent to which such transformations can be achieved is also connected to the third HRM perspective, which is discussed next.



■ HRM as a resource-based model
A further perspective has been brought to bear on HRM from those approaches that stress the role of the individual in organisations, rather than the collective employment models outlined so far. Personnel management, to a large degree at least, has always been concerned with the interface between the organisation and the individual, and with the necessity of achieving a trade-off between the requirements of the organisation and the needs of individual employees. Traditional personnel management policies that have been developed to cope with this trade-off have often taken a piecemeal approach to certain aspects of this issue: historically, the early twentieth-century personnel function stressed the ‘welfare’ role that could be afforded employees so that basic working conditions (both physically and contractually) could be established. Subsequently, other styles of personnel management sought to introduce, administer or rectify particular aspects of jobs and roles that individuals carried out. This tradition fostered a belief in equitable selection and reward systems, efficient procedures for discipline, dismissal and redundancy, and clear and operable rules for administering large numbers of employees to avoid arbitrary judgements over individual cases. The prevailing rationale behind all these activities could be seen as a desire to manage the difficulties of the organisation/individual relationship in as technically neutral a manner as possible. This emphasis has fostered a culture within personnel management that is characterised as cost minimisation, often identified with some forms of hard HRM, with the individual as the cost that has to be controlled and contained. In these circumstances employees become one of the aggregate commodities within the organisation that have to be managed within the organisation’s resources, in the same way that, for example, the finance available to the organisation has to be managed within a framework and according to accounting conventions. The logical extent of this model is reached in human resources planning, with precise numerical assessments of internal and external demand for and supply of labour (see Chapter 5). Any alternative to this formalised approach, which treats the individual as a resource rather than an expense and views expenditure on training as an investment rather than a cost, associated with some aspects of soft HRM, can be seen to pose a profound threat to the conventional wisdom of personnel management. The conception of personnel as having an enabling capacity for employees has a long tradition, not least in the United States, where organisational analysis has often provided prescriptions concerning the role of supervisors, work groups and work organisation. The advent of Japanese management systems has, however, highlighted the impact of this approach on the employment relationship. Whether sustainable or not in the West, the Japanese large-firm emphasis on developing individual employees along particular job paths while undertaking to provide continuous employment throughout the normal working life of the individual has at least provided a model in which the employer seeks to maximise employment opportunities. This approach goes further, however: it regards all employees as potentially able to benefit from further training and development, from which the organisation itself then benefits. So, far from viewing the employee as a cost, which has to be borne by the employer, this philosophy sees the employee as an actual and potential return on investment, which ultimately strengthens the company. The responsibility of the employer for investment and employment has, at least in the post-war period to date, encouraged large corporate Japanese employers to develop products and markets that have used the invested skills of their workforces. There has been strong interest in what is termed ‘resource-based’ HRM, in which human resources are viewed as the basis of competitive advantage (see also Chapter 2). This means that advantage is not only derived from the formal reorganisation and reshaping of work, but is also powerfully derived from within the workforce in terms of the training and expertise available to the organisation, the adaptability of employees


Chapter 1 · An introduction to human resource management: strategy, style or outcome

which permits the organisation strategic flexibility, and the commitment of employees to the organisation’s business plans and goals.

■ HRM as a strategic and international function
The advent of human resource management has also brought forward the issue of the linkages between the employment relationship and wider organisational strategies and corporate policies. Historically, the management of industrial relations and personnel has been concerned either to cope with the ‘downstream’ consequences of earlier strategic decisions or to ‘firefight’ short-term problems that threaten the long-run success of a particular strategy. In these instances the role has been at best reactive and supportive to other managerial functions, at worst a hindrance until particular operational problems were overcome. In the private sector the well-known case of British Leyland in the 1970s demonstrated a situation where considerable amounts of managerial effort (up to 60 per cent of operational managers’ time by some estimates) were devoted to ‘fixing’ shopfloor problems. In order to re-establish managerial control the company effectively turned the reshaping of industrial relations into its strategy so that it could refashion its product range and market position. In the public sector throughout the 1980s a series of major disputes affected the operations of schools, hospitals and local authorities (among many such examples); in each of these cases changes to the nature of the employment relationship were the root causes of the dislocation. The Leyland case and the public sector experiences are extreme examples, but each demonstrates the impact that the employment relationship can have on total operations. Human resource management lays claim to a fundamentally different relationship between the organisation’s employment function and its strategic role. The assumption behind HRM is that it is essentially a strategically driven activity, which is not only a major contributor to that process but also a determining part of it. From this standpoint the contribution that the management of the employment relationship makes to the overall managerial process is as vital and formative as that of finance or marketing, for example. Indeed, the notion that HRM is central to such managerial decision-making indicates the extent to which its proponents feel that it has come out of the shadows to claim a rightful place alongside other core management roles. In this respect one of the traditional stances of the personnel practitioner – that of the ‘liberal’ conception of personnel management as standing between employer and employee, moderating and smoothing the interchange between them – is viewed as untenable: HRM is about shaping and delivering corporate strategies with commitment and results. One further component in this construction of HRM points towards its international potentialities. While the employment relationship is materially affected and defined by national and related institutional contexts, these variations in labour markets and national business systems give rise to a wide variety of employment policies and strategies for the management of labour within broadly defined capitalist economies. To the extent that an employer operates within the confines of a national business system, characteristics therein do not impinge upon neighbouring business systems. For example, the Americanness of US firms does not impinge on Canadian firms and their employment systems; similarly, the Britishness of UK firms does not impinge on the Irish business system. In contrast to this, in circumstances where employers operate across national borders, these different institutional characteristics may become factors that an employer wishes to change or override. Thus multinational corporations (MNCs) may seek to deploy centralised – more homogenous – employment strategies, regardless of the institutional character of national business systems where they locate subsidiary operations.



Multinational corporations are significant international actors in the world economy and play a key role in the trend towards ‘globalisation’, contributing to industrial development and restructuring within and across the borders of national business systems. But MNCs are not itinerant or transnational as is often suggested. Management style, strategies and policies are shaped by home business systems – the financial, institutional, legal and political frameworks in which they developed as domestic firms. Thus there is a persistent ‘country of origin’ effect in the behaviour of MNCs whereby the country from where an MNC originates exerts a distinctive effect on management style, particularly the management of human resources. Hirst and Thompson (1999: 84) demonstrate that the majority of MNCs are disproportionately concentrated in their country of origin, sell the majority of their goods and services there and hold the majority of their assets there. In addition to this home country or country of origin effect, government regulation in countries where subsidiary operations of MNCs are located may also have an effect on shaping company practices for the management of human resources. In some respects the impact of a ‘host country’ business system may constrain the preferred practices that reflect embedded patterns of regulation in an MNC’s country of origin. This interplay between home and host country influences raises important questions (for HR academics and practitioners employed in national and multinational firms) about the nature of international competitiveness and associated questions about how MNCs draw on and seek to diffuse competitive advantage from the business system in which they originate. International human resource management for global workforces is central to this question; policies to attract, retain, remunerate, develop and motivate staff are increasingly vital for the development of international competitive advantage. Thus the significance of these issues is not confined to theoretical debates on the nature and scope of globalisation; they are of considerable significance in respect of what becomes ‘best practice’ in and between different business systems. For example, in the UK, US MNCs are widely diffused and account for approximately 50 per cent of foreign direct investment (Ferner, 2003), and there is considerable evidence to suggest that subsidiaries of US MNCs diffuse international HRM, that is, within individual MNCs. But in addition to this there is evidence that US MNCs act as innovators in business systems where they operate. In the British context, productivity bargaining, performance-related pay, job evaluation, employee share option schemes, appraisal, single-status employment and direct employee involvement are now widely diffused in indigenous firms but were pioneered in subsidiaries of US MNCs; see Edwards and Ferner (2002) for a review of empirical material on US MNCs. In summary, MNCs may seek to deploy centralised employment policies to subsidiary operations, a tendency that is more pronounced in US and Japanese subsidiaries but less so in the case of German MNCs. Some MNCs, notably US ones, have powerful corporate HR functions which ‘roll out’ programmatic approaches to HRM that monitor subsidiaries against an array of detailed performance targets. So within MNCs international HRM may create broad-based HR systems that minimise or override differences between national business systems and, by contrast, emphasise the importance of organisational cultures that are drawn from the strategic goals of the firm. Management style and practices for HRM in MNCs are shaped by the interplay between home and host country and, as Chapter 15 demonstrates, this interplay focuses ongoing debates about the institutional embeddedness of national business systems and the cultural impact of MNCs in overseas economies.

Stop and think

This section has proposed four broad perspectives of HRM. Which most closely corresponds to your interpretations of HRM and why?


Chapter 1 · An introduction to human resource management: strategy, style or outcome

Some assumptions about human resource management
Figure 1.1 sets out the four perspectives on HRM discussed above, and locates key aspects of the HRM focus within its framework. Such a schematic presentation not only demonstrates the breadth of these operational assumptions, but also underlines their ambiguity. Within many organisations the circumstances in which human resource management is pursued will be critically determined by the state of the labour market at any particular time: it is thus perfectly understandable for an organisation to be moving towards a strategic dimension of HRM in its own terms, but to find it necessary to revert or regroup to a modified version of its original policy. A case in point here might be that of British Airways, which deployed both the developmental and strategic/international models of HRM throughout the 1980s in order to support its ‘Customer Care’ business plan, but found itself increasingly relying on the restatement and fusion models as it sought to reorganise its Gatwick operations (including Dan-Air) in the 1990s. This gave rise to industrial relations difficulties, with strong residual problems over wage levels for cabin staff leading to strike threats in 1996, which were realised in 1997. At a cost of some £125 million BA sustained strike action by cabin crews, worldwide, over pay and conditions. One outcome of the dispute was that BA hired new staff for a startup company Go on contracts that were 20 per cent cheaper than those for BA staff, thus further emphasising the cost-minimisation model of hard HRM and linking this with the fusion model. By 2002 BA’s corporate and HR strategies were in disarray. In the wake of 11 September and the collapse of transatlantic travel BA announced its ‘future shape and size’ strategy which involved two aspects: firstly, a concentration on first and business class travellers, an aspiration that renewed its customer care plan pioneered in the

Figure 1.1

Four perspectives on human resource management


Resource based


Strategic Employment policy derived from business objectives; HRM major contributor to business policy; translation of HRM policy across cultures

Fusion PM and IR no longer seen as operationally distinct; managerially derived agenda; replacement of collectivism with stronger role for individualism

Restatement PM and IR as prevailing model; HRM style outcomes sought within a pluralist framework

Resource based Individualistically derived; stress on input provided by organisation on behalf of employee

The search for the defining characteristics of HRM


1980s, and secondly, rationalisation of services at, or withdrawal from, some regional airports, an announcement that in effect conceded BA’s inability to compete with lowcost carriers on some routes. This admission appears all the more painful owing to BA’s recent sell-off of Go to a management buy-out. In effect, BA’s lack of competitiveness in a period of global downturn in international travel, combined with the emergence of low-cost airlines which have outperformed the market (increased market share), forced the company to revert to harder HRM, further emphasising the cost reduction model; see Clark et al. (2002). If further evidence were needed of the shifts in HRM that can occur when businesses come under pressure, then BMW’s handling of the Rover group sale and Barclays’ branch closure programme, both in the spring of 2000, provide ample evidence that approaches to HRM are prone to severe buffeting, whatever the original intent of the business. In BMW’s case it sought to fuse a European style of communication and involvement with the Japanese style already existing within Rover as a result of the latter’s Honda collaboration over the previous decade; in Barclays’ case it saw the need to maintain its role as a ‘big bank in a big world’ by cutting 10 per cent of its branch network in one operation. Competitive product and service market pressures can quickly overwhelm the best of HRM intentions. More recently, closure announcements by Corus (formerly British Steel), motor manufacturers Ford and General Motors and relocation decisions made by the Prudential, British Telecom and Massey Ferguson demonstrate the UK’s exposure to MNCs. Here an emergent pattern of strategic decision-making, sometimes made on a pan-European basis, illustrates some embedded characteristics of the British business system, such as comparatively loose redundancy laws, to demonstrate that host country characteristics need not constrain MNCs (see Almond et al., 2003). In each case the competitive pressures associated with the value of sterling, comparative labour costs, skill levels and unit labour costs, or delayed investment decisions overrode softer developmental aspects of HRM. This pattern illustrates how European consolidation in MNCs and the more general pursuit of ‘shareholder value’ further consolidate the cost-minimisation model of hard HRM. Although these four interpretations of HRM each contain strong distinguishing characteristics, they are by no means mutually exclusive: indeed, it would be surprising if that were so. In this sense they constitute not a model of HRM but a set of perspectives on HRM that organisations bring to bear on the employment relationship. A more useful approach to interpreting these perspectives might be to recognise that many organisations may display at least one of these principal perspectives but will also rely on several characteristics drawn from at least one and probably more of the other three constructs. In this sense HRM, as a set of issues as well as a set of practices, contains ambivalence and contradiction quite as much as clarity and affirmation. In many organisations the tension that arises from this outcome is part of the internal process of the management of uncertainty. With the privatisation of British Rail and the multiplicity of operating companies, there has been a distinct move away from the business-led strategies of the former BR operating divisions to a more traditional pattern of collective agreements involving negotiations between the unions and the individual owners of the new companies. A further discussion of some of these aspects of HRM can be found in Guest (1989a).

The search for the defining characteristics of HRM
An important part of the debate, both in the USA and in the UK, has been the search for the defining characteristics that will describe, analyse and explain the HRM phenomenon. To a considerable extent this quest has proved largely unresolved because of the wide range of prescriptions and expectations placed upon the term, and the relative lack


Chapter 1 · An introduction to human resource management: strategy, style or outcome

of available evidence to determine systematically whether or not HRM has taken root as a sustainable model of employee management. This difficulty is further compounded if one considers a series of critical questions about human resource management:
● ● ● ●

Is HRM a practitioner-driven process that has attracted a wider audience and prompted subsequent analytical attention? Is HRM an academically derived description of the employment relationship, to which practitioners have subsequently become drawn? Is HRM essentially a prescriptive model of how such a relationship ‘ought’ to be? Is it a ‘leading edge’ approach as to how such a relationship actually ‘is’ within certain types of organisation?

Each of these questions leads the search for the innate qualities of HRM along different routes and towards different conclusions. If the first approach is adopted, then evidence is required that would identify the location, incidence and adoption of defined HRM practices and suggest factors that caused organisations to develop those approaches. The second approach would have to locate the HRM debate in the academic discussion of the employment relationship and demonstrate why this particular variant of analysis emerged. The third approach would have to explain why, among so many other prescriptions concerning management, the HRM prescription emerged and quite what the distinctive elements were that permitted its prescriptive influence to gain acceptance. The final approach would have to provide satisfactory evidence that, where HRM had developed within certain organisational contexts, the evidence of the particular setting could be applied to the generality of the employment relationship. However, when these questions have all been taken into account there still remains the residual problem that none of them can conclusively define the nature of HRM in its own terms to the exclusion of each of the others. What are seen as practitioner-derived examples of HRM can be matched by similar policies in non-HRM-espousing organisations; what are seen as academically derived models of HRM are each open to large areas of contention and disagreement between analysts; what are seen as prescriptive models of ‘what ought to be’ might well be just that and no more; and what could be held up as ‘leading edge’ examples could be wholly determined by the particular circumstances of organisations that are either incapable of translation into other contexts, or may indeed be unsustainable within the original organisations as circumstances change. Storey (1992: 30) outlines this competing set of considerations within the debate very clearly. These considerations have not prevented the active debate about the nature of HRM proceeding with increasing velocity and breadth. A significant division can be noted between those analyses that seek to stress the innovative element of HRM, which is claimed to address the fundamental question of managing employees in new ways and with new perspectives, and those that stress its derivative elements, which are claimed to be no more than a reworking of the traditional themes of personnel management. Thus Walton (1985: 77–84), in attempting definitions of HRM, stresses mutuality between employers and employees:
Mutual goals, mutual influence, mutual respect, mutual rewards, mutual responsibility. The theory is that policies of mutuality will elicit commitment which in turn will yield both better economic performance and greater human development.

Beer and Spector (1985) emphasised a different set of assumptions in shaping their meaning of HRM:
● ● ●

proactive system-wide interventions, with emphasis on ‘fit’, linking HRM with strategic planning and cultural change; people as social capital capable of development; the potential for developing coincidence of interest between stakeholders;

The origins of human resource management
● ● ● ●


the search for power equalisation for trust and collaboration; open channels of communication to build trust and commitment; goal orientation; participation and informed choice.

Conversely, some writers, most notably Legge (1989) and Fowler (1987), have commented that personnel management was beginning to emerge as a more strategic function in the late 1970s and early 1980s before the concept was subsumed under the title of HRM, and that in this sense there is little new in HRM practice. However, allowing for problems of definitions and demarcation lines between various conceptions of human resource management, there is little doubt that HRM became a fashionable concept and a controversial subject in the 1980s, with its boundaries very much overlapping the traditional areas of personnel management, industrial relations, organisational behaviour and strategic and operational management. Its emergence created a controversy, which extends through most of the issues that touch on the employment relationship. Many proponents of HRM argue that it addresses the centrality of employees in the organisation, and that their motivation and commitment to the organisational goals need to be nurtured. While this is by no means a new concept, the HRM perspective would claim at least to present a different perspective on this issue, namely that a range of organisational objectives have been arranged in a strategic way to enhance the performance of employees in achieving these goals. Before examining these arguments in more detail, a brief account of the origins and recent historical development of HRM would be appropriate in order to understand why it emerged when and as it did.

The origins of human resource management
As we saw earlier in this chapter, HRM can be seen as part of the wider and longer debate about the nature of management in general and the management of employees in particular. This means that tracing the antecedents of HRM is as elusive an exercise as arriving at its defining characteristics. Certainly there are antecedents in organisational theory, and particularly that of the human relations school, but the nature of HRM has involved important elements of strategic management and business policy, coupled with operations management, which make a simple ‘family tree’ explanation of HRM’s derivation highly improbable. What can be said is that the origins of HRM lie within employment practices associated with welfare capitalist employers in the United States during the 1930s. Both Jacoby (1997) and Foulkes (1980) argue that this type of employer exhibited an ideological opposition to unionisation and collective relations. As an alternative, welfare capitalists believed the firm, rather than third-party institutions such as the state or trade unions, should provide for the security and welfare of workers. To deter any propensity to unionise, especially once President Roosevelt’s New Deal programme commenced after 1933, welfare capitalists often paid efficiency wages, introduced health care coverage, pension plans and provided lay-off pay. Equally, they conducted regular surveys of employee opinion and sought to secure employee commitment via the promotion of strong centralised corporate cultures and long-term cum permanent employment. Welfare capitalists pioneered individual performance-related pay, profit-sharing schemes and what is now termed teamworking. This model of employment regulation had a pioneering role in the development in what is now termed HRM but rested on structural features such as stable product markets and the absence of marked business cycles. While the presence of HRM was well established in the American business system before the 1980s, it was only after that period that HRM gained external recognition by academics and practitioners.


Chapter 1 · An introduction to human resource management: strategy, style or outcome

There are a number of reasons for its emergence since then, among the most important of which are the major pressures experienced in product markets during the recession of 1980–82, combined with a growing recognition in the USA that trade union influence in collective employment was reaching fewer employees. By the 1980s the US economy was being challenged by overseas competitors, most particularly Japan. Discussion tended to focus on two issues: ‘the productivity of the American worker’, particularly compared with the Japanese worker, ‘and the declining rate of innovation in American industries’ (Devanna et al., 1984: 33). From this sprang a desire to create a work situation free from conflict, in which both employers and employees worked in unity towards the same goal – the success of the organisation (Fombrun, 1984: 17). Beyond these prescriptive arguments and as a wide-ranging critique of institutional approaches to industrial relations analysis, Kaufman (1993) suggests that a preoccupation with pluralist industrial relations within and beyond the period of the New Deal excluded the non-union sector of the US economy for many years. In summary, welfare capitalist employers (soft HRM) and antiunion employers (hard HRM) are embedded features within the US business system, whereas the New Deal Model was a contingent response to economic crisis in the 1930s. In the UK in the 1980s the business climate also became conducive to changes in the employment relationship. As in the USA, this was partly driven by economic pressure in the form of increased product market competition, the recession in the early part of the decade and the introduction of new technology. However, a very significant factor in the UK, generally absent from the USA, was the desire of the government to reform and reshape the conventional model of industrial relations, which provided a rationale for the development of more employer-oriented employment policies on the part of management (Beardwell, 1992, 1996). The restructuring of the economy saw a rapid decline in the old industries and a relative rise in the service sector and in new industries based on ‘high-tech’ products and services, many of which were comparatively free from the established patterns of what was sometimes termed the ‘old’ industrial relations. These changes were overseen by a muscular entrepreneurialism promoted by the Thatcher Conservative government in the form of privatisation and anti-union legislation ‘which encouraged firms to introduce new labour practices and to re-order their collective bargaining arrangements’ (Hendry and Pettigrew, 1990: 19). The influence of the US ‘excellence’ literature (e.g. Peters and Waterman, 1982; Kanter, 1984) also associated the success of ‘leading edge’ companies with the motivation of employees by involved management styles that also responded to market changes. As a consequence, the concepts of employee commitment and ‘empowerment’ became another strand in the ongoing debate about management practice and HRM. A review of these issues suggests that any discussion of HRM has to come to terms with at least three fundamental problems:

● ●

that HRM is derived from a range of antecedents, the ultimate mix of which is wholly dependent upon the stance of the analyst, and which may be drawn from an eclectic range of sources; that HRM is itself a contributory factor in the analysis of the employment relationship, and sets part of the context in which that debate takes place; that it is difficult to distinguish where the significance of HRM lies – whether it is in its supposed transformation of styles of employee management in a specific sense, or whether in a broader sense it is in its capacity to sponsor a wholly redefined relationship between management and employees that overcomes the traditional issues of control and consent at work.

This ambivalence over the definition, components and scope of HRM can be seen when examining some of the main UK and US analyses. An early model of HRM, developed by Fombrun et al. (1984), introduced the concept of strategic human resource management by which HRM policies are inextricably linked to the ‘formulation and implementation of strategic corporate and/or business objectives’ (Devanna et al., 1984: 34). The model is illustrated in Figure 1.2.

The origins of human resource management


Figure 1.2

The matching model of HRM

Political forces

Economic forces Mission and strategy

Cultural forces

Firm Organisation structure Human resource management

Source: Devanna et al. (1984) in Fombrun et al., Strategic Human Resource Management. © 1984 John Wiley & Sons, Inc. Reproduced with permission of John Wiley & Sons, Inc.

The matching model emphasises the necessity of ‘tight fit’ between HR strategy and business strategy. This in turn has led to a plethora of interpretations by practitioners of how these two strategies are linked. Some offer synergies between human resource planning (manpower planning) and business strategies, with the driving force rooted in the ‘product market logic’ (Evans and Lorange, 1989). Whatever the process, the result is very much an emphasis on the unitarist view of HRM: unitarism assumes that conflict or at least differing views cannot exist within the organisation because the actors – management and employees – are working to the same goal of the organisation’s success. What makes the model particularly attractive for many personnel practitioners is the fact that HRM assumes a more important position in the formulation of organisational policies. The personnel department has often been perceived as an administrative support function with a lowly status. Personnel was now to become very much part of the human resource management of the organisation, and HRM was conceived to be more than personnel and to have peripheries wider than the normal personnel function. In order for HRM to be strategic it had to encompass all the human resource areas of the organisation and be practised by all employees. In addition, decentralisation and devolvement of responsibility are also seen as very much part of the HRM strategy as it facilitates communication, involvement and commitment of middle management and other employees deeper within the organisation. The effectiveness of organisations thus rested on how the strategy and the structure of the organisation interrelated, a concept rooted in the view of the organisation developed by Chandler (1962) and evolved in the matching model.


Chapter 1 · An introduction to human resource management: strategy, style or outcome

A more flexible model, illustrated in Figure 1.3, was developed by Beer et al. (1984) at Harvard University. ‘The map of HRM territory’, as the authors titled their model, recognised that there were a variety of ‘stakeholders’ in the corporation, which included shareholders, various groups of employees, the government and the community. At once the model recognises the legitimate interests of various groups, and that the creation of HRM strategies would have to recognise these interests and fuse them as much as possible into the human resource strategy and ultimately the business strategy. This recognition of stakeholders’ interests raises a number of important questions for policy-makers in the organisation:
How much responsibility, authority and power should the organisation voluntarily delegate and to whom? If required by government legislation to bargain with the unions or consult with workers’ councils, how should management enter into these institutional arrangements? Will they seek to minimize the power and influence of these legislated mechanisms? Or will they share influence and work to create greater congruence of interests between management and the employee groups represented through these mechanisms?
(Beer et al., 1984: 8)

The acknowledgement of these various interest groups has made the model much more amenable to ‘export’, as the recognition of different legal employment structures, managerial styles and cultural differences can be more easily accommodated within it. This

Figure 1.3

The map of the HRM territory
Stakeholder interests Shareholders Management Employee groups Government Community Unions

Situational factors Workforce characteristics Business strategy and conditions Management philosophy Labour market Unions Task technology Laws and societal values

HRM policy choices Employee influence Human resource flow Reward systems Work systems

HR outcomes Commitment Competence Congruence Costeffectiveness

Long-term consequences Individual well-being Organisational effectiveness Societal well-being

Source: Beer et al. (1984: 16). Reprinted with permission of The Free Press, a division of Simon & Schuster, from Managing Human Assets by Michael Beer, Bert Spector, Paul R. Lawrence, D. Quinn Mills and Richard E. Walton. Copyright © 1984 by The Free Press.

The origins of human resource management


neopluralist model has also been recognised as being useful in the study of comparative HRM (Poole, 1990: 3–5). It is not surprising, therefore, that the Harvard model has found greater favour among academics and commentators in the UK, which has relatively strong union structures and different labour traditions from those in the United States. Nevertheless, some academics have still criticised the model as being too unitarist, while accepting its basic premise (Hendry and Pettigrew, 1990). The first two main approaches to HRM that emerged in the UK are based on the Harvard model, which is made up of both prescriptive and analytical elements. Among the most perceptive analysts of HRM, Guest has tended to concentrate on the prescriptive components, while Pettigrew and Hendry rest on the analytical aspect (Boxall, 1992). Although using the Harvard model as a basis, both Guest and Pettigrew and Hendry have some criticisms of the model, and derive from it only that which they consider useful (Guest, 1987, 1989a, 1989b, 1990; Hendry and Pettigrew, 1986, 1990). As we have seen, there are difficulties of definition and model-building in HRM, and this has led British interpreters to take alternative elements in building their own models. Guest is conscious that if a model is to be useful to researchers it must be useful ‘in the field’ of research, and this means that elements of HRM have to be pinned down for comparative measurement. He has therefore developed a set of propositions that he believes are amenable to testing. He also asserts that the combination of these propositions, which include strategic integration, high commitment, high quality and flexibility, creates more effective organisations (Guest, 1987).

Strategic integration is defined as ‘the ability of organisations to integrate HRM issues into their strategic plans, to ensure that the various aspects of HRM cohere and for line managers to incorporate an HRM perspective into their decision making’. High commitment is defined as being ‘concerned with both behavioural commitment to pursue agreed goals and attitudinal commitment reflected in a strong identification with the enterprise’. High quality ‘refers to all aspects of managerial behaviour, including management of employees and investment in high-quality employees, which in turn will bear directly on the quality of the goods and services provided’. Finally, flexibility is seen as being ‘primarily concerned with what is sometimes called functional flexibility but also with an adaptable organisational structure with the capacity to manage innovation’ (Guest, 1989b: 42).

The combination of these propositions leads to a linkage between HRM aims, policies and outcomes as shown in Table 1.1. Whether there is enough evidence to assess the relevance and efficacy of these HRM relationships will be examined later. Hendry and Pettigrew (1990) have adapted the Harvard model by drawing on its analytical aspects. They see HRM ‘as a perspective on employment systems, characterised by their closer alignment with business strategy’. This model, illustrated in Figure 1.4, attempts a theoretically integrative framework encompassing all styles and modes of HRM and making allowances for the economic, technical and socio-political influences in society on the organisational strategy. ‘It also enables one to describe the “preconditions” governing a firm’s employment system, along with the consequences of the latter’

Table 1.1 A human resource management framework
HRM aims For example: • high commitment • quality • flexible working
Source: Storey (1989: 11)

HRM policies For example: • selection based on specific criteria using sophisticated tests

HRM outcomes For example: • low labour turnover • allegiance to company


Chapter 1 · An introduction to human resource management: strategy, style or outcome

Figure 1.4

Model of strategic change and human resource management
Outer context Socio-economic Technical Political-legal Competitive

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

Business strategy content Objectives Product-market Strategy and tactics HRM content HR flows Work systems Reward systems Employee relations

HRM context Role Definition Organisation HR outputs

Source: Hendry and Pettigrew (1990: 6). Reproduced by kind permission of Chapman & Hall, a division of International Thomson Publishing Services.

(Hendry and Pettigrew, 1990: 25). It thus explores ‘more fully the implications for employee relations of a variety of approaches to strategic management’ (Boxall, 1992). Storey studied a number of UK organisations in a series of case studies, and as a result modified still further the approaches of previous writers on HRM (Storey, 1992). Storey had previously identified two types of HRM – ‘hard’ and ‘soft’ (Storey, 1989) – the one rooted in the manpower planning approach and the other in the human relations school. He begins his approach by defining four elements that distinguish HRM: 1 It is ‘human capability and commitment which, in the final analysis, distinguishes successful organisations from the rest’. 2 Because HRM is of strategic importance, it needs to be considered by top management in the formulation of the corporate plan. 3 ‘HRM is, therefore, seen to have long-term implications and to be integral to the core performance of the business or public sector organisation. In other words it must be the intimate concern of line managers.’ 4 The key levers (the deployment of human resources, evaluation of performance and the rewarding of it, etc.) ‘are to be used to seek not merely compliance but commitment’.

The origins of human resource management


Storey (1992) approaches an analysis of HRM by creating an ‘ideal type’, the purpose of which ‘is to simplify by highlighting the essential features in an exaggerated way’ (p. 34). This he does by making a classificatory matrix of 27 points of difference between personnel and IR practices and HRM practices (see Table 1.2). The elements are categorised in a four-part basic outline:
● ●

beliefs and assumptions; strategic concepts;

Table 1.2 Twenty-seven points of difference
Dimension Beliefs and assumptions 1 Contract 2 Rules 3 Guide to management action 4 Behaviour referent 5 Managerial task vis-à-vis labour 6 Nature of relations 7 Conflict Strategic aspects 8 Key relations 9 Initiatives 10 Corporate plan 11 Speed of decision Line management 12 Management role 13 Key managers 14 Communication 15 Standardisation 16 Prized management skills Key levers 17 Selection 18 Pay 19 Conditions 20 Labour management 21 Thrust of relations with stewards 22 Job categories and grades 23 Communication 24 Job design 25 Conflict handling 26 Training and development 27 Foci of attention for interventions Personnel and IR Careful delineation of written contracts Importance of devising clear rules/mutuality Procedures Norms/custom and practice Monitoring Pluralist Institutionalised Labour management Piecemeal Marginal to Slow Transactional Personnel/IR specialists Indirect High (e.g. ‘parity’ an issue) Negotiation Separate, marginal task Job evaluation (fixed grades) Separately negotiated Collective bargaining contracts Regularised through facilities and training Many Restricted flow Division of labour Reach temporary truces Controlled access to courses Personnel procedures HRM Aim to go ‘beyond contract’ ‘Can-do’ outlook; impatience with ‘rule’ ‘Business need’ Values/mission Nurturing Unitarist De-emphasised Customer Integrated Central to Fast Transformational leadership General/business/line managers Direct Low (e.g. ‘parity’ not seen as relevant) Facilitation Integrated, key task Performance-related Harmonisation Towards individual contracts Marginalised (with exception of some bargaining for change models) Few Increased flow Teamwork Manage climate and culture Learning companies Wide-ranging cultural, structural and personnel strategies

Source: Storey (1992: 38). Reproduced by kind permission of Blackwell Publishers.


Chapter 1 · An introduction to human resource management: strategy, style or outcome

Figure 1.5

A model of the shift to human resource management
Enhanced competition Strategic response

Beliefs and assumptions

Line managers seize the initiative

Attitude and behaviour changes: • commitment • customer orientation • quality • flexible working

Competitive performance

Change in key levers


Source: Storey (1992: 38). Reproduced by kind permission of Blackwell Publishers.

● ●

line management; key levers.

This ‘ideal type’ of HRM model is not essentially an aim in itself but more a tool in enabling sets of approaches to be pinpointed in organisations for research and analytical purposes. Storey’s theoretical model is thus based on conceptions of how organisations have been transformed from predominantly personnel/IR practices to HRM practices. As it is based on the ideal type, there are no organisations that conform to this picture in reality. It is in essence a tool for enabling comparative analysis. He illustrates this by proposing ‘a model of the shift to human resource management’, shown in Figure 1.5.

Human resource management: the state of the debate
The question of whether human resource management has the capacity to transform or replace deeply rooted models of personnel management and industrial relations, or could become a fully worked-through theory of management, is one that cannot be answered in a simple manner. Human resource management has many cogent critics and many sceptical supporters. Initial criticism which claimed that it was ‘old wine in new bottles’, the restatement perspective outlined earlier in this chapter, still has strong

Human resource management: the state of the debate


adherents (Keenoy and Anthony, 1992). Others see it as a version of ‘the emperor’s new clothes’ (Legge, 1989) or a ‘wolf in sheep’s clothing’ (Armstrong, 1987; Fowler, 1987; Keenoy, 1990a). Tom Keenoy is one of the most eloquent and persuasive of critics, and his examination of HRM has exposed many of the a priori assumptions and non-sequiturs that abound in the reasoning of its supporters. He claims that HRM is more rhetoric than reality and has been ‘talked up’ by its advocates. It has little support in terms of evidence, and has been a convenient dustbin of rationalisation to support ideological shifts in the employment relationship brought about by market pressures. It is also full of contradictions, not only in its meanings but also in its practice. In examining the meanings of HRM Keenoy notes that a ‘remarkable feature of the HRM phenomenon is the brilliant ambiguity of the term itself’. He later continues: ‘On the “Alice principle” that a term means whatever one chooses it to mean, each of these interpretations may be valid but, in Britain, the absence of any intellectual touchstones has resulted in the term being subject to the process of almost continuous and contested conceptual elision’ (Keenoy, 1990b: 363–384). Legge (1989) has shown that a close examination of the normative models of HRM and personnel management reveals little difference between the two, and that HRM contains a number of internal contradictions. Legge points out that there is a problem with integration in the sense that HRM policies have to integrate with business policy. She asks: ‘Is it possible to have a corporation-wide mutually reinforcing set of HRM policies, if the organisation operates in highly diverse product markets, and, if not, does it matter, in terms of organisational effectiveness?’ (p. 30). She also asks: ‘If the business strategy should dictate the choice of HRM policies, will some strategies dictate policies that . . . fail to emphasise commitment, flexibility and quality?’ (p. 30). Legge also comments on the probable incompatibility of creating an organisational culture that attempts to pursue both individualistic and teamwork policies at the same time. Other critics have indicated that many organisations are driven by stronger objectives than HRM. Armstrong (1989) has pointed to the financial orientations of most companies, which are incompatible with those prescriptions described as imperative in the practice of HRM. Furthermore, the belief that human resource management can transcend national cultures has attracted considerable critical comment (Pieper, 1990). The 1990s saw a growing sophistication in the nature of the debate involving HRM. The nature of the debate at the conclusion of that decade was much more extensive than that which ushered it in. One signal factor was the reconstruction and expansion of the most important research ‘engine’ in the UK, the Workplace Employee Relations Survey of 1998 (Cully et al., 1999), which has specifically addressed HRM-based issues of techniques and performance. Part of this development has been promoted by the realisation that traditional sources of competitive advantage, such as technological supremacy, patents and capital, are much less important than they were, in a world in which many countries can display equal advantage in at least some of these critical aspects (Pfeffer, 1994, 1998). Thus the extent to which an organisation can mobilise its internal human resources may hold the key to achievable advantage in the future (Prahalad and Hamel, 1990). Wood (1995) has examined high-commitment management in terms of what he calls the ‘four pillars of HRM’ and their ability to deliver significant HRM performance; Guest and Hoque (1996) have examined the concept of ‘fit’ in the specific circumstances of HRM techniques in greenfield sites and the ‘bundles’ of practice that might affect performance; Purcell (1996, 1999) has critically examined the notion of ‘bundles’ but has provided a thoughtful analysis of resource-based HRM in the context of corporate strategy (1995); while Boxall has sought to relate resource-based analysis to the strategic HRM debate (1996). A number of commentators (e.g. Storey, 1992; Guest, 1997; Gratton et al., 1999) have noted that there appears to be fairly extensive use of individual HR practices in UK


Chapter 1 · An introduction to human resource management: strategy, style or outcome

organisations. However, the extent to which these are linked together into a meaningful strategic whole is more contentious (Storey, 2001). WERS (Cully et al., 1999) found evidence of each of the 15 practices identified by the survey as indicative of HRM but only three of them (formal grievance and disciplinary procedures, team-briefing and regular appraisals) appear in more than half of workplaces. The practices are more likely to occur in workplaces with an employment relations specialist and an integrated employee development plan, suggesting some level of strategic integration. However, only 14 per cent of workplaces have eight or more of the practices while 29 per cent have fewer then three. The WERS team argue that ‘there is evidence that a number of practices consistent with a human resource management approach are well entrenched in many British workplaces’ (Cully et al., 1999:82) but the practices are often adopted in a pragmatic and piecemeal way.

Stop and think

Why hasn’t the adoption of HRM practices been more widespread in the UK?

Sisson (2001: 80–81) identifies two main explanations to account for the low take-up of some HR practices. The first is that the time, resources and costs associated with change may tempt managers to adopt an incremental approach, i.e. ‘to try one or two elements and assess their impact before going further, even though this means forgoing the benefits of the integration associated with bundles of complementary practices’. The second (and in Sisson’s words, ‘less comfortable’) explanation is that HRM is only one means of achieving competitive advantage and other methods adopted by organisations, e.g. mergers, joint ventures, cost-cutting and new forms of Taylorism, do not involve a change in the way people are managed. A further element in the contemporary discussion is the question of whether HRM affords line management more control of the HR function than HR specialists themselves have. If one of the attributes of HRM is its devolution to the line, then perhaps a logical consequence is the relative loss of influence and control by the erstwhile keepers of the corporate personnel conscience. Does this matter? In the words of Fernie et al. (1994), is HRM all ‘Big Hat, No Cattle’? The extent to which HRM activity has shifted to the line, and the associated question of whether personnel managers are any more strategic in their role than in the past, is difficult to determine conclusively. The Second Company Level Industrial Relations Survey (Marginson et al., 1993) found no evidence to support general strategic involvement, and some evidence that, without a personnel director on the board, involvement in the formulation of human resource policy was weakened – findings largely supported by Purcell and Ahlstrand’s (1994) study of multidivisional organisations. Perhaps the clearest evidence to suggest that personnel management was losing out to the line is provided by Storey’s (1992) study of ‘mainstream’ companies and the introduction of HRM, although a study of 28 organisations by Kelly and Gennard (1994) presented a different picture based on interviews with personnel directors. In an important sense, therefore, one answer to Storey’s (1995) rhetorical question ‘HRM: still marching on or marching out?’ is that ‘the domain is still lively, vibrant and contested’ (Storey, 2001: 16). And a reaction to Bach and Sisson’s (2000) view that the flood-tide of HRM is waning is to note that the tide appears still to be flooding strongly, with new aspects appearing on the agenda or existing issues further strengthening their position. What are the agenda items that are currently concerning academics and practitioners? Perhaps three particular aspects can serve from the strategy, style and outcome debate explored at the outset. From a strategic perspective, one can explore the tendency of organisations to adopt similar approaches. Purcell (2001: 75) outlines three factors that might account for this:



firstly, the tendency to copy ‘best practice’ because it appears to work but without understanding why this might be the case. Secondly, organisations might be pressured by the short-termism in the capital market or by major customers to do – or not do – certain things, e.g. training. Thirdly, the rise of HR consultancies has led to a spread of ideas that encourage conformity. An approach to the style perspective might be seen in the role of the psychological contract and employee motivation. Guest and Conway (1997) point to evidence that suggests that employees report positive responses to issues such as fairness, trust and delivery on promises. The Fourth WERS survey of 1998 noted that 68 per cent of workplaces with over 500 employees report participation in problem-solving groups. There is a large agenda item that is concerned with examining and assessing the scope and significance of managerial styles in terms of involvement, commitment and delivery on the part of the employer, and the resultant response from employees to give assent and commitment to management systems that stress these aspects of the employment relationship. What is unclear is how these factors hold over time, and whether component elements within this agenda will remain significant or important and thus weaken or strengthen the concept. The third area for further work lies in the area of outcomes. At the present time there is much work exploring the nature of HRM ‘bundles’, and one might expect more as the data from WERS 98 are analysed further. Perhaps one strand of this debate is worth emphasis – high-commitment management and the emphasis on work management systems that achieve specific outcomes (Wood and De Menezes, 1998). This approach seems to have found good evidence that a particular managerial style, allied to a particular combination of practices, will lead to beneficial business outcomes. Again, whether this is sustainable over time remains a key question and, as we have already discussed, a number of doubts have been raised over the validity of the claims. Nevertheless, it represents a significant addition to the literature and practice of HRM. If these three approaches to research, analysis and practice in HRM are indicative of its breadth and strength at the beginning of the twenty-first century, is there a way in which one can summarise these initiatives? Given that emphasis has been placed in the past on strategy, fit and integration, perhaps one final element ought to be noted as a key ingredient – that of mix. Whatever the strategic intent, managerial style, outcomes sought or tight–loose ‘fit’ adopted by organisations, it will be in the mix of these components that we will find not only some answers to questions but also the further development of HRM as a significant approach to managing employees.

● Human resource management presents significant issues for the analysis and operation of employment relationships. The management of employees is one of the key elements in the coordination and general management of work organisations. Considerable controversy exists as to the origins, characteristics and philosophy of HRM, and its capacity to influence the nature of that relationship. The debate surrounding HRM can be characterised by these four predominant approaches: – HRM as a contemporary ‘restatement’ of industrial relations and personnel management policies; – HRM as a ‘fusion’ of industrial relations and personnel management to create a ‘new’ management discipline and function; – HRM as a ‘resource-based’ approach, stressing the potential of the individual employee in terms of an investment rather than a cost; – HRM as a ‘strategic/international’ phenomenon, making a determining contribution to corporate strategy and capable of being translated across cultures.


Chapter 1 · An introduction to human resource management: strategy, style or outcome

● The origins of HRM may be traced back to the 1930s in the United States. By the early 1980s a number of US analysts were writing about HRM and devising models and explanations for its emergence. Among the most significant of these commentators are Devanna (the matching model), Beer (the Harvard model), and Walton. In the UK, significant commentary on HRM has been provided by Guest, Pettigrew and Hendry, Storey, and Poole. More recently, Huselid, McDuffie and Arthur have extended the analysis to HRM ‘bundles’. ● For Guest the test of HRM is its applicability ‘in the field’ and its capacity to satisfy some key propositions such as ‘strategic integration’, ‘high commitment’, ‘high quality’ and ‘flexibility’. Pettigrew and Hendry stress the analytical elements of the Harvard model, and argue that HRM is characterised by its close alignment with business strategy. Storey defines the ‘schools’ of HRM – ‘hard’ (rooted in the manpower planning tradition) and ‘soft’ (rooted in the human relations approach to organisational analysis), and has developed a model that sets out four areas for analysis: beliefs and assumptions; strategic aspects; line management; key levers as major determinants of HRM practice. Poole has suggested that the Harvard model of HRM is useful in the study of comparative HRM. ● Particularly critical perspectives on HRM in the UK have been provided by Legge, Armstrong and Keenoy. Legge argues that the underlying values of personnel management and HRM differ little, and that organisational constraints may well make a truly integrated HRM approach highly impractical, while Armstrong has noted that financial orientations may well clash with HRM prescriptions. Keenoy sees HRM as being constructed around the highly ambiguous nature of the term, which can come to mean anything to anyone. ● Whatever the perspective taken on HRM, two important points cannot be overlooked: first, it has raised questions about the nature of the employment relationship that have stimulated one of the most intense and active debates to have occurred in the subject over the past 40 years; and second, the management of employment relations and the question of employee commitment to the employment relationship remain at the heart of the debate.


VP – Human Resources
Headquartered in the USA, our client is a Fortune 500 company with sales offices in 59 countries and a turnover exceeding $9 billion. This is an electronics distribution business, which markets, inventories and adds value to the products of the most prestigious manufacturers worldwide. The European operation, employing over 2000 people with sales of $2 billion, has grown dramatically through recent and extensive acquisitions. The challenge facing the new Vice President of Human Resources is to lead the integration of this newly amalgamated group of companies into a single dynamic entity with high productivity, commitment and morale. He or she must also organise a new Pan European HR team and move it quickly to best practice. Electronics distribution is an extremely fast-moving and complex business. While previous experience in this industry is not essential, you will definitely need a breadth of European HR experience in a fast-moving and tough business environment, and have high levels of mental agility, flexibility and perseverance. You will probably have a degree, speak more than one European language, and have excellent interpersonal skills, although ability to deliver is what really counts.

References and further reading


Director of Human Resources
We are one of Britain’s leading broadband communications companies, providing residential cable, business communication and network services. Our aim is to create an integrated communications and media group delivering a range of voice, video and interactive services across multiple platforms underpinned by branded digital media content. We are restructuring our organisational capabilities following rapid year-on-year growth, and are now seeking an exceptional and dynamic individual to join our human resources team. Reporting to the Corporate Human Resources Director, the successful applicant will: ● operate as a key member of the senior executive team for the Business, Network and Commercial Services groups, supporting 2500 employees nationwide; ● develop and deliver a human resources strategy that meets current and future business needs; ● manage a diverse brief including resourcing and retention, change management, organisational design, succession planning and performance management. Candidates will currently be operating at senior human resources management level in a fastpaced consumer goods or service environment, and may now be seeking their first directorship. Qualified to graduate level, with a highly commercial approach and the ability to contribute to strategic decision-making, candidates must be customer focused and results driven, with a strong operational edge. Outstanding drive and leadership skills will be vital in ensuring rapid and professional organisational transition. This is a high-profile role with one of the UK’s most dynamic and fast-growing companies, providing exceptional career development opportunities. The remuneration package will be commensurate with the profile of the role, including an excellent range of benefits.

Examine these two advertisements, which are seeking senior strategic-level HRM positions. Consider the following two points: 1 Assess whether there are any significant differences in either the strategy, style or outcome of the HRM processes described in these advertisements. What factors would you consider to be significant in the organisational profile of each company? 2 In reviewing the person requirements for these two posts, which kinds of personnel experience and development would you consider suitable for this level of appointment?

References and further reading
Those texts marked with an asterisk are recommended for further reading. Almond, P., Edwards, T. and Clark, I. (2003 forthcoming) ‘Multinationals and changing national business systems in Europe: towards the “shareholder value” model’? Industrial Relations Journal, Vol. 34, No. 5. Armstrong, M. (1987) ‘Human resource management: a case of the emperor’s new clothes?’, Personnel Management, Vol. 19, No. 8, pp. 30–35. Armstrong, P. (1989) ‘Limits and possibilities for HRM in an age of management accountancy’, in Storey, J. (ed.) New Perspectives on Human Resource Management. London: Routledge, pp. 154–166. Arthur, J.B. (1992) ‘The link between business strategy and industrial relations systems in American steel minimills’, Industrial and Labour Relations Review, Vol. 45, No. 3, pp. 488–506. Arthur, J.B. (1994) ‘Effects of human resource systems on manufacturing performance and turnover’, Academy of Management Journal, Vol. 37, No. 3. pp. 670–687. Bach, S. and Sisson, K. (eds) (2000) Personnel Management. Oxford: Blackwell. Beardwell, I.J. (1992) ‘The new industrial relations: a review of the debate’, Human Resource Management Journal, Vol. 2, No. 2, pp. 1–8. Beardwell, I.J. (1996) ‘How do we know how it really is?’, in Beardwell, I.J. (ed.) Contemporary Industrial Relations. Oxford: Oxford University Press, pp. 1–10. Beer, M. and Spector, B. (1985) ‘Corporate wide transformations in human resource management’, in Walton, R.E. and Lawrence, E.R. (eds) Human Resource Management Trends and Challenges. Boston, Mass.: Harvard Business School Press.


Chapter 1 · An introduction to human resource management: strategy, style or outcome
*Beer, M., Spector, B., Lawrence P.R., Quinn Mills, D. and Walton, R.E. (1984) Managing Human Assets. New York: Free Press. Boxall, P.F. (1992) ‘Strategic human resource management: beginnings of a new theoretical sophistication?’, Human Resource Management Journal, Vol. 2, No. 3, pp. 60–79. *Boxall, P. (1996) ‘The strategic HRM debate and the resource-based view of the firm’, Human Resource Management Journal, Vol. 6, No. 3, pp. 59–75. Chandler, A. (1962) Strategy and Structure. Cambridge, Mass.: Harvard University Press. Clark, I. (2000) Governance, The State, Regulation and Industrial Relations. London: Routledge. Clark, I., Colling, T., Almond, P., Gunnigle, P., Morley, M., Peters, R. and Portillo, M. (2002) ‘Multinationals in Europe 2001–2002: home country, host country and sector effects in the context of crisis’, Industrial Relations Journal, Vol. 33, No. 5, pp. 446–464. Cully, M., Woodland, S., O’Reilly, A. and Dix, G. (1999) Britain at Work: As Depicted by the 1998 Workplace Employee Relations Survey. London: Routledge. *Devanna, M.A., Fombrun, C.J. and Tichy, N.M. (1984) ‘A framework for strategic human resource management’, in Fombrun, C.J., Tichy, M.M. and Devanna, M.A. (eds) Strategic Human Resource Management. New York: John Wiley. Edwards, T. and Ferner, A. (2002) ‘The renewed American challenge’, Industrial Relations Journal, Vol. 33, No 2, pp. 94–111. Evans, P.A.L. and Lorange, P. (1989) ‘Two logics behind human resource management’, in Evans, P., Doz, Y. and Laurent, A. (eds) Human Resource Management in International Firms. Basingstoke: Macmillan. Ferner, A. (2003) ‘Foreign multinationals and industrial relations innovation in Britain’, in Edwards, P. (ed.) Industrial Relations in Britain, 2nd edn. Oxford: Blackwell. Fernie, S., Metcalf, D. and Woodland, S. (1994) Does HRM Boost Employee Management Relations? LSE CEP Working Paper No. 546. London: London School of Economics. Fombrun, C.J. (1984) ‘The external context of human resource management’, in Fombrun, C.J., Tichy, N.M. and Devanna, M.A. (eds) Strategic Human Resource Management. New York: John Wiley, p. 41. *Fombrun, C.J., Tichy, N.M. and Devanna, M.A. (1984) Strategic Human Resource Management. New York: John Wiley. Foulkes, F. (1980) Personnel Policies in Large Non-Union Companies. New Jersey: Prentice Hall. Fowler, A. (1987) ‘When chief executives discover HRM’, Personnel Management, January, p. 3. Fox, A. (1966) Industrial Sociology and Industrial Relations, Royal Commission on Trade Unions and Employers’ Associations, Research Paper No. 3. London: HMSO. Gratton, L., Hope-Hailey, V., Stiles, P. and Truss, C. (1999) Strategic Human Resource Management. Oxford: OUP. Guest, D. (1987) ‘Human resource management and industrial relations’, Journal of Management Studies, Vol. 24, No. 5, pp. 503–521. Guest, D. (1989a) ‘Personnel and human resource management: can you tell the difference?’, Personnel Management, January, pp. 48–51. Guest, D. (1989b) ‘Human resource management: its implications for industrial relations and trade unions’, in Storey, J. (ed.) New Perspectives on Human Resource Management. London: Routledge, pp. 41–55. *Guest, D. (1990) ‘Human resource management and the American dream’, Journal of Management Studies, Vol. 27, No. 4, pp. 377–397. Guest, D. (1997) ‘Human resource management and performance: a review and research agenda’, International Journal of Human Resource Management, Vol. 8, No. 3, pp. 263–276. Guest, D. and Conway, N. (1997) Employee Motivation and the Psychological Contract, Issues in Personnel Management 21. London: IPD. *Guest, D. and Hoque, K. (1996) ‘Human resource management and the new industrial relations’, in Beardwell, I.J. (ed.) Contemporary Industrial Relations. Oxford: Oxford University Press, pp. 11–36. Hendry, C. and Pettigrew, A. (1986) ‘The practice of strategic human resource management’, Personnel Review, Vol. 15, No. 5, pp. 3–8. Hendry, C. and Pettigrew, A. (1990) ‘Human resource management: an agenda for the 1990s’, International Journal of Human Resource Management, Vol. 1, No. 1, pp. 17–43. Hirst, P. and Thompson, G. (1999) Globalization in Question, 2nd edn. London: Polity. *Huselid, M. (1995) ‘The impact of HRM practices on turnover, productivity and corporate financial performance’, Academy of Management Journal, Vol. 38, No. 3, pp. 635–672. Jacoby, S. (1997) Modern Manors: Welfare Capitalism Since the New Deal. New Jersey: Princeton University Press. Kanter, R. (1984) The Change Masters. London: Allen & Unwin. Kaufman, B. (1993) The Origins and Evolution of the Field of Industrial Relations. New York: ILR Press. Keenoy, T. (1990a) ‘HRM: a case of the wolf in sheep’s clothing?’, Personnel Review, Vol. 19, No. 2, pp. 3–9. *Keenoy, T. (1990b) ‘Human resource management: rhetoric, reality and contradiction’, International Journal of Human Resource Management, Vol. 1, No. 3, pp. 363–384. Keenoy, T. and Anthony P. (1992) ‘Human resource management: metaphor, meaning and morality’, in Blyton, P. and Turnbull, P. (eds) Reassessing Human Resource Management. London: Sage, pp. 233–255. Kelly, J. and Gennard, J. (1994) ‘HRM: the views of personnel directors’, Human Resource Management Journal, Vol. 5, No. 1, pp. 15–30. Legge, K. (1978) Power, Innovation and Problem Solving in Personnel Management. London: McGraw-Hill. *Legge, K. (1989) ‘Human resource management: a critical analysis’, in Storey, J. (ed.) New Perspectives on Human Resource Management. London: Routledge, pp. 19–40.

References and further reading
*Legge, K. (1995) HRM: Rhetorics and Realities. Basingstoke: Macmillan Business. MacInnes, J. (1987) Thatcherism at Work. Milton Keynes: Open University Press. Marginson, P., Armstrong, P., Edwards, P., Purcell, J. and Hubbard, N. (1993) The Control of Industrial Relations in Large Companies, Warwick Papers in Industrial Relations No. 45. IRRV School of Industrial and Business Studies, University of Warwick. McDuffie, J.P. (1995) ‘Human resource bundles and manufacturing performance’, Industrial and Labour Relations Review, Vol. 48, No. 2, pp. 197–221. McLoughlin, I. and Gourlay, S. (1994) Enterprise without Unions. Milton Keynes: Open University Press. Peters, T.J. and Waterman, R.H. (1982) In Search of Excellence: Lessons from America’s Best Run Companies. New York: Harper & Row. Pfeffer, J. (1994) Competitive Advantage Through People. Boston, Mass.: Harvard Business School Press. Pfeffer, J. (1998) The Human Equation. Boston, Mass: Harvard Business School Press. Pieper, R. (ed.) (1990) Human Resource Management: An International Comparison. New York: Walter de Gruyter. Poole, M. (1990) ‘Editorial: human resource management in an international perspective’, International Journal of Human Resource Management, Vol. 1, No. 1, pp. 1–15. *Prahalad, G. and Hamel, C.K. (1990) ‘The core competencies of the corporation’, Harvard Business Review, May–June, pp. 79–91. *Purcell, J. (1995) ‘Corporate strategy and its link with human resource management strategy’, in Storey, J. (ed.) Human Resource Management: A Critical Text. London: Routledge, pp. 63–86. Purcell, J. (1996) ‘Human resource bundles of best practice: a utopian cul-de-sac?’ Department of Management, University of Bath. Purcell, J. (1999) ‘Best practice and best fit: chimera or cul-de-sac?’, Human Resource Management Journal, Vol. 9, No. 3, pp. 26–41. Purcell, J. (2001) ‘The meaning of strategy in human resource management’, in Storey, J. (ed.) Human Resource Management: A Critical Text, 2nd edn. London: Thomson Learning. Purcell, J. and Ahlstrand, B. (1994) Human Resource Management in the Multi-Divisional Company. Oxford: Oxford University Press. Purcell, J. and Sisson, K. (1983) ‘Strategies and practice in the management of industrial relations’, in Bain, G. (ed.) Industrial Relations in Britain. Oxford: Blackwell, pp. 95–120. Richardson, R. and Thompson, P. (1999) ‘The impact of people management practices on business performance: a literature review’ in Issues in People Management. London: IPD. Sisson, K. (1993) ‘In search of HRM’, British Journal of Industrial Relations, Vol. 31, No. 2, pp. 201–210. *Sisson, K (2001) ‘Human resource management and the personnel function: a case of partial impact?’ in Storey, J. (ed.) Human Resource Management: A Critical Text, 2nd edn. London: Thomson Learning. Storey, J. (1992) Developments in the Management of Human Resources: An Analytical Review. London: Blackwell. Storey, J. (1995) Human Resource Management: A Critical Text. London: Routledge. *Storey, J. (2001) ‘Human resource management today: an assessment’, in Storey, J. (ed.) Human Resource Management: A Critical Text, 2nd edn. London: Thomson Learning. Storey, J. (ed.) (1989) New Perspectives on Human Resource Management. London: Routledge. Tyson, S. and Fell, A. (1986) Evaluating the Personnel Function. London: Hutchinson. Ulrich, D. (1998) Human Resource Champions. Boston: Harvard Business School Press. Walton, R.E. (1985) ‘From control to commitment in the workplace’, Harvard Business Review, Vol. 63, No. 2, March–April, pp. 76–84. Watson, T. (1997) The Personnel Managers. London: Routledge. West, M. and Patterson, M. (1997) The Impact of People Management Practices on Business Performance. IPD Research paper No. 22. London: IPD. Whitfield, K. and Poole, M. (1997) ‘Organising employment for high performance’, Organisation Studies, Vol. 18, No. 5, pp. 745–764. Wood, S. (1995) ‘The four pillars of HRM: are they connected?’, Human Resource Management Journal, Vol. 5, No. 5, pp. 49–59. Wood, S. and De Menezes, L. (1998) ‘High commitment management in the UK’, Human Relations, Vol. 51, No. 4, pp. 485–515.


For multiple choice questions, exercises and annotated weblinks specific to this chapter visit this book’s website at www.booksites.net/beardwell



Strategic human resource management
Nicky Golding
To indicate the significance of the business context in developing an understanding of the meaning and application of SHRM. To analyse the relationship between strategic management and SHRM. To examine the different approaches to SHRM, including: – The best-fit approach to SHRM – The configurational approach to SHRM – The resource-based view of SHRM – The best-practice approach to SHRM. To evaluate the relationship between SHRM and organisational performance. To present a number of activities and case studies that will facilitate readers’ understanding of the nature and complexity of the SHRM debate, and enable them to apply their knowledge and understanding.

Introduction to strategic human resource management
This chapter charts the development of strategic human resource management. It assumes a certain familiarity with the evolution of HRM, early HRM models and frameworks and their theoretical underpinning as discussed in Chapter 1. The aim of this chapter is to provide a challenging and critical analysis of the strategic human resource management literature, so that you will be able to understand the synthesis both within and between strategic human resource management and strategic management in its various forms. Since the early 1980s when human resource management arrived on the managerial agenda, there has been considerable debate concerning its nature and its value to organisations. From the seminal works emerging from the Chicago school and the matching model of HRM (Fombrun et al., 1984), the emphasis has very much concerned its strategic role in the organisation. Indeed, the now large literature rarely differentiates between human resource management (HRM) and strategic human resource management (SHRM). Some writers have associated HRM with the strategic aspects and concerns of ‘best-fit’, in vertically aligning an organisation’s human resources to the needs of the organisation as expressed in the organisational strategy (Fombrun et al., 1984) or by creating ‘congruence’ or ‘horizontal alignment’ between various managerial

Introduction to strategic human resource management


and HRM policies (Beer et al., 1984; Walton, 1985). Others have focused on HRM as a means of gaining commitment and linked this to outcomes of enhanced organisational performance (Beer et al., 1984; Guest, 1987; Guest et al., 2000a); through best-practice models (Pfeffer, 1994, 1998; MacDuffie, 1995; Arthur, 1994) or high-performance work practices (Huselid, 1995; Guest, 1987). Others have recognised the ‘harder’ nature of strategic HRM (Storey, 1992), emphasising its contribution to business efficiency. Interlaced with this debate has been the wider controversy concerning the nature of business strategy itself, from which strategic HRM takes its theoretical constructs. Add to this, transformations in organisational forms, which have impacted simultaneously on both structures and relationships in organisations. Bahrami (1992) describes tensions in the US high-technology sector that should be familiar to the UK audience. The need for increased flexibility (Atkinson, 1984) or ‘agility’ (Bahrami, 1992) in organisational structures and relationships has led to ‘delayering, team-based networks, alliances and partnerships and a new employer–employee covenant’ or psychological contract. These changes in organisational structuring and employer–employee relationships have led to difficulties in finding new organisational forms that both foster creativity and avoid chaos. Thus tensions can arise between ‘innovation and maintaining focus, between rapid response and avoiding duplication, between a focus on future products and meeting time to market criteria, between long-term vision and ensuring performance today’. These tensions need to be considered within business and human resource strategies, as organisations grapple with remaining lean and focused, yet maintain a loose hands-off management style to encourage creativity and rapid response. These dilemmas are not new to the strategic HRM literature; Kanter in 1989 noted contradictions between remaining ‘lean, mean and fit’ on the one hand, yet being seen as a great company to work for on the other. Development in SHRM thinking, charted in this chapter through the development of the best-fit approach, the configurational approach, the resource-based view approach and the best-practice approach, have a profound impact on our understanding of the contribution SHRM can make to organisational performance, through increased competitive advantage and added value. Indeed, it becomes clear that whether the focus of SHR practices is on alignment with the external context or on the internal context of the firm, the meaning of SHRM can only really be understood in the context of something else, namely organisational performance, whether that be in terms of economic value added and increased shareholder value, customer value added and increased market share, or people added value through increased employee commitment and reservoirs of employee skills and knowledge. The debate therefore becomes extremely complex in its ramifications for analysing processes, evaluating performance and assessing outcomes. The observer therefore must come to the view, in the best postmodern tradition, that the profusion and confusion of policy make straightforward analysis of SHRM in empirical and analytical terms extremely difficult and contingent on positional stances of the actors and observers involved in the research process. However, some kind of analytical context is useful in beginning our evaluations. In order to understand the development of strategic human resource management, and recognise that SHRM is more than traditional human resource management ‘tagged’ with the word ‘strategic’, it is necessary to consider the nature of strategic management. This will provide an understanding of the ‘strategic’ context within which strategic human resource management has developed, and enable us to understand the increasingly complex relationship between strategic management and strategic human resource management.


Chapter 2 · Strategic human resource management

Understanding the business context
■ The nature of business strategy
Boxall (1996) has commented that ‘any credible attempt at model-building in Strategic HRM involves taking a position on the difficult questions: What is Strategy? (content) & How is strategy formed? (process)’. It is the intention of this section to explore these questions, and identify the difficulties and complexities involved in the ‘strategy-making’ process. This section provides an overview of some of the issues and debates, and sets the context for the SHRM debate discussed later in the chapter. It is not within the remit of this chapter, however, to provide a comprehensive review of strategic management theory. Readers are encouraged to seek further reading on strategic management, particularly if the material is completely new to them. The roots of business strategy stretch far back into history (Alexander the Great 356–323 BC, Julius Caesar 100–44 BC), and early writers linked the term ‘strategy’ to the ancient Greek word ‘strategos’, which means ‘general’ and has connotations of ‘to lead’ and ‘army’. Thus it is not surprising that many dictionary definitions convey a military perspective:
Strategy. The art of war, especially the planning of movements of troops and ships etc. into favourable positions; plan of action or policy in business or politics etc.’
(Oxford Pocket Dictionary)

Early writings on business strategy adopted a military model combined with economics, particularly the notion of rational-economic man (Chandler, 1962; Sloan, 1963; Ansoff, 1965). This is known as the classical or rational-planning approach, and has influenced business thinking for many decades. The meaning of strategy has changed, however, and become more complex over the past 20 years or so, where the literature has moved from emphasising a long-term planning perspective (Chandler, 1962) to a more organic evolutionary process occupying a shorter time frame (Ansoff and McDonnell, 1990). Thus strategic management in the late 1990s, early 2000s is seen to be as much about vision and direction as about planning, mechanisms and structure.
Throughout the first half of our century and even into the early eighties, planning with its inevitable companion, strategy – has always been a key word, the core, the near ultimate weapon of ‘good’ and ‘true’ management. Yet many firms including Sony, Xerox, Texas Instruments ... have been remarkably successful … with minimal official, rational and systematic planning. (Aktouf, 1996)


How would you define the word ‘strategy’? Note down five words you associate with strategy. Consider your organisation’s strategy, and identify the vision statement, mission statement, corporate objectives and values. What do you know about the ‘strategy-making’ process in your organisation? Try to map out the process, identifying the key influences, stakeholders and processes. If you feel unable to use your current organisation, use an organisation you are familiar with or where you have access to company information. If this is not possible, you can use the case study, Jet Airlines, at the end of this chapter.

Approaches to the strategy-making process


Approaches to the strategy-making process
This chapter uses the four distinctive approaches to strategy-making identified by Whittington (1993, 2001) as a model of analysis. These are the classical or rationalplanning approach, the evolutionary approach, the processual approach and the systemic approach. As you will see, an organisation’s approach to its ‘strategy-making’ process has implications for our understanding and application of strategic human resource management.

■ The classical or rational-planning approach
This view suggests that strategy is formed through a formal and rational decisionmaking process. The key stages of the strategy-making process emphasise: firstly, a comprehensive analysis of the external and internal environment, which then enables an organisation to evaluate and choose from a range of strategic choices, which in turn allows for plans to be made to implement the strategy. With this approach, profitability is assumed to be the only goal of business, and the rational-planning approach the means to achieve it. Alfred Chandler (1962), a business historian, Igor Ansoff (1965), a theorist, and Alfred Sloan (1963), President of General Motors, identified these key characteristics of the classical approach in their work and writings. Chandler defined strategy as:
the determination of the basic, long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for those goals.

Grant (2002) highlighted the classical approach in his model of common elements in successful strategies (Figure 2.1): where clear goals, understanding the competitive environment, resource appraisal and effective implementation form the basis of his analysis. Within the classical perspective, strategy can be and often is viewed at three levels: firstly, at the ‘corporate’ level, which relates to the overall scope of the organisation, its

Figure 2.1

Common elements in successful strategies
Successful strategy

Effective implementation

Long-term, simple, and agreed objectives

Profound understanding of the competitive environment

Objective appraisal of resources

Source: Grant (2002: 11)


Chapter 2 · Strategic human resource management

structures, financing and distribution of key resources; secondly, at a ‘business’ level, which relates to its competitive positioning in markets/products/services; thirdly, at an ‘operational’ level, which relates to the methods used by the various functions: marketing, finance, production and of course human resources to meet the objectives of the higher-level strategies. This approach tends to separate out operational practices from higher-level strategic planning; this is not always helpful in reality, as it is often operational practices and effective systems that are ‘strategic’ to success in organisations (Boxall and Purcell, 2003). This prompted Whittington (2001: 107) to comment that ‘the rigid separation of strategy from operations is no longer valid in a knowledge-based age’. This is not to suggest that external analysis and planning should be ignored, but proposes a recognition that operational practices or ‘tactical excellence’ may provide sustainable competitive advantage by ensuring that an organisation is adaptable and can flex with the environment. This becomes significant in contributing to our understanding of SHRM later in the chapter. The classical approach, however, forms the basis of much of our early understanding of how organisations ‘make strategy’ and define competitive advantage. It is worth spending time on the activity below, which will enable you to understand and apply the strategic management process from a classical rational-planning perspective. Drawing on Johnson and Scholes (2002), it focuses on strategic analysis, which requires you to analyse the external and internal environment of an organisation and identify its key source of competitive advantage, which will then enable you to identify and evaluate the range of strategic choices open to the organisation. This in turn will enable you to consider the implementation stage of the strategy-making process in the organisation. In this activity, you have probably raised more questions than answers, and you have probably identified some of the shortcomings of the classical approach. Mintzberg (1990)


Analysing an organisation
Analyse the external environment
Analyse the external environment your business operates in. Consider the political, legal, technological, economic influences on your business. Now categorise these into opportunities and threats.

Analyse the internal environment
Now identify the internal strengths and weaknesses of the business. Consider the internal resources, structure, leadership, skills, knowledge, culture etc.

Conduct a SWOT analysis
Put your analysis of the external and internal environment into a SWOT analysis. You might find it useful to prioritise the key strengths and weaknesses of the business, and the main threats and key opportunities available to the business. Remember that it is important to be able to justify your decisions. You also need to be clear about differentiating between business and HR issues, although it is likely that certain HR strengths could be a core business competence/weakness.

Strategic choice
Now consider the organisation’s strategy, review its vision statement, mission statement, corporate objectives and values. Does a comprehensive analysis of the external and internal environment of your organisation help you to understand the reasoning behind the organisation’s strategy? Can you identify the organisation’s key sources of competitive advantage? Does this analysis help you to understand why the organisation has made certain strategic choices?

Approaches to the strategy-making process


What other information do you think you would need to fully understand the strategymaking process in the organisation? Do you think the organisation adopts a classical approach to ‘strategy-making’?

What changes has the organisation made in terms of culture, structures, leadership and HR practices to deliver its strategy? Have these changes been effective? Why? Why not? You can either use the case study ‘Jet Airlines’ at the end of this chapter to complete this exercise, or you can use the organisation you work for or one you are familiar with and where you have access to company information.

clearly identified the ‘basic premises’ of the classical approach as being the disciplined ‘readiness and capacity of managers to adopt profit-maximising strategies through rational long-term planning’ (Whittington, 2001: 15). He questioned the feasibility of adopting this approach as either a model for prescription of best practice or as a model of analysis, as he considered it to be an inflexible and oversimplified view of the ‘strategymaking’ process, relying too heavily on military models and their assumed culture of discipline. Mintzberg (1987) argued that making strategy in practice tends to be complex and messy, and he preferred to think about strategy as ‘crafting’ rather than ‘planning’. The classical approach is, however, the basis for much strategy discussion and analysis, and, as we will see later, underpins much strategic HRM thinking, particularly the ‘best-fit’ school of thought and the notion of vertical integration. If, however, we accept that devising and implementing strategies in organisations is a complex and organic process, it highlights the complexity of both defining and applying strategic human resource management.

■ The evolutionary approach
An alternative view of the strategy-making process is the evolutionary approach. This suggests that strategy is made through an informal evolutionary process in which managers rely less upon top managers to plan and act rationally and more upon the markets to secure profit maximisation. Whittington (2001) highlights the links between the evolutionary approach and the ‘natural law of the jungle’. Henderson (1989: 143) argued that ‘Darwin is probably a better guide to business competition than economists are’, as he recognised that markets are rarely static and indeed likened competition to a process of natural selection, where only the fittest survive. Darwin noted that more individuals of each species are born than can survive, thus there is a frequently recurring struggle for existence. Evolutionarists, therefore, argue that markets, not managers, choose the prevailing strategies. Thus in this approach, the rational-planning models that analyse the external and internal environment, in order to select the most appropriate strategic choices and then to identify and plan structural, product and service changes to meet market need, become irrelevant. The evolutionary approach suggests that markets are too competitive for ‘expensive strategizing and too unpredictable to outguess’ (Whittington, 2001: 19). They believe that sophisticated strategies can deliver only a temporary advantage, and some suggest focusing instead on efficiency and managing the ‘transaction costs’.


Chapter 2 · Strategic human resource management

BOX 2.1

Bishop bemoans slump at Bmi
Bmi, the airline formerly known as British Midland slumped £19.6m into the red last year in what it described as an ‘exceptionally tough trading environment for the airline industry’. Sir Michael Bishop, Bmi’s chairman and controlling shareholder, said he was ‘disappointed to report the airline’s first pre-tax losses for 10 years’, but stressed operating losses had been cut by £7.3m to £21.7m. The previous year’s £12.4m profits before tax were flattered by a £58m exceptional gain from its ground-handling sale to public transport group Go-Ahead, while last year Bmi took an £8.5m hit for grounding four planes after September 11 and a raft of restructuring charges. These were to reorganise the business into four distinct segments, including the launch of Bmibaby, the no frills airline which carried more than 700,000 passengers last year and is on course for 3m in 2003. Sir Michael said the results ‘reflected the mayhem in the first quarter of 2002 after September 11’, though Bmi still managed to increase passengers by 11.9pc to 7.5m. He cautioned that 2003 ‘promises to be another tough year’ following the Iraq war and the outbreak of Sars – Severe Acute Respiratory Syndrome. He noted that as hostilities reduced in Iraq, trading had improved. ‘In the last 10 days we have seen quite an encouraging tick up in confidence and bookings’, he said, but cautioned against over optimism. He added: ‘I think that Sars is going to have more impact on the airline industry than the war.’
Source: Daily Telegraph, 18 April 2003 by Alistair Osbourne

To what extent do you think the evolutionary approach to the strategic management process contributes to your understanding of the problems at Bmi?

■ The processual approach
Quinn (1978) recognised that in practice strategy formation tends to be fragmented, evolutionary and largely intuitive. His ‘logical incrementalist’ view, therefore, while acknowledging the value of the rational-analytical approach, identified the need to take account of the psychological, political and behavioural relationships which influence and contribute to strategy. Quinn’s view fits well within Whittington’s processual approach which recognises ‘organisations and markets’ as ‘sticky, messy phenomena, from which strategies emerge with much confusion and in small steps’ (2001: 21). The foundations of the processual school can be traced back to the work of the American Carnegie School, according to Whittington (2001) and the work of Cyert and March (1956) and Simon (1947). They uncovered two key themes: first, the cognitive limitations of human action, and secondly, that human beings are influenced by ‘bounded rationality’ (Simon, 1947). Thus no single human being, whether the chief executive or a production worker, is likely to have all the answers to complex and difficult problems, and we all often have to act without knowing everything we would like to know. Thus complexity and uncertainty become facts of life in strategic management and consequently in SHRM (Boxall and Purcell, 2003). It is important for organisations to recognise this to avoid falling into a fog of complacency or the ‘success trap’ (Barr et al., 1992), and it also highlights the limitations of some of the prescriptions for success advocated in both the strategic management and SHRM literature. In practice, an organisation’s approach to SHRM has considerable influence here on the strategic management process, as to effectively manage the environment better than their competitors, some writers would suggest that the organisation needs to adopt a learning and open

Approaches to the strategy-making process


Figure 2.2

Emergent strategy
Int str ende ate d gy








Unrealised strategy

Realised strategy

Emergent strategy

Source: Mintzberg (1987)

systems perspective. Mintzberg (1987) recognised this in his ideas on ‘crafting strategy’, and the fluid and organic nature of the strategy-making process. He compared the skills required of those involved in the process to those of a traditional craftsperson – traditional skill, dedication, perfection, mastery of detail, sense of involvement and intimacy through experience and commitment. Thus he recognised that planned strategies are not always realised strategies, and that strategies can often emerge and evolve (Figure 2.2). Thus the classic sequence of plan first, implementation second can become blurred, as ‘strategy is discovered in action’ (March, 1976). Secondly, the processualists noted the significance of the micro-politics within organisations, a theme since developed by Pettigrew (1973, 1985) and Wilson (1992). This approach recognises the inherent rivalries and conflicting goals present within organisations, and the impact this can have on strategy implementation. As we will see later in the chapter, it is these pluralist tensions that are sometimes ignored in certain branches of the SHRM literature, most notably the best-practice approach.

Stop and think

Can you think of reasons why an intended strategy might not be realised? Why do strategies sometimes emerge? Illustrate your answers with examples from your own experience. If you do not have organisational examples, reflect upon your personal development so far. What factors have influenced your choice of university? degree subject? career?, etc. Have you followed your original plans? What changes have you made? Have new strategies emerged? Using Mintzberg’s model, you could plot your development so far on a time-line, identifying where and why planned strategies have failed to be realised and new ones have emerged.


Chapter 2 · Strategic human resource management

■ The systemic approach
This leads us on to the final perspective identified by Whittington (1993, 2001), the systemic approach. The systemic approach suggests that strategy is shaped by the social system within which it operates. Strategic choices, therefore, are shaped by the cultural and institutional interests of a broader society. So, for example, state intervention in France and Germany has shaped HRM in a way that is different from the USA and the UK. A key theme of the systemic approach is that ‘decision-makers are not detached, calculating individuals interacting in purely economic transactions’ (Whittington, 2001: 26) but are members of a community ‘rooted in a densely interwoven social system’. Therefore, in reality, organisations and their members’ choices are embedded in a network of social relations (Whittington, 1993). Thus according to this approach, organisations differ according to the social and economic systems in which they are embedded.

Stop and think

What are the implications for multinational organisations if we assume a systemic view of strategy? What are the implications for the HR professional involved in mergers and acquisitions?

The four approaches to strategy identified differ considerably in their implications for advice to management. Understanding that strategy formulation does not always occur in a rational-planned manner, owing to complexities in both the external and internal environment, is significant for our understanding of strategic human resource management. Whittington (1993) summarised his four generic approaches of classical, evolutionary, systemic and processual, discussed above, in Figure 2.3. By plotting his model on two continua of outcomes (profit maximisation–pluralistic) and processes (deliberate–emergent), Whittington (1993, 2001) recognises that the strategy process changes depending upon the context and outcomes. In terms of strategic

Figure 2.3

Whittington’s model
Outcomes Profit-maximising



Processes Deliberate




Source: Whittington (2001: 3)

The rise of strategic human resource management


human resource management, therefore, the term ‘strategic’ has broader and more complex connotations than those advocated in the prescriptive ‘classical’ strategy literature. As turbulence in the environment increases, organisations are recognising the importance of human resources to the competitive performance of the organisation, and therefore its role at a strategic level rather than an operational one.


● Read the case study, Jet Airlines, at the end of this chapter. Which of the approaches

identified by Whittington (2001) best describes Jet Airline’s approach to strategy formulation?
● Why do you think it is important to consider the nature of strategy to aid our under-

standing of strategic human resource management?

By now you should be familiar with different approaches to understanding the nature of strategy, and have gained an appreciation of the complexities involved in the strategic management process. You may have realised that our understanding and interpretation of SHRM will, to a certain extent, be influenced by our interpretation of the context of strategic management. It is to the definition and the various interpretations of strategic human resource management that we turn next.

The rise of strategic human resource management
In the past 20 years or so, the management of people within organisations has moved from the sidelines to centre stage. The contribution that human resources may make to an organisation’s performance and effectiveness has become the subject of much scrutiny. Much of this change has been linked to changes in the business environment, with the impact of globalisation leading to the need for increased competitiveness, flexibility, responsiveness, quality and the need for all functions of the business to demonstrate their contribution to the bottom line. As we have already recognised, it is against this backdrop that the traditional separation between strategy and operational activities, such as personnel and then HRM, has become blurred, particularly in a knowledge-based age. There is confusion over the differentiation between human resource management and strategic human resource management. Part of the reason for this confusion will be familiar to you, as it arises from the varying stances of the literature, those of prescription, description or critical evaluation. Some writers see the two terms as synonymous (Mabey et al., 1998), while others consider there to be differences. A wealth of literature has appeared to prescribe, describe and critically evaluate the way organisations manage their human resources. It has evolved from being highly critical of the personnel function’s contribution to the organisation as being weak, non-strategic and lacking a theoretical base (Drucker, 1968; Watson, 1977; Legge, 1978; Purcell, 1985), through the development of human resource management models and frameworks (Beer et al., 1984; Fombrun et al., 1984; Schuler and Jackson, 1987; Guest, 1987), to critics of the HRM concept who question the empirical, ethical, theoretical and practical base of the subject (Legge, 1995; Keenoy, 1990; Blyton and Turnbull, 1992; Keenoy and Anthony, 1992), to a wave of strategic human resource management literature focusing on the link or vertical integration between human resource practices and an organisation’s business strategy, in order to enhance performance (Schuler and Jackson, 1987; Kochan and Barocci, 1985; Miles and Snow, 1984), and on the relationship between best-practice or high-commitment HR practices and organisational performance (Pfeffer, 1994, 1998; Huselid, 1995; MacDuffie, 1995; Guest, 2001).


Chapter 2 · Strategic human resource management

Confusion arises because embedded in much of the HRM literature is the notion of strategic integration (Guest, 1987; Beer et al., 1984; Fombrun et al., 1984), but critics have been quick to note the difference between the rhetoric of policy statements and the reality of action (Legge, 1995) and the somewhat piecemeal adoption of HRM practices (Storey, 1992, 1995) and the ingrained ambiguity of a number of these models (Keenoy, 1990; Blyton and Turnbull, 1992). Thus, while the early HRM literature appeared to emphasise a strategic theme, there was much critical evaluation that demonstrated its lack of strategic integration. Thus terms such as ‘old wine in new bottles’ became a familiar explanation for the development of personnel to HRM and then to SHRM.


Consider the reading you have done in Chapter 1 and draw your own model of HRM, demonstrating its theoretical and applied origins.
● In what ways do you believe strategic HRM to be different from your model of HRM? ● Would you make any alterations to your model to ensure its strategic nature?

Exploring the relationship between strategic management and SHRM: the best-fit school of SHRM
The best-fit (or contingency) school of SHRM explores the close link between strategic management and HRM, by assessing the extent to which there is vertical integration between an organisation’s business strategy and its HRM policies and practices. This is where an understanding of the strategic management process and context can enhance our understanding of the development of SHRM, both as an academic field of study and in its application in organisations. The notion of a link between business strategy and the performance of every individual in the organisation is central to ‘fit’ or vertical integration. Vertical integration can be explicitly demonstrated through the linking of a business goal to individual objectivesetting, to the measurement and rewarding of that business goal. Vertical integration between business strategy or the objectives of the business and individual behaviour and ultimately individual, team and organisational performance is at the core of many models of SHRM. This vertical integration, where ‘leverage’ is gained through procedures, policies and processes, is widely acknowledged to be a crucial part of any strategic approach to the management of people (Dyer, 1984; Mahoney and Deckop, 1986; Schuler and Jackson, 1987; Fombrun et al., 1984; Gratton et al., 1999). Vertical integration therefore ensures an explicit link or relationship between internal people processes and policies and the external market or business strategy, and thereby ensures that competences are created which have a potential to be a key source of competitive advantage (Wright et al., 1994). Tyson (1997) identifies the move towards greater vertical integration (between human resource management and business strategy) and horizontal integration (between HR policies themselves and with line managers) as a sign of ‘HRM’s coming of age’. In recognising certain shifts in the HRM paradigm, Tyson identified ‘vertical integration’ as the essential ingredient that enables the HR paradigm to become strategic. This requires, in practice, not only a statement of strategic intent, but planning to ensure that an integrated HR system can support the policies and processes in line with the business strategy. It is worth while considering the earlier discussions on the nature of strategic management here, as a number of critics, notably Legge (1995), have questioned the applicability of the classical-rational models on the grounds that there is a dearth of empirical evidence to support their credibility. Legge (1995: 135) tends to prefer the

Exploring the relationship between strategic management and SHRM: the best-fit school of SHRM


Table 2.1 Whittington’s typology of strategy
Classical Strategy Rationale Focus Formal and planned Profit maximisation Fitting internal plans to external context Analytical Economics/Military 1960s Processual Crafted and emergent Vague Internal (politics) Evolutionary Efficient Survival of the fittest External (markets) Systemic Embedded Local External (societies)

Processes Key influences Emergence

Bargaining/Learning Psychology 1970s

Darwinian Economics/Biology 1980s

Social/Cultural Sociology 1990s

Source: Adapted from Whittington (2001: 39)

processual framework (Whittington, 1993), which is grounded in empirical work and recognises that ‘integrating HRM and business strategy is a highly complex and iterative process, much dependent on the interplay and resources of different stakeholders’.

Stop and think

In what way does Whittington’s typology (1993, 2001) of strategy impact on your understanding of ‘vertical integration’? You may find it useful to use Table 2.1 to guide your thinking.

There have been a number of SHRM models that have attempted to explore the link between business strategy and HR policies and practices, and develop categories of integration or ‘fit’. These include the life-cycle models (Kochan and Barocci, 1985) and the competitive advantage models of Miles and Snow (1978) and Schuler and Jackson (1987) based on the influential work of Porter (1985).

■ Life-cycle models
A number of researchers have attempted to apply business and product life-cycle thinking or ‘models’ to the selection and management of appropriate HR policies and practices that fit the relevant stage of an organisation’s development or life cycle (Baird and Meshoulam, 1988; Kochan and Barocci, 1985). So, for example, according to this approach, during the start-up phase of the business there is an emphasis on ‘flexibility’ in HR, to enable the business to grow and foster entrepreneurialism. In the growth stage, once a business grows beyond a certain size, the emphasis would move to the development of more formal HR policies and procedures. In the maturity stage, as markets mature and margins decrease, and the performance of certain products or the organisation plateaus, the focus of the HR strategy may move to cost control. Finally, in the decline stage of a product or business, the emphasis shifts to rationalisation, with downsizing and redundancy implications for the HR function (Kochan and Barocci, 1985). The question for HR strategists here is, firstly, how can HR strategy secure and retain the type of human resources that are necessary for the organisation’s continued viability, as industries and sectors develop? Secondly, which HR policies and practices are more likely to contribute to sustainable competitive advantage as organisations go through their life cycle? (Boxall and Purcell, 2003). Retaining viability and sustaining competitive advantage in the ‘mature’ stage of an organisation’s development is at the


Chapter 2 · Strategic human resource management

heart of much SHRM literature. Baden-Fuller (1995) noted that there are two kinds of mature organisations that manage to survive industry development: ‘one is the firm that succeeds in dominating the direction of industry change and the other, is the firm that manages to adapt to the direction of change’ (Boxall and Purcell, 2003: 198). Abell (1993), Boxall (1996) and Dyer and Shafer (1999) identify that the route to achieving human resource advantage as organisations develop and renew lies in the preparation for retaining viability and competitive advantage in the mature phase. The need for organisations to pursue ‘dual’ HR strategies, which enable them to master the present while preparing for and pre-empting the future, and avoiding becoming trapped in a single strategy, is identified by Abell (1993), while Dyer and Shafer (1999) developed an approach that demonstrates how an organisation’s HR strategy could contribute to what they termed ‘organisational agility’. This implies an inbuilt capacity to flex and adapt to changes in the external context, which enables the business to change as a matter of course. Interestingly, this work appears to draw on the resource-based view and best-practice view of SHRM discussed later in the chapter, as well as the best-fit approach, reflecting the difficulty of viewing the various approaches to SHRM as distinct entities.

Stop and think

How does the life-cycle approach contribute to your understanding of SHRM? How could Jet Airlines have prepared better for organisational renewal and industry changes?

■ Competitive advantage models
Competitive advantage models tend to apply Porter’s (1985) ideas on strategic choice. Porter identified three key bases of competitive advantage: cost leadership, differentiation through quality and service, and focus or ‘niche’ market. Schuler and Jackson (1987) used these as a basis for their model of strategic human resource management, where they defined the appropriate HR policies and practices to ‘fit’ the generic strategies of cost reduction, quality enhancement and innovation. They argued that business performance will improve when HR practices mutually reinforce the organisation’s choice of competitive strategy. Thus in Schuler and Jackson’s model (Table 2.2), the organisation’s mission and values are expressed through their desired competitive strategy. This in turn leads to a set of required employee behaviours, which would be reinforced by an appropriate set of HR practices. The outcome of this would be desired employee behaviours, which are aligned with the corporate goals, thus demonstrating the achievement of vertical integration. As you can see, the ‘cost-reduction’-led HR strategy is likely to focus on the delivery of efficiency through mainly ‘hard’ HR techniques, whereas the ‘quality enhancement’ and ‘innovation’-led HR strategies focus on the delivery of added value through ‘softer’ HR techniques and policies. Thus all three of these strategies can be deemed ‘strategic’ in linking HR policies and practices to the goals of the business and the external context of the firm, and therefore in contributing in different ways to ‘bottom-line’ performance. Another commonly cited competitive advantage framework is that of Miles and Snow (1978), who defined generic types of business strategy as defenders, prospectors and

Stop and think

What are the advantages and disadvantages inherent in the competitive advantage models? Can you see any difficulties in applying them to organisations?

Exploring the relationship between strategic management and SHRM: the best-fit school of SHRM


Table 2.2 Business strategies and associated HR policies
Strategy Innovation Employee role behaviour A high degree of creative behaviour Longer-term focus HRM policies Jobs that require close interaction and coordination among groups of individuals Performance appraisals that are more likely to reflect long-term and groupbased achievement Jobs that allow employees to develop skills that can be used in other positions in the firm Pay rates that tend to be low, but allow employees to be stockholders and have more freedom to choose the mix of components that make up their pay package Broad career paths to reinforce the development of a broad range of skills

A relatively high level of cooperative interdependent behaviour A moderate degree of concern for quality

A moderate concern for quantity; an equal degree of concern for process and results A greater degree of risk-taking; a higher tolerance of ambiguity and unpredictability Quality enhancement Relatively repetitive/predictable behaviours A more long-term or immediate focus

Relatively fixed and explicit job descriptions High levels of employee participation in decisions relevant to immediate work conditions and job itself A mix of individual and group criteria for performance appraisal that is mostly short term and results oriented Relatively egalitarian treatment of employees and some guarantees of job security Extensive and continuous training and development of employees

A moderate amount of cooperative interdependent behaviour A high concern for quality

A modest concern for quantity of output High concern for process; low risk-taking activity; commitment to the goals of the organisation Cost reduction Relatively repetitive and predictable behaviour A rather short-term focus

Relatively fixed and explicit job descriptions that allow little room for ambiguity Narrowly designed jobs and narrowly defined career paths that encourage specialisation, expertise and efficiency Short-term results-oriented performance Close monitoring of market pay levels for use in making compensation decisions Minimal levels of employee training and development


Primarily autonomous or individual appraisals Moderate concern for quality High concern for quantity of output Primary concern for results; low risktaking activity; relatively high degree of comfort with stability

Source: Schuler and Jackson (1987)


Chapter 2 · Strategic human resource management

analysers and matched the generic strategies to appropriate HR strategies, policies and practices, the rationale being that if appropriate alignment is achieved between the organisation’s business strategy and its HR policies and practices, a higher level of organisational performance will result.

■ Configurational models
One criticism often levelled at the contingency or best-fit school is that they tend to over-simplify organisational reality. In attempting to relate one dominant variable external to the organisation (for example, compete on innovation, quality or cost) to another internal variable (for example, human resource management), they tend to assume a linear, non-problematic relationship. It is unlikely, however, that an organisation is following one strategy alone, as organisations have to compete in an ever-changing external environment where new strategies are constantly evolving and emerging. How often in organisational change programmes have organisations issued new mission and value statements, proclaiming new organisational values of employee involvement etc. on the one hand, with announcements of compulsory redundancies on the other? Thus cost-reduction reality and high-commitment rhetoric often go hand in hand, particularly in a short-termist-driven UK economy. Delery and Doty (1996) noted the limitation of the contingency school, and proposed the notion of the configurational perspective. This approach focuses on how unique patterns or configurations of multiple independent variables are related to the dependent variable, by aiming to identify ‘ideal type’ categories of not only the organisation strategy but also the HR strategy. The significant difference here between the contingency approach and the configurational approach is that these configurations represent ‘non-linear synergistic effects and higher-order interactions’ that can result in maximum performance (Delery and Doty, 1996: 808). As Marchington and Wilkinson (2002: 222) note, the key point about the configurational perspective is that it ‘seeks to derive an internally consistent set of HR practices that maximise horizontal integration and then link these to alternative strategic configurations in order to maximise vertical integration’. Thus, put simply, strategic human resource management, according to configurational theorists, requires an organisation to develop an HR system that achieves both horizontal and vertical integration. Delery and Doty use Miles and Snow’s (1978) categories of ‘defender’ and ‘prospector’ to theoretically derive ‘internal systems’ or configurations of HR practices that maximise horizontal fit, and then link these to strategic configurations of, for example, ‘defender’ or ‘prospector’ to maximise vertical fit (Table 2.3). The configurational approach provides an interesting variation on the contingency approach, and contributes to the strategic human resource management debate in recognising the need for organisations to achieve both vertical and horizontal fit through their HR practices, so as to contribute to an organisation’s competitive advantage and therefore be deemed strategic. While Table 2.3 provides only for the two polar opposites of ‘defender’ and ‘prospector’ type strategies, the approach does allow for deviation from these ideal-type strategies and recognises the need for proportionate deviation from the ideal-type HR systems.


Chart the differences between the two theoretical perspectives identified in the discussion so far (contingency and configurational approaches). In what ways have these approaches contributed to your understanding of strategic HRM?

Exploring the relationship between strategic management and SHRM: the best-fit school of SHRM


Table 2.3 Gaining maximum vertical and horizontal fit through strategic configurations
HR practices
Defenders Low-risk strategies Secure markets Concentration on narrow segments Focus on efficiency of systems Prospectors Innovative High-risk strategies Change and uncertainty Focus on entering new markets

Internal career opportunities
Sophisticated recruitment and selection systems

Training and development

Performance management
Appraisals development oriented Clear grading structure and transparency valued Employee share schemes

Employment security
Job security highly valued


Role of HR

Focus longerterm development for the future and Build talent and emphasis on learning skills Career development opportunities Retention of key skills valued Buy-in talent and skills Limited internal career paths Focus short-term skill needs Onus on individual to take responsibility for personal learning and development

Employee voice valued, through established systems of employee involvement, grievance, trade unions where recognised Commitment to the organisation emphasised

Potential for strategic role Wellestablished department, with established HR systems

Employability Appraisals results-oriented valued Reward shortterm, and incentive-based Performancerelated pay based on bottom-line measures

Participation and employee voice limited

Administrative role Support role

Source: Adapted from Delery J. and Doty H. (1996) ‘Modes of theorising in strategic human resource management: tests of universalistic, contingency and configurational performance predictions’, Academy of Management Journal, Vol. 39, No. 4, pp. 802–835.

In analysing the level of vertical integration evident in organisational practice, it soon becomes clear that organisations pursue and interpret vertical integration in different ways. Some organisations tend to adopt a top-down approach to HR ‘strategy-making’, with senior management cascading defined strategic objectives to functional departments, who in turn cascade and roll out policies to employees, while other organisations recognise HRM as a business partner. Torrington and Hall (1998) have explored the varying interpretations of ‘fit’ or ‘integration’ by attempting to qualify the degree or levels of integration between an organisation’s business strategy and its human resources strategy. They identified five different relationships or levels of ‘vertical integration’ (Figure 2.4). In the separation model, there is clearly no vertical integration or relationship between those responsible for business strategy and those responsible for HR, thus there is unlikely to be any formal responsibility for human resources in the organisation. The ‘fit’ model, according to Torrington and Hall, recognises that employees are key to achieving the business strategy, therefore the human resources strategy is designed to fit the requirements of the organisation’s business strategy. This ‘top-down’ version of ‘fit’ can be seen in the matching model (Fombrun et al., 1984) and in the best-fit models of Schuler and Jackson (1987) and Kochan and Barocci (1985). As you have probably already identified, these models assume a classical approach to strategy. Thus they assume that business objectives are cascaded down from senior management through departments to individuals. The ‘dialogue’ model recognises the need for a two-way relationship between those responsible for making business strategy decisions and those responsible for making HR decisions. In reality, however, in this model the HR role may be limited to passing on essential information to the Board, to enable them to make strategic decisions. The


Chapter 2 · Strategic human resource management

Figure 2.4

Torrington and Hall’s five levels of ‘vertical integration’
Separation HR strategy

Organisation strategy

Organisation strategy

Fit HR strategy

Dialogue Organisation strategy HR strategy

Organisation strategy

Holistic HR strategy

HR driven Organisation strategy HR strategy

Source: Torrington and Hall (1998: 27)

‘holistic’ model, on the other hand, recognises employees as a key source of competitive advantage, rather than just a mechanism for implementing an organisation’s strategy. Human resource strategy in this model becomes critical, as people competences become key business competences. This is the underpinning assumption behind the resourcebased view of the firm (Barney, 1991; Barney and Wright, 1998), discussed later in this chapter. The final degree of integration identified by Torrington and Hall is the HRdriven model, which places HR as a key strategic partner.

Stop and think

Having considered Torrington and Hall’s (1998) levels of vertical integration, which of these approaches to HR strategy represents your organisation’s approach to human resources? Alternatively, you can use the case study, Jet Airlines, at the end of the chapter.

■ Limitations of the best-fit models of SHRM
Criticisms of the best-fit approach have identified a number of problems, both in their underlying theoretical assumptions and in their application to organisations. One of these key themes is the reliance on the classical rational-planning approach to strategymaking, its reliance on determinism and the resulting lack of sophistication in their description of generic competitive strategies (Miller, 1992; Ritson, 1999; Boxall and Purcell, 2003). This criticism is partly answered by the configurational school, which recognises the prevalence of hybrid strategies and the need for HR to respond accordingly (Delery and Doty, 1996). A further criticism is that best-fit models tend to ignore

The resource-based view of SHRM


employee interests in the pursuit of enhanced economic performance. Thus, in reality, alignment tends to focus on ‘fit’ as defined by Torrington and Hall (1998), and relies on assumptions of unitarism rather than the alignment of mutual interests. It has been argued that ‘multiple fits’ are needed, to take account of pluralist interests and conventions within an organisation, by ensuring that an organisation’s HR strategy meets the mutual interests of both shareholders and employees. A third criticism could be levelled at the lack of emphasis on the internal context of individual businesses within the same sector, and the unique characteristics and practices that might provide its main source of sustainable competitive advantage. Marchington and Wilkinson (2002: 225) ask, for example: Why did Tesco choose to work closely with trade unions while Sainsbury’s preferred to minimise union involvement?


Make a list of the advantages and disadvantages of the best-fit approach to SHRM.

We have explored the best-fit school of SHRM and its relationship to strategic management through the contingency and configurational approaches. The contingency approach recommends a strong relationship to strategic management, whether it be to an organisation’s life cycle or competitive forces; this obviously assumes a classical rational-planning model of strategic management. We have considered this relationship or vertical integration between an organisation’s business strategy and its human resource strategy in some detail, defining the varying degrees of ‘fit’. The configurational approach attempts to answer some of the limitations of the contingency approach, by identifying ‘ideal type’ categories of both the organisation strategy and the HR strategy. It ‘seeks to derive an internally consistent set of HR practices that maximise horizontal integration and then link these to alternative strategic configurations in order to maximise vertical integration’ and therefore organisational performance. An alternative approach to understanding the relationship between an organisation’s approach to SHRM and its business performance is the resource-based view of SHRM, with its focus on the internal context of the business and its recognition of human resources as ‘strategic assets’.

The resource-based view of SHRM
The resource-based view of the firm (RBV) represents a paradigm shift in SHRM thinking by focusing on the internal resources of the organisation, rather than analysing performance in terms of the external context. Advocates of the resource-based view of SHRM help us to understand the conditions under which human resources become a scarce, valuable, organisation-specific, difficult-to-imitate resource, in other words key ‘strategic assets’ (Barney and Wright, 1998; Mueller, 1998; Amit and Shoemaker, 1993; Winter, 1987). Proponents of the resource-based view of the firm (Penrose, 1959; Wernerfelt, 1984; Amit and Shoemaker, 1993) argue that it is the range and manipulation of an organisation’s resources, including human resources, that give an organisation its ‘uniqueness’ and source of sustainable competitive advantage. Their work has resulted in an ‘explosion of interest in the Resource-Based perspective’ (Boxall and Purcell, 2003: 72), particularly in seeking ways to build and develop ‘unique bundles’ of human and technical resources that will lead to enhanced organisational performance and sustainable competitive advantage. Barney (1991, 1995) and Barney and Wright (1998) contribute to the debate on strategic HRM in two important ways. Firstly, by adopting a resource-based view (Barney, 1991; Wernerfelt, 1984), they provide an economic foundation for examining the role of


Chapter 2 · Strategic human resource management

human resource management in gaining sustainable competitive advantage. Secondly, in providing a tool of analysis in the VRIO framework, and by considering the implications for operationalising human resource strategy, they emphasise the role of the HR executive as a strategic partner in developing and sustaining an organisation’s competitive advantage. The resource-based view therefore recognises the HR function (department) as a key ‘strategic’ player in developing sustainable competitive advantage and an organisation’s human resources (employees) as key assets in developing and maintaining sustainable competitive advantage.

■ The VRIO framework
The resource-based view of SHRM explores the ways in which an organisation’s human resources can provide sustainable competitive advantage. This is best explained by the VRIO framework:
● ● ● ●

Value Rarity Inimitability Organisation

● Value
Organisations need to consider how the human resources function can create value; it is quite common in organisations to reduce costs through HR such as the reduction in headcount and the introduction of flexible working practices etc., but it is also important to consider how they might increase revenue. Reicheld (1996) has identified human resources’ contribution to the business as efficiency, but also as customer selection, customer retention and customer referral, thus highlighting the impact of HR’s contribution through enhanced customer service and customer added value. This view is reflected by Thompson (2001), in recognising the paradigm shift from traditional added value through economy and efficiency to ensuring that the potential value of outputs is maximised by ensuring that they fully meet the needs of the customers for whom the product or service is intended. The suggestion of the resource-based view is that if Human Resources wishes to be a ‘strategic partner’, they need to know which human resources contribute the most to sustainable competitive advantage in the business, as some human resources may provide greater leverage for competitive advantage than others. Hamel and Prahalad (1993) therefore identify that productivity and performance can be improved by gaining the same output from fewer resources (rightsizing) and by achieving more output from given resources (leveraging). In order to achieve this, Human Resources may ask themselves the following questions:
● ● ●

On what basis is the firm seeking to distinguish itself from its competitors? Production efficiency? Innovation? Customer service? Where in the value chain is the greatest leverage for achieving differentiation? Which employees provide the greatest potential to differentiate a firm from its competitors?
Try to answer these questions on your organisation or one with which you are familiar. Alternatively, you could use the case study ‘Jet Airlines’ at the end of this chapter.


This approach has further implications for the role of human resource managers in a firm, as they need to understand the economic consequences of human resource practices and

The resource-based view of SHRM


understand where they fit in the value chain. Barney and Wright (1998: 42) suggest that the Human Resources function needs to be able to explore the following questions:
● ● ● ● ● ● ●

Who are your internal customers and how well do you know their part of the business? Are there organisational policies and practices that make it difficult for your internal clients to be successful? What services do you provide? What services should you provide? What services should you not provide? How do these services reduce internal customers’ costs/increase their revenues? Can these services be provided more efficiently by outside vendors? Can you provide these services more efficiently? Do managers in the HR function understand the economic consequence of their jobs?

The value of an organisation’s resources is not sufficient alone, however, for sustainable competitive advantage, because if other organisations possess the same value, then it will only provide competitive parity. Therefore an organisation needs to consider the next stage of the framework: rarity.

● Rarity
The HR Executive needs to consider how to develop and exploit rare characteristics of a firm’s human resources to gain competitive advantage.

BOX 2.2

Nordstrom exists in the highly competitive retailing industry. This industry is usually characterised as having relatively low skill requirements and high turnover for sales clerks. Nordstrom, however, has attempted to focus on individual salespersons as the key to its competitive advantage. It invests in attracting and retaining young, collegeeducated sales clerks who desire a career in retailing. It provides a highly incentivebased compensation system that allows Nordstrom’s salespersons to make as much

as twice the industry average in pay. The Nordstrom culture encourages sales clerks to make heroic efforts to attend to customers’ needs, even to the point of changing a customer’s tyre in the parking lot. The recruiting process, compensation practices, and culture at Nordstrom have helped the organisation to maintain the highest sales per square foot of any retailer in the nation.
Source: Barney J. B. and Wright P.M. (1998) ‘On becoming a strategic partner: the role of human resources in gaining competitive advantage’, Human Resource Management, Spring, Vol. 37, No. 1, p. 34.

How did Nordstrom exploit the rare characteristics of their employees?

Nordstrom is an interesting case, because it operates in a highly competitive retail industry where you would usually expect a lower level of skill and subsequently high labour turnover. Nordstrom, however, focused on individual salespeople as a key source of its competitive advantage. It therefore invested in attracting and retaining young collegeeducated people who desired a career in retailing. To ensure horizontal integration, it also provided a highly incentive-based compensation system (up to twice the industry average), and it encouraged employees to make a ‘heroic effort’ to attend to customers’ needs. Thus, by investing in its human resources, and ensuring an integrated approach to development and reward, Nordstrom has taken a ‘relatively homogeneous labour pool, and exploited the rare characteristics to gain a competitive advantage’ (Barney and Wright, 1998: 34).


Chapter 2 · Strategic human resource management


Consider current advertising campaigns, either on television, radio or in the media. Can you identify any organisations that are attempting to exploit the rare characteristics of their employees as a key source of their competitive advantage? Once you have identified an organisation, try to find more out about that organisation, their business strategy and their organisational performance in relation to their competitors.

● Inimitability
If an organisation’s human resources add value and are rare, they can provide competitive advantage in the short term, but if other firms can imitate these characteristics, then over time competitive advantage may be lost and replaced with competitive parity. The third element of the VRIO framework requires Human Resources to develop and nurture characteristics that cannot be easily imitated by the organisation’s competitors. Barney and Wright (1998) recognise the significance of ‘socially complex phenomena’ here, such as an organisation’s unique history and culture, which can be used to identify unique practices and behaviours which enable organisations to ‘leapfrog’ their competitors. Alchian and Demsetz (1972) also identified the contribution of social complexity in providing competitive advantage, in their work on the potential synergy that results from effective teamwork. They found that this ensured a rare and difficult-to-copy commodity for two reasons: firstly, it provided competitive advantage through its causal ambiguity, as the specific source of the competitive advantage was difficult to identify;

BOX 2.3

Southwest Airlines exemplifies the role that socially complex phenomena such as culture play in competitive advantage. According to the company’s top management, the firm’s success can be attributed to the ‘personality’ of the company; a culture of fun and trust that provides employees with both the desire and the discretion to do whatever it takes to meet the customers’ needs. The ‘fun’ airline uses an extensive selection process for hiring flight attendants who will project the fun image of the airline. Applicants must go through a casting call type exercise where they are interviewed by a panel that includes current flight attendants, managers and customers … Those who make it through the panel interview are then examined against a psychological profile that distinguished outstanding past flight attendants from those who were mediocre or worse. In addition to the extensive selection process, employees are empowered to create an entertaining travelling environment by a strong organisational culture

that values customer satisfaction. Says Herb Kelleher, CEO:
We tell our people that we value inconsistency. By that I mean that we’re going to carry 20 million passengers this year and that I can’t foresee all of the situations that will arise at the stations across our system. So what we tell our people is, ‘Hey, we can’t anticipate all of these things, you handle them the best way possible. You make a judgement and use your discretion; we trust you’ll do the right thing. If we think you’ve done something erroneous, we’ll let you know – without criticism, without backbiting’. (Quick, 1992)

The extensive selection process and the strong organisational culture contribute to the differentiated service that has made Southwest Airlines the most financially successful airline over the past 20 years … with the fewest customer complaints.
Source: Barney J.B. and Wright P.M. (1998) ‘On becoming a strategic partner: the role of human resources in gaining competitive advantage’, Human Resource Management, Spring, Vol. 37, No. 1, p. 35.

How did SW Airlines create a culture that was difficult to copy?

The resource-based view of SHRM


secondly, through its social complexity, as synergy resulted as team members were involved in socially complex relationships that are not transferable across organisations. So characteristics such as trust and good relationships become firm-specific assets that provide value, are rare and are difficult for competitors to copy. The extract above (Box 2.3) demonstrates the strength of inimitability: SW Airlines exemplifies the role that socially complex phenomena, such as culture, can play in gaining competitive advantage. Top management attribute the company’s success to its ‘personality’, a culture of ‘fun’ and ‘trust’, that empowers employees to do what it takes to meet the customers’ needs. This is reinforced through an extensive selection process, and a culture of trust and empowerment reinforced by the CEO. SW Airlines attributes its strong financial success to its ‘personality’, which CEO Kelleher believes cannot be imitated by its competitors. So the human resources of SW Airlines serve as a source of sustainable competitive advantage, because they create value, are rare and are virtually impossible to imitate.

● Organisation
Finally, to ensure that the HR function can provide sustainable competitive advantage, the VRIO framework suggests that organisations need to ensure that they are organised so that they can capitalise on the above, adding value, rarity and inimitability. This implies a focus on horizontal integration, or integrated, coherent systems of HR practices rather than individual practices, that enable employees to reach their potential (Guest, 1987; Gratton et al., 1999; Wright and Snell, 1991; Wright et al., 1996). This requires organisations to ensure that their policies and practices in the HR functional areas are coordinated and coherent, and not contradictory. Adopting such a macro-view, however, is relatively new to the field of SHRM, as ‘each of the various HRM functions have evolved in isolation, with little coordination across the disciplines’ (Wright and McMahan, 1992). Thus there is much best-practice literature focusing on the microperspective, for example on identifying appropriate training systems, or conducting performance appraisals, or designing selection systems. Although this literature has now evolved and recognised the ‘strategic’ nature of the functional areas, it has tended to focus on vertical integration at the expense of horizontal integration, thus there is still limited development in the interplay between employee resourcing, employee development, performance, reward and employee relations strategies. This discussion is explored in more detail in the next section: best-practice SHRM. So, to conclude on the VRIO framework, if there are aspects of human resources that do not provide value, they can only be a source of competitive disadvantage and should be discarded; aspects of the organisation’s human resources that provide value and are rare provide competitive parity only; aspects that provide value, are rare but are easily copied provide temporary competitive advantage, but in time are likely to be imitated and then only provide parity. So to achieve competitive advantage that is sustainable over time, the HR function needs to ensure the organisation’s human resources provide value, are rare, are difficult to copy and that there are appropriate HR systems and practices in place to capitalise on this.

Stop and think

Which approach to strategic management identified by Whittington (1993) could be used to explain the resource-based view of SHRM? How does the resource-based view contribute to your understanding of strategic HRM? What implications does the resource-based view have for operationalising human resource strategy?


Chapter 2 · Strategic human resource management

Mueller (1998), in advocating the resource-based view of SHRM, argues that ‘the existing theorising in strategic HRM needs to be complemented by an evolutionary perspective on the creation of human resource competencies’. He echoes Mintzberg’s concerns (1987) that an overly-rationalistic approach to strategy-making tends to focus too much attention on past successes and failures, when what is really needed is a level of strategic thinking that is radically different from the past. He identifies a lack of theoretical and empirical evidence to justify the emphasis on rational, codified policies of HRM, and reflects Bamberger and Phillips (1991) in describing human resource strategy as an ‘emergent pattern in a stream of human-resource related decisions occurring over time’. Thus the strategic planning approach may be viewed by some as a ‘metaphor employed by senior management to “legitimise emergent decisions and actions”’ (Gioia and Chittipeddi, 1991). Unlike contingency and universalist theorists (Schuler and Jackson, 1987; Miles and Snow, 1978; Kochan and Barocci, 1985; Pfeffer, 1994, 1998; Huselid, 1995), Mueller is more wary of the claimed relationship between strategic HRM and the overall financial performance of an organisation. He recognises that enlightened best-practice HR activities do not automatically translate into competitive superiority but rather require more complex and subtle conditions for human resources to become ‘strategic assets’. He defines these as ‘the social architecture’ or ‘social patterns’ within an organisation which build up incrementally over time and are therefore difficult to copy. The focus on ‘social architecture’ rather than culture is deliberate as it provides an emphasis on developing and changing behaviours rather than values, which are notoriously difficult to change (Ogbonna, 1992). Mueller identifies an organisation’s ‘social architecture’ as a key element in the resource-based view of SHRM, together with an embedded ‘persistent strategic intent’ on the part of senior management and embedded learning in daily work routines, which enable the development of ‘hidden reservoirs’ of skills and knowledge, which in turn can be exploited by the organisation as ‘strategic assets’. The role of Human Resources is then to channel these behaviours and skills so that the organisation can tap into these hidden reservoirs. This thinking is reflected in the work of Hamel and Prahalad (1993, 1994), discussed below.

Stop and think

How does Mueller’s view on the rational-planning approach to strategic management aid your understanding of HR strategy in practice? Compare Mueller’s approach to Barney and Wright’s VRIO framework.

■ Applying the resource-based view of SHRM
In adopting a focus on the internal context of the business, HR issues and practices are core to providing sustainable competitive advantage, as they focus on how organisations can define and build core competencies or capabilities which are superior to those of their competitors. One key framework here is the work of Hamel and Prahalad (1993, 1994) and their notion of ‘core competencies’ (Table 2.4) in their ‘new strategy paradigm’. They argue that ‘for most companies, the emphasis on competing in the present, means that too much management energy is devoted to preserving the past and not enough to creating the future’. Thus it is organisations that focus on identifying and developing their core competencies that are more likely to be able to stay ahead of their competitors. The key point here is not to anticipate the future, but create it, by not only focusing on organisational transformation and competing for market share, but also regenerating strategies and competing for opportunity share. Thus in creating the future, strategy is not only seen as learning, positioning and planning but also forgetting, foresight and strategic architecture, where strategy goes beyond achieving ‘fit’ and resource

The resource-based view of SHRM


allocation to achieving ‘stretch’ and resource ‘leverage’. The level of both tacit and explicit knowledge within the firm, coupled with the ability of employees to learn, becomes crucial. Indeed, Boxall and Purcell (2003) argue that there is little point in making a distinction between the resource-based view and the knowledge-based view of the firm, as both approaches advocate that it is a firm’s ability to learn faster than its competitors that leads to sustainable competitive advantage.

Table 2.4 Hamel and Prahalad’s notion of ‘core competency’
A core competency: • is a bundle of skills and technologies that enable a company to provide particular benefits to customers • is not product specific • represents … the sum of learning across individual skill sets and individual organisational-units • must be competitively unique • is not an ‘asset’ in the accounting sense of the word • represents a ‘broad opportunity arena’ or ‘gateway’ to the future
Source: Hamel and Prahalad (1994: 217–218)

Alternatively, Boxall and Purcell present Leonard’s (1998) similar analysis based on ‘capabilities’. These are ‘knowledge sets’ consisting of four dimensions: employee skills and knowledge, technical systems, managerial systems, and values and norms. In this model, employee development and incentive systems become a key driving force in achieving sustainable competitive advantage through core capability. Interestingly, Leonard emphasises the interlocking, systemic nature of these dimensions and warns organisations of the need to build in opportunities for renewal, to avoid stagnation. When organisations grow through mergers or acquisitions, as they appear increasingly to do (Hubbard, 1999), it has been argued that the resource-based view takes on further significance. When mergers and acquisitions fail, it is often not at the planning stage but at the implementation stage (Hunt et al., 1987) and people and employee issues have been noted as the cause of one-third of such failures in one survey (Marks and Mirvis, 1982). Thus ‘human factors’ have been identified as crucial to successful mergers and acquisitions. The work of Hamel and Prahalad (1994) indicated that CEOs and directors of multidivisional firms should be encouraged to identify clusters of ‘know-how’ in their organisations which ‘transcend the artificial divisions of Strategic Business Units’ or at least have the potential to do so. Thus the role of Human Resources shifts to a ‘strategic’ focus on ‘managing capability’ and ‘know-how’, and ensuring that organisations retain both tacit and explicit knowledge (Nonaka and Takeuchi, 1995) in order to become more innovative, as organisations move to knowledge-based strategies as opposed to product-based ones.

Stop and think

How does the work of Hamel and Prahalad (1993, 1994) contribute to the RBV debate? Do you think the RBV model is appropriate for all organisational contexts?

The resource-based view of SHRM has recognised that both human capital and organisational processes can add value to an organisation; however, they are likely to be more powerful when they mutually reinforce and support one another. The role of Human Resources in ensuring that exceptional value is achieved and in assisting organisations to build competitive advantage lies in their ability to implement an integrated and mutually


Chapter 2 · Strategic human resource management

reinforcing HR system which ensures that talent, once recruited, is developed, rewarded and managed in order to reach their full potential. This theme of horizontal integration or achieving congruence between HR policies and practices is developed further in the next section, best-practice approach to SHRM.

■ Limitations of the resource-based view
The resource-based view is not without its critics, however, particularly in relation to its strong focus on the internal context of the business. Some writers have suggested that the effectiveness of the resource-based view approach is inextricably linked to the external context of the firm (Miller and Shamsie, 1996; Porter, 1991). They have recognised that the resource-based view approach provides more added value when the external environment is less predictable. Other writers have noted the tendency for advocates of the resource-based view to focus on differences between firms in the same sector, as sources of sustainable competitive advantage. This sometimes ignores the value and significance of common ‘base-line’ or ‘table stake’ (Hamel and Prahalad, 1994) characteristics across industries, which account for their legitimacy in that particular industry. Thus in the retail sector, there are strong similarities in how the industry employs a mix of core and peripheral labour, with the periphery tending to be made up of relatively low-skilled employees, who traditionally demonstrate higher rates of employee turnover. Thus in reality, economic performance and efficiency tend to be delivered through rightsizing, by gaining the same output from fewer and cheaper resources, rather than through leverage, by achieving more output from given resources. The example of B&Q in the UK, employing more mature people as both their core and particularly their peripheral workforce, is a good example of how an organisation can partially differentiate themselves from their competitors, by focusing on adding value through the knowledge and skills of their human resources. Thus leverage is gained, as the knowledge of B&Q’s human resources add value to the level of customer service provided, which theoretically in turn will enhance customer retention and therefore shareholder value. An exploration of the empirical evidence to support this relationship between SHRM and organisational performance is discussed in more detail in the next section: the best-practice approach to strategic human resource management.

Best-practice SHRM: high-commitment models
The notion of best-practice or ‘high-commitment’ HRM was identified initially in the early US models of HRM, many of which mooted the idea that the adoption of certain ‘best’ human resource practices would result in enhanced organisational performance, manifested in improved employee attitudes and behaviours, lower levels of absenteeism and turnover, higher levels of skills and therefore higher productivity, enhanced quality and efficiency. This can be identified as a key theme in the development of the SHRM debate, that of best-practice SHRM or universalism. Here, it is argued that all organisations will benefit and see improvements in organisational performance if they identify, gain commitment to and implement a set of best-HRM practices. Since the early work of Beer et al. (1984) and Guest (1987), there has been much work done on defining sets of HR practices that enhance organisational performance. These models of best practice can take many forms; while some have advocated a universal set of HR practices that would enhance the performance of all organisations to which they were applied (Pfeffer, 1994, 1998), others have focused on high-commitment models (Walton, 1985; Guest 2001) and high-involvement practices (Wood, 1999) which reflect an underlying

Best-practice SHRM: high-commitment models


assumption that a strong commitment to the organisational goals and values will provide competitive advantage. Others have focused on ‘high-performance work systems/practices (Berg, 1999; Applebaum et al., 2000). This work has been accompanied by a growing body of research exploring the relationship between these ‘sets of HR practices’ and organisational performance (Pfeffer, 1994; Huselid, 1995; Huselid and Becker, 1996; Patterson et al., 1997; Guest, 2001). Although there is a wealth of literature advocating the best-practice approach, with supporting empirical evidence, it is still difficult to reach generalised conclusions from these studies. This is mainly as a result of conflicting views about what constitutes an ideal set of HR best practices, whether or not they should be horizontally integrated into ‘bundles’ that fit the organisational context and the contribution that these sets of HR practices can make to organisational performance.

■ Universalism and high commitment
One of the models most commonly cited is Pfeffer’s (1994) 16 HR practices for ‘competitive advantage through people’ which he revised to seven practices for ‘building profits by putting people first’ in 1998. These have been adapted for the UK audience by Marchington and Wilkinson (2002) (Table 2.5).

Table 2.5 HR practices for ‘competitive advantage through people’
Building profits by putting people first Employment security Selective hiring Extensive training Sharing information Self-managed teams/teamworking High pay contingent on company performance Reduction of status differentials
Source: Pfeffer (1998), adapted by Marchington and Wilkinson (2002)

‘High-commitment’ HRM and internal promotion and sophisticated selection and learning and development Extensive involvement and voice Self-managed teams/teamworking and harmonisation High compensation contingent on organisational performance

Pfeffer (1994) explains how changes in the external environment have reduced the impact of traditional sources of competitive advantage, and increased the significance of new sources of competitive advantage, namely human resources that enable an organisation to adapt and innovate. Pfeffer’s relevance in a European context has been questioned owing to his lack of commitment to independent worker representation and joint regulation (Boxall and Purcell, 2003), hence Marchington and Wilkinson’s adaptation, highlighted in Table 2.5. With the universalist approach or ‘ideal set of practices’ (Guest, 1997), the concern is with how close organisations can get to the ideal set of practices, the hypothesis being that the closer an organisation gets, the better the organisation will perform, in terms of higher productivity, service levels and profitability. The role of Human Resources, therefore, becomes one of identifying and gaining senior management commitment to a set of HR best practices, and ensuring that they are implemented and that reward is distributed accordingly. The first difficulty with the best-practice approach is the variation in what constitutes best practice. Agreement on the underlying principles of the best-practice approach is reflected in Youndt et al.’s (1996: 839) summary below:


Chapter 2 · Strategic human resource management

At the root, most (models) … focus on enhancing the skill base of employees through HR activities such as selective staffing, comprehensive training and broad developmental efforts like job rotation and cross-utilisation. Further (they) tend to promote empowerment, participative problem-solving and teamwork with job redesign, group based incentives and a transition from hourly to salaried compensation for production workers.

Lists of best practices, however, vary intensely in their constitution and in their relationship to organisational performance. A sample of these variations is provided in Table 2.6. This results in confusion about which particular HR practices constitute high commitment, and a lack of empirical evidence and ‘theoretical rigour’ (Guest 1987: 267) to support their universal application. Capelli and Crocker-Hefter (1996: 7) note:
We believe that a single set of ‘best’ practices may, indeed, be overstated … We argue that (it is) distinctive human resource practices that help to create unique competencies that differentiate products and, in turn drive competitiveness.

Table 2.6 Comparative lists of best practices
Pfeffer (1998) Kochan and MacDuffie (1995) Huselid (1995) Osterman (1994) Self-directed work teams Job rotation Problem-solving groups TQM Self-directed work teams Job rotation Problem-solving groups TQM Suggestions forum Hiring criteria, current job versus learning Contingent pay Induction and initial training provision Hours per year training Contingent pay Hours per year training Information sharing Job analysis Selective hiring Attitude surveys Grievance procedure Employment tests Formal performance appraisal Promotion criteria Selection ratio Arthur (1994) Delery and Doty (1996) Internal career opportunities Training Results-oriented appraisals Profit-sharing Employment security Participation Job descriptions

Employment security Selective hiring Extensive training Sharing information Self-managed teams High pay contingent on company performance Reduction of status differentials

Self-directed work teams Problem-solving groups Contingent pay Hours per year training Conflict resolution Job design Percentage of skilled workers Supervisor span of control Social events Average total labour costs Benefits/total labour costs

Source: Adapted from Becker and Gerhart (1996: 785), Academy of Management Journal, Vol. 39, No. 4, pp. 779–801.

■ Integrated bundles of HRM: horizontal integration
A key theme that emerges in relation to best-practice HRM is that individual practices cannot be implemented effectively in isolation (Storey, 1992) but rather combining them into integrated and complementary bundles is crucial (MacDuffie, 1995). Thus the notion of achieving horizontal integration within and between HR practices gains significance in the best-practice debate.

High-performance work practices


The need for horizontal integration in the application of SHRM principles is one element that is found in the configurational school of thought, the resource-based view approach and in certain best-practice models. It emphasises the coordination and congruence between HR practices, through ‘a pattern of planned action’ (Wright and McMahan, 1999). In the configurational school, cohesion is thought likely to create synergistic benefits, which in turn enable the organisation’s strategic goals to be met. Roche (1999: 669), in his study on Irish organisations, noted that ‘organisations with a relatively high degree of integration of human resource strategy into business strategy are much more likely to adopt commitment-oriented bundles of HRM practices’. Where some of the best-practice models differ is in those that advocate the ‘universal’ application of SHRM, notably Pfeffer (1994, 1998). Pfeffer’s argument is that best practice may be used in any organisation, irrespective of product life cycle, market situation or workforce characteristics, and improved performance will ensue. This approach ignores potentially significant differences between organisations, industries, sectors and countries however. The work of Delery and Doty (1996) has highlighted the complex relationship between the management of human resources and organisational performance, and their research supports the contingency approach (Schuler and Jackson, 1987) in indicating that there are some key HR practices, specifically internal career opportunities, results-oriented appraisals and participation/voice, that must be aligned with the business strategy or, in other words, be context-specific. The ‘bundles’ approach, however, is additive, and accepts that as long as there is a core of integrated high-commitment practices, other practices can be added or ignored, and still produce enhanced performance. Guest et al.’s analysis of the WERS data (2000a: 15), however, found that the ‘only combination of practices that made any sense was a straightforward count of all the practices’. As with many high-commitment-based models, there is an underlying assumption of unitarism, which ignores the inherent pluralist values and tensions present in many organisations. Coupled with further criticisms of context avoidance and assumed rationality between implementation and performance, the best-practice advocates, particularly the universalists, are not without their critics.

Stop and think

A CIPD survey (Guest et al., 2000b) and a study by Guest et al. (2000a) drawing on the WERS survey (1998) both note that ‘human resource practices are not well embedded in a majority of workplaces’ with few organisations having in place ‘a coherent range of practices’ of the sort commonly associated with ‘high commitment’ or ‘high performance’ HRM (Marchington and Wilkinson, 2002: 189). Why do you think this is the case? Why is the application of best-practice models in organisations problematic?

High-performance work practices
In recognising HRM systems as ‘strategic assets’ and in identifying the strategic value of a skilled, motivated and adaptable workforce, the relationship between strategic human resource management and organisational performance moves to centre stage. The traditional HR function, when viewed as a cost centre, focuses on transactions, practices and compliance; when this is replaced by a strategic HRM system it is viewed as an investment and focuses on developing and maintaining a firm’s strategic infrastructure (Becker et al., 1997). This systems approach and concentration on ‘bundles’ of integrated HR practices is at the centre of thinking on high-performance work practices. The work of Huselid (1995) and Huselid and Becker (1996) identified integrated systems of high-performance work


Chapter 2 · Strategic human resource management

practices as significant economic assets for organisations, concluding that ‘the magnitude of the return on investment in High Performance Work Practices is substantial’ (Huselid, 1995: 667) and that plausible changes in the quality of a firm’s high-performance work practices are associated with changes in market value of between $15 000 and $60 000 per employee. This differs from the universal approach, in that highperformance work practices are recognised as being highly idiosyncratic and in need of being tailored to meet an individual organisation’s specific context in order to provide maximum performance. These high-performance work practices will only have a strategic impact, therefore, if they are aligned and integrated with each other, and if the total HRM system supports key business priorities. This requires a ‘systems’ thinking approach on the part of HR managers, which enables them to avoid ‘deadly combinations’ of HR practices which work against each other, for example team-based culture and individual performance-related pay, and to seek out ‘powerful connections’ or synergies between practices, for example building up new employees’ expectations through sophisticated selection and meeting them through appropriate induction, personal development plans and reward strategies. The impact of human resource management practices on organisational performance has been recognised as a key element of differentiation between HRM and strategic human resource management. Much research interest has been generated in exploring the influence of ‘high-performance work practices’ on shareholder value (Huselid, 1995) and in human capital management (Ulrich, 1997; Ulrich et al., 1995). A survey by Patterson et al. (1997), published for the CIPD, cited evidence for human resource management as a key contributor to improved performance. Patterson argued that 17 per cent of the variation in company profitability could be explained by HRM practices and job design, as opposed to just 8 per cent from research and development, 2 per cent from strategy and 1 per cent from both quality and technology! Other studies have reviewed the links between high-commitment HRM and performance, and two recent studies by Guest et al. (2000a, b) have argued the economic and business case for recognising people as a key source of competitive advantage in organisations and therefore a key contributor to enhanced organisational performance. In terms of HR managers, research has highlighted the need for the development of business-related capabilities (an understanding of the business context and the implementation of competitive strategies) alongside professional HRM capabilities. Huselid et al. (1997) concluded that while professional HRM capabilities are necessary, but not sufficient alone for better firm performance, business-related capabilities are not only underdeveloped within most firms but represent the area of greatest economic opportunity. The important message for HR managers is not only to understand and implement a systems perspective, but to understand how HR can add value to their particular business, so that they can become key ‘strategic assets’.

Stop and think

How can HR professionals demonstrate their business capability? What systems and measurement processes do they need to put in place in order to demonstrate the contribution of HR practices to bottom-line performance?

■ SHRM and performance: the critique
Criticisms aimed at advocates of the high-commitment/performance link are mainly centred on the validity of the research methods employed and problems associated with inconsistencies in the best-practice models used (Marchington and Wilkinson, 2002). In terms of evidence it is difficult to pinpoint whether it is the HR practices that in turn lead to enhanced organisational performance or whether financial success has enabled

High-performance work practices


the implementation of appropriate HR practices. It is difficult to see how organisations operating in highly competitive markets, with tight financial control and margins, would be able to invest in some of the HR practices advocated in the best-practice models. This is not to say that HR could not make a contribution in this type of business environment, but rather that the contribution would not be that espoused by the best-practice models. Here, the enhanced performance could be delivered through the efficiency and tight cost control more associated with ‘hard’ HR practices (Storey, 1995) and the contingency school. A further difficulty is the underlying theme of ‘unitarism’ pervading many of the best-practice approaches. As Boxall and Purcell (2003) note, many advocates of best-practice, high-commitment models tend to ‘fudge’ the question of pluralist goals and interests. If the introduction of best-practice HR could meet the goals of all stakeholders within the business equally, the implementation of such practices would not be problematic. However, it is unlikely that this would be the case, particularly within a short-termist-driven economy, where the majority of organisations are looking primarily to increase return on shareholder value. Thus if this return can best be met through cost reduction strategies or increasing leverage in a way that does not fit employees’ goals or interests, how can these practices engender high commitment and therefore be labelled ‘best practice’? It is not surprising, therefore, that ethical differences between the rhetoric of human resource best practice and the reality of human resource real practices are highlighted (Legge, 1998). High-commitment models, therefore, which at first appear to satisfy ethical principles of deontology in treating employees with respect and as ends in their own right, rather than as means to other

BOX 2.4

Shareholders fight back!!
Defence giant BAE Systems yesterday faced a massive shareholder revolt at a heated annual meeting in London, where almost half the voters called for a rethink over its pay policies. Investors heckled directors over ‘rewards for failure’ and last year’s £616 million loss … Discontent with the performance of BAE was palpable. Over the last year, its shares slumped from 384p to as low as 104p as it revealed £1.8 billion For years, it seems, shareholders have bought the argument that top-quartile performance meant top-quartile pay for the Chief Executive. Now, plenty of bottomquartile American companies still seem to be richly rewarding the boss, and shareholders have been protesting … American Airlines made a $41 million pre-tax payment to a trust fund to protect the pensions of 45 executives if the company went bust cost overruns yet ex-boss John Weston had received a £1.5 million pay-off. The row over executive pay generated fresh controversy at steel firm Corus yesterday, where shareholders slammed directors for accepting pay rises and exboss Tony Pedder’s £720,000 pay-off, while British Corus workers suffer pay freezes and compulsory redundancies.
Source: Adapted from Daily Mail, City & Finance, April 2003

and Delta Airlines, another floundering airline, put $25.5 million in a protected pension trust for the Chief Executive and 32 other executives … Again the aim was clearly to make sure that the chaps at the top have lifebelts if the ship sinks. Increasingly, bosses’ pay is structured to protect them from risk.
Source : Adapted from The Economist, 3–9 May 2003: 72

1 How do you think this tension between shareholders’ interests and senior management goals should be managed? 2 What recommendations on senior management reward strategies would you make?


Chapter 2 · Strategic human resource management

ends (Legge, 1998), in reality can assume a utilitarian perspective, where it is deemed ethical to use employees as a means to an end, if it is for the greater good of the organisation. This might justify downsizing and rightsizing strategies, but it is difficult to see how this might justify recent tensions between shareholder interests and senior management goals. A common theme of the best-practice models is contingent pay; thus, when an organisation is performing well, employees will be rewarded accordingly. There have been many recent cases, however, where senior managers of poor performing organisations have been rewarded with large pay-offs. Becker and Gerhart (1996) discuss and debate the impact of HRM on organisational performance further. They compare the views of those writers that advocate synergistic systems, holistic approaches, internal–external fit and contingency factors (Amit and Shoemaker, 1993; Delery and Doty, 1996; Dyer and Reeves, 1995; Huselid, 1995; Milgrom and Roberts, 1995) with those that suggest that there is an identifiable set of best practices for managing employees which have universal, additive, positive effects on organisation performance (Applebaum and Batt, 1994; Kochan and Osterman, 1994; Pfeffer, 1994). They provide a useful critique of the Best-Practice School as they identify difficulties of generalisability in best-practice research and the inconsistencies in the best-practice models, such as Arthur’s (1994) low emphasis on variable pay, whereas Huselid (1995) and MacDuffie (1995) have a high emphasis on variable pay.

BOX 2.5

How BMW put the Mini back on track
A pioneering bonus scheme has given fresh impetus to workers at a once run-down car factory, writes James Mackintosh


Engineers and production line workers from the body shop at BMW’s Mini factory in Oxford face a difficult choice in the next few weeks. Should they spend the company’s money on an evening’s go-karting or a trip to a comedy club? The group, who work mainly on roofs for the new version of the iconic car, are being rewarded for coming up with the month’s best money-saving idea. They realised that the number of soundproofing foam blocks could be halved without any adverse effect. Annual saving: £115 000. Their evening’s entertainment appears a long way removed from the negotiations last year, when the plant’s German managers and union officials hammered out a pay deal. But the two have a common purpose. Both are designed to harness staff creativity to cut costs. Under a ground-breaking deal with the union, workers must come up with an average of three ideas and save £800 each to qualify for the full £260 annual bonus – in addition to meeting standard quality and productivity targets. The agreement, thought to be the first of its kind in the UK, is designed to save £3.6m this year. ‘It

certainly focuses the employees on these targets,’ says Werner Rothfuss, director of corporate communications at the plant. ‘Employees can make a difference; this is to encourage their engagement.’ BMW is delighted with the arrangement. But it did not come cheaply. Union acquiescence was bought by promising a minimum bonus of £130, even if targets are missed, and one of the largest wage rises in the industry. The plant has also increased the number of workers dramatically, from 2,500 to 4,500, to allow a seven-day operation, although many are employed on a temporary basis. The deal is the latest attempt by the company to change the culture at the factory – the only part of the old Rover Group that BMW retained when it broke up the oncenationalised company in 2000. When BMW took on the plant it was half-empty and surrounded by crumbling buildings. Restrictive contracts meant the workers were paid when the plant was shut and earned overtime when extra production was needed. And the machinery for making the Mini was installed in Birmingham, at MG Rover’s Longbridge factory.

High-performance work practices


So far, BMW has been remarkably successful in turning the plant round. Investment of £230m was needed to swap the equipment for making Rover 75s in Cowley with the Mini machinery from Birmingham. The new assembly line is quiet and clean. It even has a sprung floor, as in a dance hall, to make it more comfortable for workers forced to stand all day. The disused buildings have been ripped down and replaced by lawns and car parks in a £50m clean-up. ‘We had an open day for old workers and they just couldn’t believe the transformation of the plant,’ says Bernard Moss, convener of the Transport and General Workers’ Union in Cowley. Most importantly, though, working practices have been revamped. ‘I think the workforce has been exceptional,’ says Mr Moss. ‘We have had to do a lot of things that maybe a few years ago we wouldn’t have done.’ The biggest change has been the scrapping of the traditional contract and introduction of a working time account similar to those now operating in Germany. When the plant shuts for retooling or to reduce production, workers continue to be paid; but up to 200 missed hours are ‘banked’ to be made up later. This also works the other way. If workers put in overtime, they can later take the time off as extended holidays. This initially caused some resentment, not least because the long break to install the Mini machinery meant every worker started with 200 hours of unpaid overtime to make up. ‘They [workers] are starting to see the advantages now of taking long holidays,’ Mr Moss said. But the less generous contract clearly increased the hurdles to the acceptance of BMW. Staff were already sceptical of the German company’s intentions, after it bought Rover only to break it up. The level of investment, particularly in improving the site, has convinced most that the turmoil of the past few years is over and that BMW is committed to Oxford. ‘There is a general acceptance that BMW has demonstrated its commitment to the Oxford plant with the money it’s put in,’ says Mr Moss. ‘People are generally happy.’ There are some issues that irk workers, especially those who have been there a long

time. One of BMW’s first acts was to introduce draconian rules on smoking, now allowed only in certain areas, even outdoors, and eating, which is forbidden by the side of the production line. However, the overall success is shown by last year’s phenomenal output. The factory made more than 160,000 Minis, 40,000 more than planned, as British and US drivers raced to buy the stylish new car – and chose the more expensive, and more profitable, Cooper and Cooper-S models. This success has helped boost morale, workers say. They can be proud of what they are producing – a powerful little car that has cachet, rather than the dowdy old Rover 800 they built until 1998. Certainly staff have proved willing to help. Under a voluntary suggestion scheme last year more than £6m was saved from 10,339 ideas – more than two per worker. The detailed knowledge of the working environment required for many of these proposals makes it difficult for anyone but the staff on the line to come up with the ideas. For example, 4p per car was saved by changing the fixings on the cross-braces below the windscreen, for total savings of £6,400. Another £4,500 was saved by changing the paper used for the body shop’s report cards from A3 to A4. But their co-operation may be tested as the factory refocuses on cost-cutting and productivity improvement. After the hectic growth last year, BMW wants to stabilise production. ‘We are in a consolidation phase,’ says Anton Heiss, who has just taken over as plant manager. ‘We have to get cost down; we have to improve quality.’ He would like to eliminate the expensive Sunday shift, making up the missed cars by increased productivity during the week. There is no sign of staff unrest. But as one of his three ideas for the year Mr Moss, the union representative, proposes working on morale. ‘I would like to see the camaraderie back and the characters that used to be here,’ he says. ‘If people are happy, they are more efficient. If they are unhappy they are not going to bother looking at suggestions. When they are happy they are more involved.’
Source: Financial Times, 19 March 2003


Chapter 2 · Strategic human resource management

1 How has BMW enhanced organisational performance through the implementation of Human
Resource systems and practices?

2 Which approach to SHRM discussed in this chapter best explains BMW’s approach to strategic human resource management?

3 What human resources advice would you give to BMW, so that they can manage the consolidation stage of their strategy effectively? Which approach to SHRM has influenced your thinking and why?

■ Measuring the impact of SHRM on performance and the balanced scorecard
We have so far considered the complexity of the strategic human resource management debate, and recognised that our understanding and application of strategic HRM principles is contingent upon the particular body of literature in which we site our analysis. What then are the implications for the HR practitioner, and particularly the HR strategist? We started to consider the role of the HR practitioner at the end of our consideration of the best-fit school. It is now appropriate to consider in more detail how strategic management processes in firms can be improved to deal more effectively with key HR issues and take advantage of HR opportunities. A study by Ernst & Young in 1997, cited in Armstrong and Baron (2002), found that more than a third of the data used to justify business analysts’ decisions were non-financial, and that when non-financial factors, notably ‘human resources’, were taken into account better investment decisions were made. The non-financial metrics most valued by investors are identified in Table 2.7.

Table 2.7 Non-financial metrics most valued by investors
Metric Question to which measurable answers are required How well does management leverage its skills and experience? Gain employee commitment? Stay aligned with shareholder interests? What is management’s behaviour? And forthrightness in dealing with issues? Does management have a vision for the future? Can it make tough decisions and quickly seize opportunities? How well does it allocate resources? Is the company a trendsetter or a follower? What’s in the R&D pipeline? How readily does the company adapt to changing technology and markets? Is the company able to hire and retain the very best people? Does it reward them? Is it training the talent it will need for tomorrow? What is the management’s history and background? How well have they performed? Is executive pay tied to strategic goals? How well is it linked to the creation of shareholder value? How well does management understand the link between creating knowledge and using it?

1 Strategy

2 Management credibility 3 Quality of strategy

4 Innovativeness

5 Ability to attract talented people?

6 Management experience 7 Quality of executive compensation 8 Research leadership

Source: Adapted by Armstrong and Baron (2002): Ernst & Young: Measures that Matter, 1997

High-performance work practices


This presents an opportunity for HR managers to develop business capability and demonstrate the contribution of SHRM to organisational performance. One method that is worthy of further consideration is the balanced scorecard (Kaplan and Norton, 1996, 2001). This is also concerned with relating critical non-financial factors to financial outcomes, by assisting firms to map the key cause–effect linkages in their desired strategies. Interestingly, Kaplan and Norton challenge the short-termism found in many Western traditional budgeting processes and, as with the Ernst & Young study, they imply a central role for HRM in the strategic management of the firm and, importantly, suggest practical ways for bringing it about (Boxall and Purcell, 2003). Kaplan and Norton identify the significance of executed strategy and the implementation stage of the strategic management process as key drivers in enhancing organisational performance. They recognise, along with Mintzberg (1987), that ‘business failure is seen to stem mostly from failing to implement and not from failing to have wonderful visions’ (Kaplan and Norton, 2001: 1). Therefore, as with the resourcebased view, implementation is identified as a key process which is often poorly executed. Kaplan and Norton adopt a stakeholder perspective, based on the premise that for an organisation to be considered successful, it must satisfy the requirements of key stakeholders; namely investors, customers and employees. They suggest identifying objectives, measures, targets and initiatives on four key perspectives of business performance:
● ● ● ●

Financial: ‘to succeed financially how should we appear to our shareholders?’ Customer: ‘to achieve our vision how should we appear to our customers?’ Internal business processes: ‘to satisfy our shareholders and customers what business processes must we excel at?’ Learning and growth: ‘to achieve our vision, how will we sustain our ability to change and improve?’

They recognise that investors require financial performance, measured through profitability, market value and cash flow or EVA (economic value added); customers require quality products and services, which can be measured by market share, customer service, customer retention and loyalty or CVA (customer value added); and employees require a healthy place to work, which recognises opportunities for personal development and growth, and these can be measured by attitude surveys, skill audits and performance appraisal criteria, which recognise not only what they do, but what they know and how they feel or PVA (people value added). These can be delivered through appropriate and integrated systems, including HR systems. The balanced scorecard approach therefore provides an integrated framework for balancing shareholder and strategic goals, and extending those balanced performance measures down through the organisation, from corporate to divisional to functional departments and then on to individuals (Grant, 2002). By balancing a set of strategic and financial goals, the scorecard can be used to reward current practice, but also offer incentives to invest in long-term effectiveness, by integrating financial measures of current performance with measures of ‘future performance’. Thus it provides a template that can be adapted to provide the information that organisations require now and in the future, for the creation of shareholder value. The balanced scorecard at Sears, for example (Yeung and Berman, 1997: 324), focused on the creation of a vision that the company was ‘a compelling place to invest’, ‘a compelling place to shop’, and ‘a compelling place to work’, whereas the balanced scorecard at Mobil North American Marketing and Refining (Kaplan and Norton, 2001) focused on cascading down financial performance goals into specific operating goals, through which performance-related pay bonuses were determined. An abridged version of this, including some of the strategic objectives and measures in Mobil’s Balanced Scorecard, is included in Table 2.8. Kaplan and Norton (2001) recognise the impact that key human resource activities can have on business performance in the learning and growth element of the balanced


Chapter 2 · Strategic human resource management

Table 2.8 Abridged balanced scorecard for Mobil North American Marketing and Refining
Values FINANCE To be financially strong Strategic objectives Strategic measures

ROCE Cash flow Profitability Lowest cost Profitable Growth

ROCE Cash flow Net margins Cost per gallon delivered to customer Comparative volume growth rate

CUSTOMER To delight the customer

Continually delight targeted customer

Market share Mystery shopper rating

ORGANISATION To be a competitive supplier Reduce delivered costs Inventory management To be safe and reliable Improve health and safety and environment

Delivered cost per gallon vs. customer’s inventory level Number of incidents Days away from work

LEARNING AND GROWTH To be motivated and prepared

Organisation involvement Core competencies and skills Access to strategic information

Employee survey Strategic competitive availability Availability of strategic information

Source: Adapted from Grant, R.M. (2002: 58) based on Kaplan and Norton (2001)

scorecard, where employee skills, knowledge and satisfaction are identified as improving internal processes, and therefore contributing to customer added value and economic added value. Thus, the scorecard provides a mechanism for integrating key HR performance drivers into the strategic management process. Boxall and Purcell (2003) highlight the similarities between Kaplan and Norton’s (2001: 93) Learning and Growth categories of strategic competencies, skills and knowledge required by employees to support the strategy, strategic technologies, information support systems required to support the strategy and climate for action, the cultural shifts needed to motivate, empower and align the workforce behind the strategy, and the AMO theory of performance, where performance is seen as a function of employee ability, motivation and opportunity. Thus the balanced scorecard contributes to the development of SHRM, not only in establishing goals and measures to demonstrate cause–effect linkages, but also in encouraging a process that stimulates debate and shared understanding between the different areas of the business. However, the balanced scorecard approach does not escape criticism, particularly in relation to the measurement of some HR activities which are not directly linked to productivity, thus requiring an acknowledgement of the multidimensional nature of organisational performance and a recognition of multiple ‘bottom lines’ in SHRM. Boxall and Purcell (2003) suggest the use of two others besides labour productivity, these being organisational flexibility and social legitimacy. So, although the balanced scorecard has taken account of the impact and influence of an organisation’s human resources in achieving competitive advantage, there is still room for the process to become more HR driven.




Either Draw up a strategy map for your organisation or Jet Airlines and identify appropriate balanced scorecard measures. Share your ideas with your colleagues and consider how you would audit HR. Or Evaluate your organisation’s strategy map and balanced scorecard measures. How effective has this approach been in your organisation? Has it focused all stakeholders’ attention on strategy implementation? Consult your colleagues, and prepare an audit of your HR provision.

Given the increasing profile of strategic human resource management in creating organisational competitive advantage, and the subsequent complexity in interpreting and applying strategic human resource management principles, there appears to be agreement on the need for more theoretical development in the field, particularly on the relationship between strategic management and human resource management, and the relationship between strategic human resource management and performance (Guest, 1997; Wright and McMahan, 1992; Wright and McMahan, 1999; Boxall and Purcell, 2003). This chapter has reviewed key developments and alternative frameworks in the field of strategic human resource management in an attempt to clarify its meaning so that the reader is able to make an informed judgement as to the meaning and intended outcomes of strategic human resource management. Thus strategic human resource management is differentiated from human resource management in a number of ways, particularly in its movement away from a micro-perspective on individual HR functional areas to the adoption of a macro-perspective (Butler et al., 1991; Wright and McMahon, 1992), with its subsequent emphasis on vertical integration (Guest, 1989; Tyson, 1997; Schuler and Jackson, 1987) and horizontal integration (Baird and Meshoulam 1988; MacDuffie, 1995). It therefore becomes apparent that the meaning of strategic human resource management tends to lie in the context of organisational performance, although organisational performance can be interpreted and measured in a variety of ways. These may range from delivering efficiency and flexibility through costreduction-driven strategies, through the implementation of what may be termed ‘hard HR techniques’ (Schuler and Jackson, 1987), to delivering employee commitment to organisational goals through ‘universal sets’ of HR practices (Pfeffer, 1994, 1998) or ‘bundles’ of integrated HR practices (Huselid, 1995; Delery and Doty, 1996), to viewing human resources as a source of human capital and sustainable competitive advantage (Barney, 1991; Barney and Wright, 1998) and a core business competence and a key strategic asset (Hamel and Prahalad, 1993, 1994). There are therefore conflicting views as to the meaning of SHRM and the contribution strategic human resource management can make to an organisation. The implications of this are twofold: firstly, for academics and researchers there is a need for further theory development to define the relationship between strategic management and strategic human resource management, and subsequently organisational performance; and secondly, for HR practitioners, there is a need to develop business capabilities (Boxall and Purcell, 2003) and become ‘thinking performers’ (CIPD, 2001) so that they are credible strategic partners in the business.


Chapter 2 · Strategic human resource management

● This chapter has charted the development of strategic human resource management, exploring the links between the strategic management literature and strategic human resource management. It has examined the different approaches to strategic human resource management identified in the literature, including the best-fit approach, the best-practice approach, the configurational approach and the resource-based view, in order to understand what makes human resource management strategic. ● A key claim of much strategic human resource management literature is a significant contribution to a firm’s competitive advantage, whether it is through cost reduction methods or more often added value through best-practice HR policies and practices. An understanding of the business context and particularly of the ‘strategy-making’ process is therefore considered significant to developing an understanding of strategic human resource management. ● Whittington’s typology (1993, 2001) was used to analyse the different approaches to ‘strategy-making’ experienced by organisations, and to consider the impact this would have on our understanding of the development of strategic human resource management. The influence of the classical rational-planning approach on the strategic management literature and therefore strategic HRM literature was noted, with its inherent assumption that strategy-making was a rational, planned activity. This ignores some of the complexities and ‘messiness’ of the strategy-making process, identified by Mintzberg and others. Other approaches, which recognised the constituents of this ‘messiness’, namely the processual approach, the evolutionary approach and the systemic approach, were identified. These took account of changes and competing interests in both the external and internal business environment. Significantly, for human resource management, there is a recognition that it is not always appropriate to separate operational policies from higher-level strategic planning, as it is often operational policies and systems that may provide the source of ‘tactical excellence’, and thus the traditional distinction between strategy and operations can become blurred. ● The best-fit approach to strategic HRM explored the close relationship between strategic management and human resource management, by considering the influence and nature of vertical integration. Vertical integration, where leverage is gained through the close link of HR policies and practices to the business objectives and therefore the external context of the firm, is considered to be a key theme of strategic HRM. Best-fit was therefore explored in relation to life-cycle models and competitive advantage models, and the associated difficulties of matching generic business-type strategies to generic human resource management strategies were considered, particularly in their inherent assumptions of a classical approach to the strategy-making process. ● The configurational approach identifies the value of having a set of HR practices that are both vertically integrated to the business strategy and horizontally integrated with each other, in order to gain maximum performance or synergistic benefits. This approach recognises the complexities of hybrid business strategies and the need for HRM to respond accordingly. In advocating unique patterns or configurations of multiple independent variables, they provide an answer to the linear, deterministic relationship advocated by the best-fit approach. ● The resource-based view represents a paradigm shift in strategic HRM thinking by focusing on the internal resources of the firm as a key source of sustainable competitive advantage, rather than focusing on the relationship between the firm and the



external business context. Human resources, as scarce, valuable, organisation-specific and difficult to imitate resources, therefore become key strategic assets. The work of Hamel and Prahalad (1994) and the development of core competencies is considered significant here. ● The best-practice approach highlights the relationship between ‘sets’ of good HR practices and organisational performance, mostly defined in terms of employee commitment and satisfaction. These sets of best practice can take many forms: some have advocated a universal set of practices that would enhance the performance of all organisations to which they were applied (Pfeffer, 1994, 1998); others have focused on integrating the practices to the specific business context (high-performance work practices). A key element of best practice is horizontal integration and congruence between policies. Difficulties arise here, as best-practice models vary significantly in their constitution and in their relationship to organisational performance, which makes generalisations from research and empirical data difficult. ● In endeavouring to gain an understanding of the meaning of strategic human resource management, it soon becomes apparent that a common theme of all approaches is enhanced organisational performance and viability, whether this be in a ‘hard’ sense, through cost reduction and efficiency-driven practices, or through high-commitment and involvement-driven value-added. This relationship is considered significant to understanding the context and meaning of strategic human resource management. ● Finally, the need for further theory development in the field of strategic human resource management and for human resource practitioners to develop business capability was noted.


Defining the effective human resource manager
What does an effective HR manager look like? What skills, competencies and knowledge does he or she require to become a business partner? Try to collect information from a range of sources, for example:
● corporate websites, ● HR practitioner journals (Personnel Today, People Management), ● other journals (Human Resource Management Journal, Management Learning), ● the CIPD website and HRM textbooks, to develop a profile of an effective HR manager

in the 21st century. Which skills, competencies and knowledge would you identify as strategic HR competencies?

1 In what way does an understanding of strategic management contribute to your understanding of strategic human resource management? 2 How would you differentiate human resource management from strategic human resource management? 3 Compare and contrast the best-fit and best-practice approach to strategic human resource management.


Chapter 2 · Strategic human resource management 4 Evaluate the relationship between strategic human resource management and organisational performance. 5 Why do human resources practitioners need to develop business capabilities?

Case study
Jet Airlines
Jet Airlines is a successful ‘no frills’ airline operating from a regional airport in the UK on short-haul routes to European destinations. Its founder, Ben Mahon, recognised a shift in airline operations in the 1990s. Since the launch of Jet in 1996, it has continued to grow and return a profit when the rest of the airline industry has been forced to downsize and diversify. Ben Mahon recognised the advantage of operating at the lowest cost, with the highest load factor. He achieved this by flying intensively between major European cities, but avoiding major airports with imposed high landing fees. This also involved cutting out expensive hub operations (timetabling aircraft to connect at a chosen city base) and it therefore avoided the delays incurred when planes ran late. A schedule of regular flights would ensure transfer passengers could catch a convenient later flight. Without a hub, it had no need to transfer luggage between flights. The customer service approach adopted by Jet Airlines was radically different from traditional airlines. Ben Mahon recognised that many passengers wanted nothing more than to fly cheaply, quickly and with the minimum of hassle. Thus Jet dispensed with lengthy check-ins and seat allocations and introduced a swipe-card ticketing system at the gate, which allowed ‘walk-on’, ‘walk-off’ operations. He also recognised that many passengers did not like or require airline food, so dispensed with a non-essential service and eliminated one of the key elements that lengthen turn-round time at airports. These initiatives allowed Jet to offer the lowest prices for high load factors. Jet Airlines increased its routes and enhanced its scheduling, thereby increasing its profit year on year. Recognising this, a number of other ‘no frills’ airlines have been launched in the UK, and a number of major airlines have recognised the advantages of the ‘no frills’ market, and diversified. Jet Airlines is concerned about this increase in competition, as it has led to reduced passenger levels on certain routes. It has been forced to reduce the number of flights to Frankfurt, Zurich and Munich. Jet has also experienced increasing employee turnover owing to poaching by a local competitor. This, together with an increase in customer complaints about unfriendly and inefficient staff, and a number of unfavourable newspaper reports about the lengthy distance between destination airports and destination cities, has led Ben Mahon to reassess his strategy. He recognises that Jet can no longer compete on price alone, and he believes that it is Jet’s human resources that can add extra value to the customer experience, and therefore retain Jet’s position as the number one ‘no frills’ airline in the UK. Ben Mahon has reintroduced Jet’s mission to all employees, with a new corporate value programme that emphasises quick, efficient and friendly service at the lowest price. He organised a series of away-days where he explained Jet’s new mission statement. Jet Airlines the first choice for efficient, affordable travel provided by helpful, friendly staff. He introduced the new strategy with a personal presentation and issued all employees with a card with the new company objectives, detailed below: Business To be the number one ‘no frills’ airline ● Attract new customers through reputation for efficiency ● Retain existing customers through Loyalty Service ● Discounts for Internet booking

Customer Service Provide excellent service at all times ● Commit to continuous improvement ● Internal and external customers valued

References and further reading


Case study continued
● ● ● ● ●

Diversity valued Openness and trust Pride and enthusiasm in your work Performance management Involvement in decision-making Teamwork throughout the organisation

Lack of skills/product knowledge in new parttime staff Lack of motivation among full-and part-time staff

● ● ●

Ben Mahon is concerned, as he feels that a motivated and committed workforce is essential to the success of his strategy.

1 Reflecting on the approaches to strategic human
resource management discussed in this chapter: – the best-fit approach – the configurational approach – the resource-based view – the best-practice approach analyse the extent to which Ben Mahon has adopted a strategic approach to human resource management.

He recognises that Jet’s human resources are crucial to the success of his strategy to sustain increased competitive advantage. He also recognises that he has to keep costs down, and therefore utilises a high proportion of flexible labour. He has also recently commissioned an attitude survey, which highlighted a number of issues:
● ● ● ● ● ● ●

Perception of senior managers as autocratic Lack of training and development Lack of career opportunities Frustration among new managers Increased feeling of stress-related symptoms Perception that customer service not important as offering cheap product Poor recognition of new customer ethos

2 Drawing on your answer to question 1, Ben Mahon
would like your recommendations for a human resources strategy that will enable Jet Airlines to meet its business priorities and retain its position as the number one no frills airline. He would like you to present your ideas in a presentation to the senior management team.

Useful websites
Confederation of British Industry Chartered Institute of Personnel & Development Department of Trade and Industry Detailed information about EVA Chartered Institute of Management Strategic Management Society www.cbi.org.uk www.cipd.co.uk www.dti.gov.uk www.evanomics.com www.managers.org.uk www.csmintl.premierdomain.com/menu.htm

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Chapter 2 · Strategic human resource management
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Chapter 2 · Strategic human resource management
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For multiple choice questions, exercises and annotated weblinks specific to this chapter visit this book’s website at www.booksites.net/beardwell



Human resource management in context
Audrey Collin
To indicate the significance of context for the understanding of HRM. To discuss ways of conceptualising and representing the nature of context generally and this context in particular. To analyse the nature of the immediate context of HRM: the problematical nature of organisations and the need for management. To indicate the nature of the wider context of HRM and illustrate this through selected examples. To examine how our ways of interpreting and defining reality for ourselves and for others construct and influence the way we understand and practise HRM. To suggest the implications for the readers of this book. To present a number of activities and a case study that will facilitate readers’ understanding of the context of HRM.

■ The significance and nature of context
An event seen from one point-of-view gives one impression. Seen from another point-ofview it gives quite a different impression. But it’s only when you get the whole picture you fully understand what’s going on.
(Reproduced with kind permission of the Guardian/BMP DDB.)

The need to be aware of the context of human affairs was demonstrated dramatically in this prize-winning advertisement for the Guardian newspaper that is still remembered today. We can easily misinterpret facts, events and people when we examine them out of context, for it is their context that provides us with the clues necessary to enable us to understand them. Context locates them in space and time and gives them a past and a future, as well as the present that we see. It gives us the language to understand them, the codes to decode them, the keys to their meaning. This chapter will carry forward your thinking about the issues raised in Chapter 1 by exploring the various strands within the context of HRM that are woven together to


Chapter 3 · Human resource management in context

form the pattern of meanings that constitute it. As that chapter explained, and the rest of the book will amplify, HRM is far more than a portfolio of policies, practices, procedures and prescriptions concerned with the management of the employment relationship. It is this, but more. And because it is more, it is loosely defined and difficult to pin down precisely, a basket of multiple, overlapping and shifting meanings, which users of the term do not always specify. Its ‘brilliant ambiguity’ (Keenoy, 1990) derives from the context in which it is embedded, a context within which there are multiple and often competing perspectives upon the employment relationship, some ideological, others theoretical, some conceptual. HRM is inevitably a contested terrain, and the various definitions of it reflect this. From the various models of HRM in Chapter 1, you will recognise that the context of HRM is a highly complex one, not just because of its increasing diversity and dynamism, but also because it is multi-layered. The organisation constitutes the immediate context of the employment relationship, and it is here that the debate over how this relationship should be managed begins. The nature of organisation and the tensions between the stakeholders in it give rise to issues that have to be addressed by managers: for example, choices about how to orchestrate the activities of organisational members and whose interests to serve. Beyond the organisation itself lie the economic, social, political and cultural layers, and beyond them again the historical, national and global layers of context. Considerable change is taking place within those layers, making the whole field dynamic. It is not the purpose of this chapter to register these many changes; you will become aware of some of them as you read the remainder of this book. However, we need to note here that the events and changes in the wider context have repercussions for organisations, and present further issues to be managed and choices to be made. The various layers and the elements within them, however, exist in more than one conceptual plane. One has a concrete nature, like a local pool of labour, and the other is abstract, like the values and stereotypes that prejudice employers for or against a particular class of person in the labour market. The abstract world of ideas and values overlays the various layers of the context of HRM: the ways of organising society, of acquiring and using power, and of distributing resources; the ways of relating to, understanding and valuing human beings and their activities; the ways of studying and understanding reality and of acquiring knowledge; the stocks of accumulated knowledge in theories and concepts. It is the argument of this chapter that to understand HRM we need to be aware not just of the multiple layers of its context – rather like the skins of an onion – but also of these conceptual planes and the way they intersect. Hence, ‘context’ is being used here to mean more than the surrounding circumstances that exert ‘external influences’ on a given topic: context gives them a third dimension. The chapter is arguing, further, that events and experiences, ideas and ideologies are not discrete and isolatable, but are interwoven and interconnected, and that HRM itself is embedded in that context: it is part of that web and cannot, therefore, be meaningfully examined separately from it. Context is highly significant yet, as we shall see, very difficult to study.

■ Conceptualising and representing context
How can we begin to understand anything that is embedded in a complex context? We seem to have awareness at an intuitive level, perceiving and acting upon the clues that context gives to arrive at the ‘tacit knowledge’ discussed later in Chapter 8. However, context challenges our formal thinking. First, we cannot stand back to take in the complete picture, which has traditionally been one way to gain objective knowledge of a situation. Because we are ourselves part of our context, as defined in this chapter, it is not



possible for us to obtain a detached perspective upon it. In that respect we are like the fish in water that ‘can have no understanding of the concept of “wetness” since it has no idea of what it means to be dry’ (Southgate and Randall, 1981: 54). However, humans are very different from the ‘fish in water’. We can be reflexive, recognising what our perspective is and what its implications are; open, seeking out and recognising other people’s perspectives; and critical, entering into a dialogue with others’ views and interrogating our own in the light of others’, and vice versa. The ‘stop and think’ boxes, activities and exercises throughout the chapter are there to encourage you in this direction. Second, we need the conceptual tools to grasp the wholeness (and dynamic nature) of the picture. To understand a social phenomenon such as HRM, we cannot just wrench it from its context and examine it microscopically in isolation. To do this is to be like the child who digs up the newly planted and now germinating seed to see ‘whether it is growing’. In the same way, if we analyse context into its various elements and layers, then we are already distorting our understanding of it, because it is an indivisible whole. Rather, we have to find ways to examine HRM’s interconnectedness and interdependence with other phenomena. The study of context, therefore, is no easy task, and poses a major challenge to our established formal, detached, and analytical ways of thinking. Nevertheless, as we shall discuss later in this chapter, there are ways forward that enable us to conceptualise the many loops and circularities of these complex interrelationships in an often dynamic context.

Stop and think

Before you continue, spend a few minutes reflecting upon this way of understanding context. How different is it from the way in which you would have defined context? Does this have any implications for you as you read this chapter?

Meanwhile, we shall try to conceptualise context through metaphor: that is, envisage it in terms of something concrete that we already understand. We have already used the metaphor of the many-skinned onion to depict the multiple layers of context, but we need another metaphor to suggest its interconnectedness and texture. We could, therefore, think of it as a tapestry. This is a ‘thick hand-woven textile fabric in which design is formed by weft stitches across parts of warp’ (Concise OED, 1982). The warp threads run the length of the tapestry, the weft are the lateral threads that weave through the warp to give colour, pattern and texture. This metaphor helps us to visualise how interwoven and interrelated are the various elements of the context of HRM, both the concrete and the abstract; and how the pattern of HRM itself is woven into them. In terms of this metaphor, our ways of seeing and thinking about our world – the assumptions we make about our reality – could be said to be the warp, the threads which run the length of the tapestry contributing to its basic form and texture. Ideologies and the rhetoric through which they are expressed – ways of defining reality for other people – are the weft threads that weave through the warp threads, and give the tapestry pattern and texture. Events, people, ephemeral issues are the stitches that form the surface patterns and texture of HRM. We see this in Figure 3.1. In the case of the context of HRM, this tapestry is being woven continuously from threads of different colours and textures. At times one colour predominates, but then peters out. In parts of the tapestry patterns may be intentionally fashioned, while observers (such as the authors of this book) believe they can discern a recognisable pattern in other parts. This metaphor again reminds us that an analytical approach to the study of context, which would take it apart to examine it closely, would be like taking a tapestry to bits: we would be left with threads. The tapestry itself inheres in the whole, not its parts. How, then, can the chapter begin to communicate the nature of this tapestry without destroying its very essence through analysis? The very representation of our thinking in written language is linear, and this undermines our ability to communicate a dynamic, interrelated


Chapter 3 · Human resource management in context

Figure 3.1

The metaphor of tapestry to convey HRM in context

complexity clearly and succinctly. We need to think in terms of ‘rich pictures’, ‘mindmaps’, or ‘systems diagrams’ (Checkland, 1981; Senge, 1990; Cameron, 1997). It is not feasible nor, indeed, necessary to attempt to portray the whole tapestry in detail; the chapter will focus instead upon a number of strands that run through it. You will be able to identify and follow them through the remainder of the book, and observe how their interweaving gives us changes in pattern and colour, some distinct, others subtle. Before beginning to read the exposition of the context of HRM, you will find it helpful to carry out the following activity.


Look at the various models that were presented in Chapter 1 and identify some of the elements of context and the relationships between them that are explicit or implied there. This will help you develop your own view of the context of HRM before you read further, and give you some mental ‘hooks’ upon which to hang your new understanding.

■ The concepts and language needed to understand context
To understand context, it has been suggested so far, we need to recognise its wholeness. We therefore need to incorporate both the concrete world and the world of abstract ideas. Although the appropriate language to enable us to do this may be largely unfamiliar to you, you will find that you already have considerable understanding of the concepts it expresses. Your own experience of thinking about and responding to one aspect of context – the natural, physical environment – will have given you the basic concepts that we are using and a useful set of ‘hooks’ upon which to hang the ideas that this chapter will introduce to you. It would be helpful to your understanding of this chapter, therefore, if you examined some of the ‘hooks’ you are already using, and perhaps clarify and refine them. (In this way, as Chapter 8 explains, the new material can be more effectively transferred now into, and later retrieved from, your long-term memory.) Carry out the exercise at the end of the chapter. This will focus your thinking and enable you to recognise that you already have the ‘hooks’ you will need to classify the material of this chapter in a meaningful way and increase your understanding of the nature of the context of HRM. It will show you that, although you may not necessarily use the terminology below, from your present knowledge of the environment you already recognise that:

The immediate context of HRM


● ● ● ● ●

Context is multi-layered, multidimensional, and interwoven. In it, concrete events and abstract ideas intertwine to create issues; thinking, feeling, interpreting and behaving are all involved. It is like the tapestry described above. Our understanding depends upon our perspective. It also depends upon our ideology. Different groups in society have their own interpretations of events, stemming from their ideology. There are therefore competing or contested interpretations of events. These groups use rhetoric to express their own, and account for competing, interpretations, thus distorting, or even suppressing, the authentic expression of competing views. Powerful others often try to impose their interpretations of events, their version of reality, upon the less powerful majority: this is hegemony.

This subsection has perhaps given you a new language to describe what you already understand well. You will find some of these terms in the Glossary at the end of this book, and their definitions will be amplified in later sections of this chapter as it continues its exploration of the context of HRM.

The immediate context of HRM
Human resource management, however defined, concerns the management of the employment relationship: it is practised in organisations by managers. The nature of the organisation and the way it is managed therefore form the immediate context within which HRM is embedded, and generate the tensions that HRM policies and practices attempt to resolve.

■ The nature of organisations and the role of management
At its simplest, an organisation comes into existence when the efforts of two or more people are pooled to achieve an objective that one would be unable to complete alone. The achievement of this objective calls for the completion of a number of tasks. Depending upon their complexity, the availability of appropriate technology and the skills of the people involved, these tasks may be subdivided into a number of subtasks and more people employed to help carry them out. This division of labour constitutes the lateral dimension of the structure of the organisation. Its vertical dimension is constructed from the generally hierarchical relationships of power and authority between the owner or owners, the staff employed to complete these tasks, and the managers employed to coordinate and control the staff and their working activities. Working on behalf of the organisation’s owners or shareholders and with the authority derived from them, managers draw upon a number of resources to enable them to complete their task: raw materials; finance; technology; appropriately skilled people; legitimacy, support and goodwill from the organisation’s environment. They manage the organisation by ensuring that there are sufficient people with appropriate skills; that they work to the same ends and timetable; that they have the authority, information and other resources needed to complete their tasks; and that their tasks dovetail and are performed to an acceptable standard and at the required pace. The very nature of organisation therefore generates a number of significant tensions: between people with different stakes in the organisation, and therefore different perspectives upon and interests in it; between what owners and other members of the organisation might desire and what they can feasibly achieve; between the needs, capabilities and potentials of organisational members and what the environment demands of and permits them. Management (see Watson, 2000) is the process that keeps the organisation


Chapter 3 · Human resource management in context

from flying apart because of these tensions, that makes it work, secures its survival and, according to the type of organisation, its profitability or effectiveness. Inevitably, however, as Chapter 11 discusses, managerial control is a significant and often contentious issue. The need to manage people and relationships is inherent in the managing of an organisation, but the very nature of people and the way they constitute an organisation make management complex. Although the organisation of tasks packages people into organisational roles, individuals are larger and more organic than those roles have traditionally tended to be. The organisation, writes Barnard (1938, in Schein, 1978) ‘pays people only for certain of their activities . . . but it is whole persons who come to work’ (p. 17). Unlike other resources, people interact with those who manage them and among themselves; they have needs for autonomy and agency; they think and are creative; they have feelings; they need consideration for their emotional and their physical needs and protection. The management of people is therefore not only a more diffuse and complex activity than the management of other resources, but also an essentially moral one (again, see Watson, 2000). This greatly complicates the tasks of managers, who can only work with and through people to ensure that the organisation survives and thrives in the face of increasing pressures from the environment. Owners and managers are confronted with choices about how to manage people and resolve organisational tensions. The next subsection examines some of these choices and the strategies adopted to handle them. Before then, however, it must be noted that as organisations become larger and more complex, the division of managerial labour often leads to a specialist ‘people’ function to advise and support line managers in the complex and demanding tasks of managing their staff. This is the personnel function (sometimes now called ‘HRM’), which has developed a professional and highly skilled expertise in certain aspects of managing people, such as selection, training and industrial relations, which it offers in an advisory capacity to line managers, who nevertheless remain the prime managers of people. However, this division of managerial labour has fragmented the management of people: the development of human resource management beyond the traditional personnel approach can be seen as a strategy to reintegrate the management of people into the management of the organisation as a whole.

■ The approaches adopted by managers to resolve the tensions in organisations
The previous subsection suggested that there are inherent tensions in organisations. In brief, these are generated by:
● ● ● ●

the existence of several stakeholders in the employment relationship; their differing perspectives upon events, experiences and relationships; their differing aims, interests and needs; the interplay between formal organisation and individual potential.

Stop and think

In your own experience of being employed, however limited that might be so far, have you been aware of some of these tensions? What were their effects upon you and your colleagues? How did the management of the organisation appear to respond to these tensions? Has this coloured how you look at management and HRM?

These tensions have to be resolved through the process of management or, rather, continuously resolved, for these tensions are inherent in organisations. Thus Weick (1979) writes that organising is a continuous process of meaning-making: ‘organizations keep falling apart . . . require chronic rebuilding.’ (p. 44). A continuing issue, therefore, is

The immediate context of HRM


that of managerial control: how to orchestrate organisational activities in a way that meets the needs of the various stakeholders. The owners of organisations, or those who manage them on their behalf, have explored many ways to resolve these tensions: the emergence of HRM to develop alongside, subsume or replace personnel management is witness to this. The strategies they adopt are embodied in their employment policies and practices and the organisational systems they put in place (see also Chapter 11). They are also manifested in the psychological contract they have with their employees, the often unstated set of expectations between organisation and individual that embroiders the legal employment contract. (The notion of the psychological contract now in current use goes back to a much earlier literature – for example, Schein (1970) – and it is some of the earlier terminology that is used here.) This subsection will briefly outline some of the strategies that managers have adopted, while the next will discuss the interpretations by theorists and other commentators of those strategies. However, it must be kept in mind that managers are to some extent influenced by the concepts and language, if not the arguments, of these theorists. In very crude terms, we can identify four strategies that managers have adopted to deal with these tensions. The first is represented by what is called scientific management, or the classical school of management theory. The second is the human relations approach, and the third is the human resource management approach. The fourth approach is perhaps more an ideal than a common reality. It must be emphasised that we cannot do justice here to the rich variety of approaches that can be found in organisations. You can elaborate upon the material here by reading about these differing views in an organisational behaviour textbook, such as Huczynski and Buchanan (2002) or Clark et al. (1994). The first approach addressed the tensions in the organisation by striving to control people and keep down their costs: the scientific management approach. It emphasised the need for rationality, clear objectives, the managerial prerogative – the right of managers to manage – and adopted work study and similar methods. These led to the reduction of tasks to their basic elements and the grouping of similar elements together to produce low-skilled, low-paid jobs, epitomised by assembly-line working, with a large measure of interchangeability between workers. Workers tended to be treated relatively impersonally and collectively (‘management and labour’), and the nature of the psychological contract with them was calculative (Schein, 1970), with a focus on extrinsic rewards and incentives. Such a strategy encouraged a collective response from workers, and hence the development of trade unions. These views of management evolved in North America, and provided a firm foundation for modern bureaucracies (Clegg, 1990). In Britain they overlaid the norms of a complex, though changing, social class system that framed the relationships between managers and other employees (Child, 1969; Mant, 1979). This facilitated the acceptance of what Argyris (1960) saw were the negative outcomes of McGregor’s (1960) X-theory of management which were hierarchy; paternalism; the attribution to workers of childlike qualities, laziness, limited aspirations and time horizons. While this strategy epitomised particularly the management approach of the first half of the twentieth century, it has left its legacy in many management practices, such as organisation and method study, job analysis and description, selection methods, an overriding concern for efficiency and the ‘bottom line’, appraisal and performance management. Moreover, it has not been completely abandoned (see Clegg, 1990; Ritzer, 1996 on ‘McDonaldization’; and ongoing debates about employment in call centres, for example Callaghan and Thompson, 2002; Hatchett, 2000; Taylor et al., 2002). The human relations approach to the tensions in organisations emerged during the middle years of the twentieth century, and developed in parallel with an increasingly prosperous society in which there were strong trade unions and (later) a growing acceptance of the right of individuals to self-fulfilment. Child (1969) identifies its emergence in


Chapter 3 · Human resource management in context

British management thinking as a response to growing labour tensions. It tempered scientific management by its recognition that people differed from other resources, that if they were treated as clock numbers rather than as human beings they would not be fully effective at work and could even fight back to the point of subverting management intentions. It also recognised the significance of social relationships at work – the informal organisation (Argyris, 1960). Managers therefore had to pay attention to the nature of supervision and the working of groups and teams, and to find ways of involving employees through job design (see Chapter 14), motivation, and a democratic, consultative or participative style of management. The nature of the psychological contract was cooperative (Schein, 1970). The third and most recent major approach adopted by managers to address the tensions within the organisation has developed as major changes and threats have been experienced in the context of organisations (recession, international competition, and globalisation). It is a response to the need to achieve flexibility in the organisation and workforce (see Chapters 4 and 5) and improved performance through devolving decision-making and empowerment (see Chapter 14). As Chapter 8 notes, employees have had to become multi-skilled and to work across traditional boundaries. Unlike the other two strategies, the third approaches the organisation holistically and often with greater attention to its culture, leadership and ‘vision’, the ‘soft’ Ss of McKinsey’s ‘Seven S’ framework (Pascale and Athos, 1982: 202–206). It attempts to integrate the needs of employees with those of the organisation in an explicit manner: the psychological contract embodies mutuality (Schein, 1970). It recognises that people should be invested in as assets so that they achieve their potential for the benefit of the organisation. It also pays greater attention to the individual rather than the collective, so that these notions of developing the individual’s potential have been accompanied by individual contracts of employment (see Chapter 11), performance appraisal, and performance-related pay (see also Chapter 13). The very title of human resource management suggests that this third approach to the management of organisational tensions is also an instrumental one. Although it differs greatly from the approaches that see labour as a ‘cost’, to be reduced or kept in check, it nevertheless construes the human being as a resource for the organisation to use. The fourth, idealistic, humanistic approach aims to construct the organisation as an appropriate environment for autonomous individuals to work together collaboratively for their common good. This is the approach of many cooperatives. It informed the early philosophy of organisation development (see Huse, 1980), although the practice of that is now largely instrumental. It also underpins the notion of the learning organisation (see Senge, 1990, and Chapter 9). Although we have identified here four different strategies for managing the inherent tensions in organisations, they might be less easy to distinguish in practice. Some managers adopt a hybrid version more appropriate to their particular organisation. They will always be seeking new approaches to deal more effectively with those tensions, or to deal with variations in them as circumstances change (for example, with globalisation).


Comparing these managerial strategies
Many of you have worked in a call centre, or know someone who does. Working on your own or in a group, examine your experiences of working there. Could you identify one or more of these managerial strategies in your workplace? What might have been your experiences had the management adopted a different strategy?

When we look more deeply into these four managerial strategies, we can recognise that they implicate some much deeper questions. Underlying the management of people in organisations are some fundamental assumptions about the nature of people and reality

The immediate context of HRM


itself, and hence about organising and managing. For example, managers make assumptions about the nature of the organisation, many interpreting it as having an objective reality that exists separately from themselves and other organisational members – they reify it (see Glossary). They make assumptions about the nature of their own and the organisation’s goals, which they interpret as rational and objective. They make assumptions about the appropriate distribution of limited power throughout the organisation. However, these assumptions are rarely made explicit, and are therefore rarely challenged. Moreover, many other members of the organisation appear to accept these premises on which they are managed, even though such assumptions might conflict with their own experiences, or virtually disempower or disenfranchise them. For example, many might assert the need for equal opportunities to jobs, training and promotion, but do not necessarily challenge the process of managing itself despite its often gender-blind nature (Hearn et al., 1989; Hopfl and Atkinson, 2000). Nevertheless, these assumptions inform the practices and policies of management, and hence define the organisational and conceptual space that HRM fills, and generate the multiple meanings of which HRM is constructed. In terms of the metaphor used by this chapter, they constitute some of the warp and weft threads in the tapestry/context of HRM. They will be examined in greater detail in a later section.

■ Competing interpretations of organisations and management
When we turn from the concrete world of managing to the theories about organisations and management, we find that not only have very different interpretations been made over time, but that several strongly competing interpretations coexist. Again, this chapter can only skim over this material, but you can pursue the issues by reading, for example, Child (1969), who traces the development of management thought in Britain, or Morgan (1997), who sets out eight different metaphors for organisations through which he examines in a very accessible way the various ways in which theorists and others have construed organisations. Reed and Hughes (1992: 10–11) identify the changing focus of organisation theory over the past 30 years, from a concern with organisational stability, order and disorder, and then with organisational power and politics, to the present concern with the construction of organisational reality. The reification (see Glossary) of the organisation by managers and others, and the general acceptance of the need for it to have rational goals to drive it forward in an effective manner, have long been challenged. Simon (see Pugh et al., 1983) recognised that rationality is ‘bounded’ – that managers make decisions on the basis of limited and imperfect knowledge. Cyert and March adopt a similar viewpoint: the many stakeholders in an organisation make it a ‘shifting multigoal coalition’ (see Pugh et al., 1983: 108) that has to be managed in a pragmatic manner. Others (see Pfeffer, 1981; Morgan, 1997) recognise the essentially conflictual and political nature of organisations: goals, structures and processes are defined, manipulated and managed in the interests of those holding the power in the organisation. A range of different understandings of organisations has developed over time: the systems approach (Checkland, 1981), the learning organisation (Senge, 1990), transformational leadership and ‘excellence’ (Peters and Waterman, 1982; Kanter, 1983), the significance of rhetoric (Eccles and Nohria, 1992). This range is widening to include even more holistic approaches, with recent interest in the roles in the workplace of emotional intelligence (Cherniss and Goleman, 2001; Pickard, 1999), spirituality and love (Welch, 1998; Zohar and Marshall, 2001). The influence of many of these new ideas can be seen in the recently developed concern for work–life balance (for example, People Management, 2002). The established views of managers are subject to further interpretations. Weick (1979) argues the need to focus upon the process of organising rather than its reified


Chapter 3 · Human resource management in context

outcome, an organisation. As we noted earlier, he regards organising as a continuous process of meaning-making: ‘[p]rocesses continually need to be re-accomplished’ (p. 44). Cooper and Fox (1990) and Hosking and Fineman (1990) adopt a similar interpretation in their discussion of the ‘texture of organizing’. Brunsson (1989) throws a different light on the nature and goals of organising, based on his research in Scandinavian municipal administrations. He suggests that the outputs of these kinds of organisations are ‘talk, decisions and physical products’. He proposes two ‘ideal types’ of organisation: the action organisation, which depends on action for its legitimacy (and hence essential resources) in the eyes of its environment, and the political organisation, which depends on its reflection of environmental inconsistencies for its legitimacy. Talk and decisions in the action organisation (or an organisation in its action phase) lead to actions, whereas the outputs of the political organisation (or the organisation in its political phase) are talk and decisions that may or may not lead to action.
. . . hypocrisy is a fundamental type of behaviour in the political organization: to talk in a way that satisfies one demand, to decide in a way that satisfies another, and to supply products in a way that satisfies a third. (p. 27)

There are similarly competing views upon organisational culture, as we see in Aldrich (1992) and Frost et al. (1991). The established view interprets it as a subsystem of the organisation that managers need to create and maintain through the promulgation and manipulation of values, norms, rites and symbols. The alternative view argues that culture is not something that an organisation has, but that it is. Just as many managers leave their assumptions unaddressed and unstated, taken for granted, so that their actions appear to themselves and others based upon reason and organisational necessity, so also do many theorists. Many traditional theorists leave unstated that the organisations of which they write exist within a capitalist economic system and have to meet the needs of capital. They ignore the material and status needs of owners and managers, and their emotional (Fineman, 1993) and moral selves (Watson, 2000). Many also are gender-blind and take for granted a male world-view of organisations. These issues tend to be identified and discussed only by those writers who wish to persuade their readers to a different interpretation of organisations (for example, Braverman, 1974; Hearn et al., 1989; Calas and Smircich, 1992).

Stop and think

At the close of the Introduction some of the concepts and terminology relevant to the understanding of context were noted. Have you been aware of any of these concepts in this discussion of the immediate context of HRM?

The wider context of HRM
■ Defining the wider context
The definition of the wider context of HRM could embrace innumerable topics (from, for example, the Industrial Revolution to globalisation) and a long time perspective (from the organisation of labour in prehistoric constructions, such as Stonehenge, onwards). Such a vast range, however, could only have been covered in a perfunctory manner here, which would have rendered the exercise relatively valueless. It is more appropriate to give examples of some of the influential elements and how they affect HRM, and to encourage you to identify others for yourself.

The wider context of HRM



Go back to the models of HRM presented in Chapter 1 and, working either individually or in a group, start to elaborate upon the various contextual elements that they include. Look, for example, at the ‘outer context’ of Hendry and Pettigrew’s (1990) model illustrated in Chapter 1, Figure 1.4. 1 What in detail constituted the elements of the socio-economic, technical, political-legal and competitive context at the time Hendry and Pettigrew were writing? What would they be now? 2 What other elements would you add to these, both then and now? 3 What are the relationships between them, both then and now? 4 And what, in your view, has been their influence upon HRM, both then and now?

■ Echoes from the wider context
Here the focus will be on distant events from the socio-political sphere that have nevertheless influenced the management of the employment relationship and still do so indirectly. Although what follows is not a complete analysis of these influences, it illustrates how the field of HRM resonates with events and ideas from its wider context.

● The First and Second World Wars
The two world wars, though distant in time and removed from the area of activity of HRM, have nevertheless influenced it in clearly identifiable and very important ways, some direct and some indirect. These effects can be classified in terms of changed attitudes of managers to labour, changed labour management practices, the development of personnel techniques, and the development of the personnel profession. We shall now examine these, and then note how some outcomes of the Second World War continue, indirectly, to influence HRM.

Changed attitudes of managers to labour
According to Child (1969: 44), the impact of the First World War upon industry hastened changes in attitudes to the control of the workplace that had begun before 1914. The development of the shop stewards’ movement during the war increased demand for workers’ control; there was growing ‘censure of older and harsher methods of managing labour’. The recognition of the need for improved working conditions in munitions factories was continued in the postwar reconstruction debates: Child (1969) quotes a Ministry of Reconstruction pamphlet that advised that ‘the good employer profits by his “goodness”’ (p. 49). The outcome of these various changes was a greater democratisation of the workplace (seen, for example, in works councils) and, for ‘a number of prominent employers’, a willingness ‘to renounce autocratic methods of managing employees’ and ‘to treat labour on the basis of human rather than commodity market criteria’ (pp. 45–46). These new values became incorporated in what was emerging as a distinctive body of management thought, practice and ideology (see Glossary and later section on ‘Ways of seeing and thinking’), upon which later theory and practice are founded.

Changed labour management practices
The need to employ and deploy labour effectively led to increased attention to working conditions and practices during both wars; the changes that were introduced then continued, and interacted with other social changes that ensued after the wars (Child, 1969). For example, the Health of Munitions Workers Committee, which encouraged


Chapter 3 · Human resource management in context

the systematic study of human factors in stress and fatigue in the munitions factories during the First World War, was succeeded in 1918 by the Industrial Fatigue Research Board (DSIR, 1961; Child, 1969; Rose, 1978). During the postwar reconstruction period progressive employers advocated minimum wage levels, shorter working hours and improved security of tenure (Child, 1969). ‘The proper use of manpower whether in mobilizing the nation or sustaining the war economy once reserves of strength were fully deployed’ was national policy during the Second World War (Moxon, 1951). As examples of this policy, Moxon cites the parttime employment of married women, the growth of factory medical services, canteens, day nurseries and special leave of absence.

The development of personnel techniques
Both wars encouraged the application of psychological techniques to selection and training, and stimulated the development of new approaches. Rose (1978: 92) suggests that, in 1917, the American army tested two million men to identify ‘subnormals and officer material’. Seymour (1959) writes of the Second World War:
the need to train millions of men and women for the fighting services led to a more detailed study of the skills required for handling modern weapons, and our understanding of human skill benefited greatly . . . Likewise, the shortage of labour in industry led . . . to experiments aimed at training munition workers to higher levels of output more quickly.
(pp. 7–8)

The wars further influenced the development of the ergonomic design of equipment, and encouraged the collaboration of engineers, psychologists and other social scientists (DSIR, 1961). The exigencies of war ensured that attention and resources were focused upon activities that are of enormous significance to the field of employment, while the scale of operations guaranteed the availability for testing of numbers of candidates far in excess of those usually available to psychologists undertaking research.

The development of the personnel profession
Very significantly, the Second World War had a major influence on the development of the personnel profession. According to Moxon (1951), the aims of national wartime policy were:
(i) to see that the maximum use was made of each citizen, (ii) to see that working and living conditions were as satisfactory as possible, (iii) to see that individual rights were reasonably safeguarded and the democratic spirit preserved. The growth of personnel management was the direct result of the translation of this national policy by each industry and by each factory within an industry. (p. 7)

Child (1969) reports how government concern in 1940 about appropriate working practices and conditions
led to direct governmental action enforcing the appointment of personnel officers in all but small factories and the compulsory provision of minimum welfare amenities. (p. 111)

Moxon (1951) comments on the ‘four-fold increase in the number of practising personnel managers’ at this time (p. 7). Child (1969) records the membership of what was to become the Institute of Personnel Management as 760 in 1939, and 2993 in 1960

The wider context of HRM


(p. 113). He also notes a similar increase in other management bodies. (The Institute has now become the Chartered Institute of Personnel and Development, with a membership of 120 000 in 2002.)

The postwar reconstruction of Japan
This subsection has so far noted some of the direct influences that the two world wars had upon the field of HRM. It now points to an indirect and still continuing influence. The foundation of the philosophy and practice of total quality management, which has been of considerable recent significance in HRM, was laid during the Second World War. Edward Deming and Joseph Juran were consultants to the US Defense Department and during the Second World War ran courses on their new approaches to quality control for firms supplying army ordnance (Pickard, 1992). Hodgson (1987) reports that:
Vast quantities of innovative and effective armaments were produced by a labour force starved of skill or manufacturing experience in the depression. (p. 40)

After the war, America ‘could sell everything it could produce’ and, because it was believed that ‘improving quality adds to costs’, the work of Deming and Juran was ignored in the West. However, Deming became an adviser to the Allied Powers Supreme Command and a member of the team advising the Japanese upon postwar reconstruction (Hodgson, 1987: 40–41). He told them that ‘their war-ravaged country would become a major force in international trade’ if they followed his approach to quality. They did. Western organisations have since come to emulate the philosophy and practices of quality that proved so successful in Japan and that now feature among the preoccupations of human resource managers (see, for example, Chapter 14).

Stop and think

What other distant socio-political events have influenced HRM?

■ Contemporary influences on HRM
The two topics to be examined now also come from fields distant from that of HRM but nevertheless influence it. However, they differ from those examined above. First, they belong primarily to the world of ideas, rather than action. Secondly, whereas the influences discussed above contributed to the incremental development of HRM thinking and practice, those discussed below have the potential to unsettle and possibly disrupt established thinking, and hence practice. Thirdly, the two world wars are, for us, history: interpretations of them have by now become established and, to a large degree, generally accepted (though always open to question: see the later subsection ‘Defining reality for others’). However, what are discussed below are ideas of our own time, not yet fully formed or understood. They both originated in fields outside social science, but have been introduced into it because of their potential significance for the understanding of social phenomena.

It was in the fields of art and architecture, in which there had been early twentiethcentury schools of thought and expression regarded as ‘modernism’, that certain new approaches came to be labelled ‘postmodern’. In due course, the concepts of modernism and postmodernism spread throughout the fields of culture (Harvey, 1990) and the


Chapter 3 · Human resource management in context

social sciences. They are now used to express a critical perspective in organisation studies (for example, Gergen, 1992; Hassard and Parker, 1993; Hatch, 1997; Morgan, 1997) and in the HRM field (Legge, 1995; Townley, 1993). Connock (1992) includes postmodern thinking among the contemporary ‘big ideas’ of significance to human resource managers, while Fox (1990) interprets strategic HRM as a self-reflective cultural intervention responding to postmodern conditions. Although questions about postmodernism merge with others on post-industrialism, post-Fordism, and the present stage of capitalism (see Legge, 1995; Reed and Hughes, 1992 and Chapter 14), here we focus only on postmodernism. Postmodernism is proving to be a challenging and unsettling concept for those socialised into what would now be called a ‘modern’ understanding of the world. There is considerable debate about it. Does it refer to an epoch (Hassard, 1993), a period of historical time, namely the ‘post-modern’ present which has succeeded ‘modern times’? If so, does it represent a continuation of or a disjunction with the past? Or does it refer to a particular, and critical, perspective, which Hassard (1993) calls an ‘epistemological position’ (see Glossary)? Many, such as Legge (1995), distinguish this from the epochal ‘post-modern’ by omitting the hyphen (‘postmodern’). An example of the epochal interpretation is Clegg’s (1990: 180–181) discussion of post-modern organisations, the characteristics of which he identifies by contrasting them with modern organisations. For example, he suggests that the latter (that is, the organisations that we had been familiar with until the last decade or so of the twentieth century) were rigid, addressed mass markets and were premised on technological determinism; their jobs were ‘highly differentiated, demarcated and de-skilled’. Post-modern organisations, however, are flexible, address niche markets, and are premised on technological choices; their jobs are ‘highly de-differentiated, de-demarcated and multiskilled’. It is less easy to pin down postmodernism as an epistemological position but, in brief, it is somewhat like the little boy’s response to the ‘emperor’s new clothes’. Whereas modernism was based on the belief that there existed a universal objective truth which we could come to know by means of rational, scientific approaches (though often only with the help of experts), postmodernism denies that. It assumes that truth is local and socially constructed (see Glossary and later section) from a particular perspective. It asks: ‘What truth?’, ‘Whose truth?’, ‘Who says so?’ Hence it challenges the authority of the established view, for example, of the ‘meta-narratives’ of ‘progress’, ‘the value of science’ or ‘Marxism vs. capitalism’ which had become the accepted framework of twentieth-century understanding. Instead it recognises the claims of diverse and competing interpretations, and accepts that everything is open to question, that there are always alternative interpretations. Hence postmodernism has considerable significance for HRM. It recognises that multiple and competing views of organisations and HRM are legitimate; that the significance of theory lies not in its ‘truth’ but in its usefulness for practice. (This, perhaps, is a significant issue for the learning organisation, which is discussed in Chapter 8.) Moreover, it throws into question (Hassard and Parker, 1993; Kvale, 1992) the traditional (Western) understanding of the individual as a ‘“natural entity”, independent of society, with “attributes” which can be studied empirically’ (Collin, 1996: 9). That modern interpretation has underpinned the understanding and practices of HRM, such as psychometric testing: the postmodern view challenges the accepted way of dealing with, for example, competencies and assessment (Brittain and Ryder, 1999). Moreover, postmodernism recognises that, far from being objective and universal as modernism assumed, knowledge is constructed through the interplay of power relationships and often the dominance of the most powerful. This makes a critical interpretation of established bodies of thought such as psychology (Kvale, 1992), which could be seen as a Western cultural product (Stead and Watson, 1999). Thus, whereas modernism often ignored or, indeed, disguised ideologies (see Glossary and the section later on

The wider context of HRM


‘Ways of seeing and thinking’), postmodernism seeks to uncover them. It also encourages self-reflexivity and, therefore, a critical suspicion towards one’s own interpretations, and an ironic and playful treatment of one’s subject. Another important difference between modernism and postmodernism lies in the way they regard language. Modernism assumes that language is neutral, ‘the vehicle for communicating independent “facts”’ (Legge, 1995: 306). The postmodern argument, however, is that this is not the case (see Reed and Hughes, 1992; Hassard and Parker, 1993). Language ‘itself constitutes or produces the “real”’ (Legge, 1995: 306). Moreover, it is ‘ideological’ (Gowler and Legge, 1989: 438): both the means through which ideologies are expressed and the embodiment of ideology (see Glossary and later subsection). This can be seen in sexist and racist language, and in ‘management-speak’. Postmodernism highlights the significance of discourse. ‘Why do we find it so congenial to speak of organizations as structures but not as clouds, systems but not songs, weak or strong but not tender or passionate?’ (Gergen, 1992: 207). The reason, Gergen goes on to say, is that we achieve understanding within a ‘discursive context’. A discourse is a ‘set of meanings, metaphors, representations, images, stories, statements and so on that in some way together produce a particular version of events’ (Burr, 1995: 48), a version belonging to a particular group of people. It provides the language and meanings whereby members of that group can interpret and construct reality, and gives them an identifiable position to adopt upon a given subject, thereby constituting their own identity, behaviour and reality (Gavey, 1989). By interpreting competing positions in its own terms, the group’s discourse shuts down all other possible interpretations but its own. For example, in order to engage in academic discourse, academics have to learn
a vocabulary and a set of analytic procedures for ‘seeing’ what is going on . . . in the appropriate professional terms. For we must see only the partially ordered affairs of everyday life, which are open to many interpretations . . . as if they are events of a certain well-defined kind. (Parker and Shotter, 1990: 9)

Parker and Shotter (1990), using the contrast between ‘everyday talk’ and academic writing, explain how academic text standardises its interpretations:
The strange and special thing about an academic text . . . is that by the use of certain strategies and devices, as well as already predetermined meanings, one is able to construct a text which can be understood (by those who are a party to such ‘moves’) in a way divorced from any reference to any local or immediate contexts. Textual communication can be (relatively) decontextualised. Everyday talk, on the other hand, is marked by its vagueness and openness, by the fact that only those taking part in it can understand its drift; the meanings concerned are not wholly predetermined, they are negotiated by those involved, on the spot, in relation to the circumstances in which they are involved . . . Everyday talk is situated or contextualised, and relies upon its situation (its circumstances) for its sense. (pp. 2–3)

There are many discourses identifiable in the field of organisation and management studies – managerial, humanist, critical, industrial relations – that offer their own explanations and rhetoric. You can explore them further in, for example, the chapters that follow, and Clark et al. (1994), but you should remain aware that academic discourse itself enables writers to exercise power over the production of knowledge and to influence their readers. Awareness of discourse is also important for the understanding of organisations:


Chapter 3 · Human resource management in context

organisational life is made up of many ‘discourses’ – that is, flows of beliefs, experiences, meanings and actions. Each of these discourses shapes the behaviour of the organisation and of teams and individuals within it. These discourses are in turn created and reworked by individuals’ actions and their expressed beliefs. This may not sound much, but it shifts the management of change, for example, from a simplistic view of changing culture, processes and structures to one of altering these aspects of organisational life by building on and reshaping the various discourses flowing around a company.
(Baxter, 1999: 49).

The notion of discourse is relevant to our understanding of HRM. From today’s vantage point we can now perhaps recognise that the way in which we once conceptualised and managed the employment relationship was influenced by modernism. However, Legge (1995: 324–325) considers HRM to be both post-modern and postmodern. ‘From a managerialist view’ it is post-modern in terms of epoch and its basic assumptions (p. 324), whereas ‘from a critical perspective’ it is a ‘postmodernist discourse’ (p. 312). HRM, with its ambiguous, or contested, nature, discussed in Chapter 1, emerged alongside the spread of post-modern organisations and postmodern epistemology. The recognition of multiple, coexisting yet competing realities and interpretations, the constant reinterpretation, the eclecticism, the concern for presentation and re-presentation – all of which you will recognise in this book – can be interpreted as a postmodern rendering of the debate about the nature of the employment relationship. We must therefore expect that there will be even more, perhaps very different, interpretations of HRM to be made.

Stop and think

The way David Brent, in Ricky Gervais’s The Office, communicates with his staff is a caricature of managerial discourse. Can you identify from that what kind of managerial strategy (see earlier), he appears to have adopted?

The ‘new science’
We shall now turn briefly to another possible source of influence upon the HRM field. The so-called ‘new science’ derives from new developments in the natural sciences that challenge some of the key assumptions of Newton’s mechanistic notion of the universe (see Wheatley, 1992, for a simplified explanation). Traditionally, science has been ‘reductionist’ in its analysis into parts and search for ‘the basic building blocks of matter’ (Wheatley, 1992: 32). It has assumed that ‘certainty, linearity, and predictability’ (Elliott and Kiel, 1997: 1) are essential elements of the universe. However, new discoveries have questioned those assumptions, generating the theories of complexity and chaos. Complexity refers to a system’s ‘interrelatedness and interdependence of components as well as their freedom to interact, align, and organize into related configurations’ (Lee, 1997: 20). ‘Because of this internal complexity, random disturbances can produce unpredictable events and relationships that reverberate throughout a system, creating novel patterns of change … however, … despite all the unpredictability, coherent order always [emphasis in original] emerges out of the randomness and surface chaos’ (Morgan, 1997: 262). To understand complexity, new approaches that recognise the whole rather than just its parts – a holistic approach – and attention to relationships between the parts are needed, and these are being developed. Although theories of complexity and chaos are sometimes referred to as a ‘postmodern science’, this is a ‘common misconception’, for ‘while recognizing the need for a modification of the reductionist classical model of science, [these theories] remain grounded within the “scientific” tradition’ (Price, 1997: 3). They are, nevertheless, recognised as relevant to the understanding of complex social systems. For example,

Ways of seeing and thinking


‘chaos theory appears to provide a means for understanding and examining many of the uncertainties, nonlinearities, and unpredictable aspects of social systems behavior’ (Elliott and Kiel, 1997: 1). The literature on the application of these theories to social phenomena tends to be very demanding (for example, Eve et al., 1997; Kiel and Elliott, 1997). However, Morgan’s (1997) and Wheatley’s (1992) applications to organisations are more accessible. There has been some application in the HRM field. For example, Cooksey and Gates (1995) use non-linear dynamics and chaos theory as a way of conceptualising how common HRM practices translate into observable outcomes. Brittain and Ryder (1999: 51) draw on complexity theory in their attempt to improve the assessment of competencies, and conclude that ‘HR professionals and psychologists need to challenge widely held beliefs about assessment processes, move away from simplistic assumptions about cause and effect and take a more complex view of the world’.

Ways of seeing and thinking
The chapter will now turn its attention to our ways of seeing and thinking about our world: ways that generate the language, the code, the keys we use in conceptualising and practising HRM. It is at this point that we become fully aware of the value of representing context as a tapestry rather than as a many-skinned onion, for we find here various strands of meaning that managers and academics are drawing upon to construct – that is, both to create and to make sense of – HRM. These ways of seeing are the warp, the threads running the length of the tapestry that give it its basic form and texture, but are generally not visible on its surface. They are more apparent, however, when we turn the tapestry over, as we shall do now, and examine how we perceive reality, make assumptions about it, and define it for ourselves. We shall then look at the weft threads of the tapestry as we examine how we define reality for others through ideology and rhetoric.

■ Perceiving reality
● Perception
Human beings cannot approach reality directly, or in a completely detached and clinical manner. The barriers between ourselves and the world outside us operate at very basic levels:
Despite the impression that we are in direct and immediate contact with the world, our perception is, in fact, separated from reality by a long chain of processing.
(Medcof and Roth, 1979: 4)

Psychologists indicate that perception is a complex process involving the selection of stimuli to which to respond and the organisation and interpretation of them according to patterns we already recognise. (You can read more about this in Huczynski and Buchanan, 2002.) In other words, we develop a set of filters through which we make sense of our world. Kelly (1955) calls them our ‘personal constructs’, and they channel the ways we conceptualise and anticipate events (see Bannister and Fransella, 1971).

● Defence mechanisms
Our approach to reality, however, is not just through cognitive processes. There is too much at stake for us, for our definition of reality has implications for our definitions of


Chapter 3 · Human resource management in context

ourselves and for how we would wish others to see us. We therefore defend our sense of self – from what we interpret as threats from our environment or from our own inner urges – by means of what Freud called our ‘ego defence mechanisms’. In his study of how such behaviour changes over time, Vaillant (1977) wrote:
Often such mechanisms are analogous to the means by which an oyster, confronted with a grain of sand, creates a pearl. Humans, too, when confronted with conflict, engage in unconscious but often creative behaviour. (p. 7)

Freudians and non-Freudians (see Peck and Whitlow, 1975: 39–40) have identified many forms of such unconscious adaptive behaviour, some regarded as healthy, others as unhealthy and distorting. We may not go to the lengths of the ‘neurotic’ defences which Vaillant (1977: 384–385) describes, but a very common approach to the threats of the complexity of intimacy or the responsibility for others is to separate our feelings from our thinking, to treat people and indeed parts of ourselves as objects rather than subjects. The scene is set for a detached, objective and scientific approach to reality in general, to organisations in particular, and to the possibility of treating human beings as ‘resources’ to be managed.

■ Making assumptions about reality
We noted earlier that the very term ‘human resource management’ confronts us with an assumption. This should cause us to recognise that the theory and practice of the employment relationship rest upon assumptions. The assumptions to be examined here are even more fundamental ones for they shape the very way we think. Some are so deeply engrained that they are difficult to identify and express, but they are nevertheless embodied in the way we approach life. They include the way we conceptualise, theorise about and manage the employment relationship, so our assumptions have important implications for our interpretation of HRM. Writing about Kelly’s (1955) personal construct theory, Bannister and Fransella (1971) argue:
we cannot contact an interpretation-free reality directly. We can only make assumptions about what reality is and then proceed to find out how useful or useless those assumptions are. (p. 18)

However, we have developed our assumptions from birth, and they have been refined and reinforced by socialisation and experience so that, generally, we are not even aware of them. We do not, therefore, generally concern ourselves with epistemology, the theory of knowledge, and we find the discussion of philosophical issues difficult to follow. Nevertheless, we are undoubtedly making significant assumptions about ‘what it is possible to know, how may we be certain that we know something’ (Heather, 1976: 12–13). These assumptions underpin thinking and contribute to the filters of perception: they therefore frame any understanding of the world, including the ways in which researchers, theorists and practitioners construe HRM. To understand something of HRM we need at least to recognise some of the implications of these epistemological and philosophical issues. Pepper’s (1942) ‘world hypotheses’ help us distinguish some fundamentally different assumptions that can be made about the world. He classifies them as two pairs of

Ways of seeing and thinking


polarised assumptions. The first pair is about the universe. At one pole is the assumption that there is an ordered and systematic universe, ‘where facts occur in a determinate order, and where, if enough were known, they could be predicted, or at least described’ (Pepper, 1942: 143). At the other pole, the universe is understood as a ‘flowing and unbroken wholeness’ (Morgan, 1997: 251), with ‘real indeterminateness in the world’ (Harré, 1981: 3), in which there are ‘multitudes of facts rather loosely scattered and not necessarily determining one another to any considerable degree’ (Pepper, 1942: 142–143). Pepper’s second polarity is about how we approach the universe: through analysis, fragmenting a whole into its parts in order to examine it more closely, or through synthesis, examining it as a whole within its context. Western thinking stands at the first pole in both pairs of assumptions: it takes an analytical approach to what is assumed to be an ordered universe. Hence ‘we are taught to break apart problems, to fragment the world’ (Senge, 1990: 3); we examine the parts separately from their context and from one another, ‘wrenching units of behaviour, action or experience from one another’ (Parker, 1990: 100). These approaches, which underpin the positivism discussed in the next subsection, lead us in our research to examine a world that we interpret as
abstract, fragmented, precategorized, standardized, divorced from personal and local contexts or relevance, and with its meanings defined and controlled by researchers.
(Mishler, 1986: 120)

By contrast, and of particular relevance to this chapter, is ‘contextualism’, Pepper’s world hypothesis that espouses the assumptions at the second pole of both pairs above. This regards events and actions as processes that are woven into their wider context, and so have to be understood in terms of the multiplicity of interconnections and interrelationships within that context. This is what our tapestry metaphor has attempted to convey. We can use further metaphors to glimpse just how different this view is from our orthodox understanding of the world: from the user’s perspective, the latter is like using a library, while the former is more like using the Internet (Collin, 1997). The information in a library is structured and classified by experts in a hierarchical system according to agreed conventions; users have to follow that system, translating their needs for information into a form recognised by that system. The Internet, however, is an open-ended network of providers of information, non-linear, constantly changing and expanding. It presents users with a multitude of potential connections to be followed at will and, moreover, the opportunity to participate through dialogue with existing websites or through establishing their own Web page. Differences as basic as those between Pepper’s world hypotheses inevitably lead to very different ways of seeing and thinking about reality and, indeed, of understanding our own role in the universe. However, we are rarely aware of or have reason to question our deepest assumptions. Not only does our orthodox approach itself impede our recognition of these epistemological issues, but the processes of socialisation and education in any given society nudge its members in a particular direction (although some may wander off the highway into the byways or, like the author of Zen and the Art of Motorcycle Maintenance (Pirsig, 1976), into what are assumed to be badlands). It can be easier to discern these issues in the contrast offered by the epistemological positions adopted in other societies. We can, for example, recognise more of our own deeply embedded assumptions when we encounter a very different world view in an anthropologist’s account (Castaneda, 1970) of his apprenticeship to a Yaqui sorceror. Of this, Goldschmidt (1970) writes:


Chapter 3 · Human resource management in context

Anthropology has taught us that the world is differently defined in different places. It is not only that people have different customs; it is not only that people believe in different gods and expect different post-mortem fates. It is, rather, that the worlds of different peoples have different shapes. The very metaphysical presuppositions differ: space does not conform to Euclidean geometry, time does not form a continuous unidirectional flow, causation does not conform to Aristotelian logic, man [sic] is not differentiated from non-man or life from death, as in our world . . . The central importance of entering worlds other than our own – and hence of anthropology itself – lies in the fact that the experience leads us to understand that our own world is also a cultural construct. By experiencing other worlds, then, we see our own for what it is . . . (pp. 9–10)

Most of the epistemological threads in the tapestry examined in this chapter reflect Western orthodoxy. (Note how Western orthodoxy has exerted hegemony (see Glossary and below) over non-Western thinking (Stead and Watson, 1999).) And this orthodoxy itself might be gradually changing; some commentators have argued that it has reached a ‘turning point’ (Capra, 1983), that they can detect signs of a ‘paradigm shift’ (see Glossary). Indeed, over the last decade or so there have emerged new developments in the natural sciences (see the ‘new science’ above), and elsewhere (see feminist thinking: below) that challenge orthodoxy.

Stop and think

How could you use Pepper’s ideas to explain the challenges of postmodernism and the ‘new science’ to conventional thinking?

This chapter will now turn to a more accessible level of our thinking, easier to identify and understand, although again we do not customarily pay it much attention.

■ Defining reality for ourselves
The distinctions between the epistemological positions above and the philosophical stances examined here appear very blurred (Heather, 1976; Checkland, 1981). There is certainly considerable affinity between some of Pepper’s (1942) ‘world hypotheses’ and the approaches noted below. The discussion here will be restricted to aspects of those approaches relevant to our understanding of concepts and practices like HRM.

● Orthodox thinking
By orthodoxy we mean ‘correct’ or currently accepted opinions inculcated in the majority of members in any given society through the processes of socialisation and education and sustained through sanctions against deviation. In our society, for example, most people trust in rationality and ‘orthodox medicine’ and have doubts about the paranormal and ‘alternative medicine’. We do not generally question our orthodox beliefs: they ‘stand to reason’, they work, everyone else thinks in the same way. By definition, therefore, we do not pay much attention to them, nor consider how they frame the interpretations we make of our world, nor what other alternatives there could be. We shall therefore now first examine this orthodoxy and then some alternatives to it.


Either on your own or in a group, make a list of the characteristics of Western orthodoxy that have already been mentioned in this chapter.

Ways of seeing and thinking


The orthodox approach in Western thinking is based on positivism. Positivism forms the basis of scientific method, and applies the rational and ordered principles of the natural sciences to human affairs generally. It manifests itself (see Heather, 1976; Rose, 1978: 26) in a concern for objectivity, in the construction of testable hypotheses, in the collection of empirical data, in the search for causal relationships and in quantification. It is, therefore, uneasy with subjective experience, and attempts to maintain distance between the researcher and those studied (called ‘subjects’, though regarded more as objects). For example, the Western view is that the individual has (rather than is) a self, which is a natural object, bounded, reified, highly individualised, and autonomous (see Collin, 1996). We can perceive the role of positivism in orthodoxy in the contrast Kelly draws between the assumptions underpinning his personal construct theory (see previous subsection) and those of orthodox science:
A scientist . . . depends upon his [sic] facts to furnish the ultimate proof of his propositions . . . these shining nuggets of truth . . . To suggest [as Kelly does] . . . that further human reconstruction can completely alter the appearance of the precious fragments he has accumulated, as well as the direction of their arguments, is to threaten his scientific conclusions, his philosophical position, and even his moral security . . . our assumption that all facts are subject . . . to alternative constructions looms up as culpably subjective and dangerously subversive to the scientific establishment.
(quoted in Bannister and Fransella, 1971: 17–18)

Positivism has informed most social science research, which in turn has reproduced, through the kind of new knowledge generated, Western orthodoxy. Hence, it ‘reigns’ in much HRM research (Legge, 1995: 308). It will be clear from the discussion of the immediate context of HRM that many managers and theorists of management espouse it. It underpins many organisational activities such as psychometric testing for selection and human resource planning models.

● Challenging alternatives
There are several alternative ways of thinking that challenge orthodoxy, and you could read more about them in Denzin and Lincoln (1994). The approaches outlined here differ from one another, having different origins and, to some extent, values and constituencies, though they are largely similar in their express opposition to positivism. However, it is important to note that it is only the non-positivist forms of feminist and systems thinking that are covered here: in other words, there are also positivist versions.


Either on your own or in a group, make a list of the characteristics of alternatives to Western orthodoxy that have already been mentioned in this chapter.

Phenomenology, constructivism and social constructionism
These three approaches stand in marked contrast to positivism, being concerned not with objective reality, but with our lived, subjective, experience of it. Phenomenology is concerned with understanding the individual’s conscious experience. Rather than analysing this into fragments, it takes a holistic approach. It acknowledges the significance of subjectivity, which positivism subordinates to objectivity. Phenomenological researchers try to make explicit the conscious phenomena of experience of those they study, seeking access to these empathically, through shared


Chapter 3 · Human resource management in context

meanings and inter-subjectivity. This is not a commonplace approach in the field of HRM and management (Sanders, 1982), although it is sometimes discussed in qualitative research studies. Constructivism is also concerned with individual experience, but with emphasis upon the individual’s cognitive processes: ‘each individual mentally constructs the world of experience … the mind is not a mirror of the world as it is, but functions to create the world as we know it’ (Gergen, 1999, p. 236). (Note that some constructivists appear to retain something of the positivist approach.) Social constructionism holds that an objective reality is not directly knowable (and hence we cannot know whether it exists). The reality we do know is socially constructed: we construct it through language and social interaction.
Human beings in the social process are constantly creating the social world in interaction with others. They are negotiating their interpretations of reality, those multiple interpretations at the same time constituting the reality itself. (Checkland, 1981: 277)

To make sense of our experiences, we have to interpret and negotiate meaning with others. There can be no single objective meaning but, Hoffman (1990) suggests,
an evolving set of meanings that emerge unendingly from the interactions between people. These meanings are not skull-bound and may not exist inside what we think of as an individual ‘mind’. They are part of a general flow of constantly changing narratives. (p. 3)

Knowledge is thus a social phenomenon (Hoffman, 1990), and language, rather than depicting objective reality, itself constructs meaning. Weick (1979) quotes a baseball story that illustrates this nicely:
Three umpires disagreed about the task of calling balls and strikes. The first one said, ‘I calls them as they is.’ The second one said, ‘I calls them as I sees them.’ The third and cleverest umpire said, ‘They ain’t nothin’ till I calls them.’ (p. 1)

As also suggested by Pepper’s (1942) contextualism, discussed earlier, this view of the social construction of meaning implies that we cannot separate ourselves from our created reality: ‘man [sic] is an animal suspended in webs of significance he himself has spun’ (Geertz, 1973: 5). Again as with contextualism, this approach emphasises the significance of perspective, the position from which an interpretation is made (remember the Guardian advertisement at the start of this chapter?). Further, it also draws attention to the way in which some people contrive to impose their interpretations upon, and so define the reality of, others, with the result that less powerful people are disempowered, overlooked, remain silent, are left without a ‘voice’ (Mishler, 1986; Bhavnani, 1990). This is a point to which the chapter returns later.

Stop and think

Can you identify social constructionist perspectives among the competing interpretations of organisations and management discussed earlier in the chapter?

Feminist thinking
Feminist thinking, which recognises differences between the world-views of women and men, challenges what is increasingly regarded as the male world-view of the positivist

Ways of seeing and thinking


approach (Gilligan, 1982; Spender, 1985). Gilligan’s (1982) landmark study concluded that women value relationship and connection, whereas men value independence, autonomy and control. Bakan (1966) made a distinction between ‘agency’ and ‘communion’, associating the former with maleness and the latter with femaleness. Agency is ‘an expression of independence through self-protection, self-assertion and control of the environment’ (Marshall, 1989: 279), whereas the basis of communion is integration with others.
The agentic strategy reduces tension by changing the world about it; communion seeks union and cooperation as its way of coming to terms with uncertainty. While agency manifests itself in focus, closedness and separation, communion is characterized by contact, openness and fusion. (Marshall, 1989: 289)

Therefore, Marshall (1989) argues, feminist thinking ‘represents a fundamental critique of knowledge as it is traditionally constructed . . . largely . . . by and about men’ and either ignores or devalues the experience of women:
its preoccupation with seeking universal, immutable truth, failing to accept diversity and change; its categorization of the world into opposites, valuing one pole and devaluing the other; its claims of detachment and objectivity; and the predominance of linear cause-and-effect thinking. These forms reflect male, agentic experiences and strategies for coping with uncertainty. By shaping academic theorizing and research activities, they build male power and domination into the structures of knowledge . . . (p. 281)

Calas and Smircich (1992: 227) discuss how gender has been ‘mis- or under-represented’ in organisation theory, and explore the effects of rewriting it in. These would include the correction or completion of the organisational record from which women have been absent or excluded, the assessment of gender bias in current knowledge, and the making of a new, more diverse organisation theory that covers topics of concern to women. Hearn et al. (1989) identify similar shortcomings in organisation theory in their discussion of the sexuality of organisations, while Hopfl and Hornby Atkinson (2000) point to the gendered assumptions made in organisations.

Systems and ecological thinking
Systems thinking offers particularly useful insights into the understanding of context. As with feminist thinking, there are both positivist and alternative views of systems, but here we are concerned with the latter. Checkland (1981), for example, adopts a phenomenological approach in his ‘soft systems methodology’, employing systems not as ‘descriptions of actual real-world activity’ (p. 314), but as ‘tools of an epistemological kind which can be used in a process of exploration within social reality’ (p. 249). (Note that his later book – Checkland and Scholes, 1990 – updates the methodology but does not repeat the discussion of its philosophical underpinnings.) As with feminist thinking, systems thinking gives us a different perspective from that of orthodox thinking. It allows us to see the whole rather than just its parts and to recognise that we are a part of that whole. It registers patterns of change, relationships rather than just individual elements, a web of interrelationships and reciprocal flows of influence rather than linear chains of cause and effect. The concept of system denotes a whole, complex and coherent entity, comprising a hierarchy of subsystems, where the whole is greater than the sum of its parts. Much of what has been written about systems draws upon General Systems Theory, a metatheory that offered a way to conceptualise phenomena in any disciplinary area. Very


Chapter 3 · Human resource management in context

importantly, the systems approach does not argue that social phenomena are systems, but rather that they can be modelled (conceptualised, thought about) as though they had systemic properties. The concept of system used in the social sciences is therefore a very abstract kind of metaphor. However, we can give only a brief outline of systems concepts here: you will find further detail in Checkland (1981), Checkland and Scholes (1990), Senge (1990) and Morgan (1997). Systems may be ‘open’ (like biological or social systems) or ‘closed’ to their environment (like many physical and mechanical systems). As shown in Figure 3.2, the open system imports from, exchanges with, its environment what it needs to meet its goals and to survive. It converts or transforms these inputs into a form that sustains its existence and generates outputs that are returned to the environment either in exchange for further inputs or as waste products. The environment itself comprises other systems that are also drawing in inputs and discharging outputs. Changes in remote parts of any given system’s environment can therefore ripple through that environment to affect it eventually. There is a feedback loop that enables the system to make appropriate modifications to its subsystems in the light of the changing environment. Thus the system constantly adjusts to achieve equilibrium internally and with its environment.

Figure 3.2

Model of an open system
Environment composed of other systems

System composed of subsystems Inputs from environment Conversion process Feedback Feedback Outputs into environment

Reflecting upon the management approaches identified earlier, we can now recognise that the scientific management, human relations and perhaps also the humanistic approaches treated the organisation as a closed system, whereas the human resource approach recognises it as open to its environment. Brunsson’s (1989) identification of the ‘action’ and ‘political’ organisations could also be seen as an open system approach. The significance of systems thinking, then, lies in its ability to conceptualise complex, dynamic realities – the system and its internal and external relationships – and model them in a simple, coherent way that is yet pregnant with meaning and capable of further elaboration when necessary. This means that we can use it to hold in our minds such complex ideas as those discussed in this chapter, without diminishing our awareness of their complexity and interrelationships.

Ways of seeing and thinking


According to Senge (1990), systems thinking – his ‘fifth discipline’ – is essential for the development of the effective organisation – the learning organisation (Chapter 8):
At the heart of a learning organization is a shift of mind – from seeing ourselves as separate from the world to connected to the world, from seeing problems as caused by someone or something ‘out there’ to seeing how our own actions create the problems we experience. A learning organization is a place where people are continually discovering how they create their reality. And how they can change it. (pp. 12–13)

Stop and think

What similarities do you see between systems thinking and the ‘new science’?

Systems thinking therefore enables us to contextualise organisations and HRM. It conceptualises an organisation in an increasingly complex and dynamic relationship with its complex and dynamic global environment. Changes in one part of the environment – global warming, poor harvests, international and civil wars – can change the nature of the inputs into an organisation – raw materials and other resources. This can lead to the need for adjustments in and between the subsystems – new marketing strategies, technologies, working practices – either to ensure the same output or to modify the output. The environment consists of other organisations, the outputs of which – whether intentionally or as by-products – constitute the inputs of others. A change in output, such as a new or improved product or service, however, will constitute a change in another organisation’s input, leading to a further ripple of adjustments. Consider, for example, how flexible working practices and call centres have been developed.


HRM as an open system
How would you represent the HRM activities of an organisation in a changing world in terms of the open systems model? Working individually or in groups, identify its inputs (where they come from, and how they could be changing), how it converts these, and what its (changing?) outputs might be. What are its feedback mechanisms?

■ Defining reality for others
This chapter has defined the warp of the tapestry of context as our ways of seeing and thinking. It will now examine some of the weft threads – the ways in which others define our reality (or we define reality for others): ideology, hegemony, and rhetoric. These interweave through the warp to produce the basic pattern of the tapestry, but with differing colours and textures, and also differing lengths (durations), so that they do not necessarily appear throughout the tapestry. They constitute important contextual influences upon HRM, and in part account for the competing definitions of it.

● Ideology
Gowler and Legge (1989) define ideology as ‘sets of ideas involved in the framing of our experience, of making sense of the world, expressed through language’ (p. 438). It has a narrower focus than the ‘ways of thinking’ we have been discussing above, and could be seen as a localised orthodoxy, a reasonably coherent set of ideas and beliefs that often goes unchallenged:
Ideology operates as a reifying, congealing mechanism that imposes pseudoresolutions and compromises in the space where fluid, contradictory, and multivalent subjectivity could gain ground. (Sloan, 1992: 174)


Chapter 3 · Human resource management in context

Ideology purports to explain reality objectively, but within a pluralist society it actually represents and legitimates the interests of members of a subgroup. It is a ‘subtle combination of facts and values’ (Child, 1969: 224), and achieves its ends through language and rhetoric (see below). What we hear and what we read is conveying someone else’s interpretations. The way those are expressed may obscure the ideology and vested interest in those interpretations. For example, in contrast to the orthodox view of culture, Jermier argues that culture is:
the objectified product of the labor of human subjects . . . there is a profound forgetting of the fact that the world is socially constructed and can be remade . . . Exploitative practices are mystified and concealed. (Frost et al., 1991: 231)

As you will recognise from earlier in the chapter, the organisation is an arena in which ideologies of many kinds are in contest: capitalism and Marxism, humanism and scientific approaches to the individual, feminism and a gender-biased view. Child (1969) discusses the ideology embodied in the development of management thinking, identifying how the human relations approach chose to ignore the difference of interests between managers and employees and how this dismissal of potential conflict influenced theory and practice. Commentators such as Braverman (1974), Frost et al. (1991) and Rose (1978), and many of the readings in Clark et al. (1994), will help you to recognise some of the ideologies at work in this field.

● Hegemony
Hegemony is the imposition of the reality favoured by a powerful subgroup in society upon less powerful others. Such a group exerts its authority over subordinate groups by imposing its definition of reality over other possible definitions. This does not have to be achieved through direct coercion, but by ‘winning the consent of the dominated majority so that the power of the dominant classes appears both legitimate and natural’. In this way, subordinate groups are ‘contained within an ideological space which does not seem at all “ideological”: which appears instead to be permanent and “natural”, to lie outside history, to be beyond particular interests’ (Hebdige, 1979: 15–16). It is argued that gender issues are generally completely submerged in organisations and theories of them (Hearn et al., 1989; Calas and Smircich, 1992; Hopfl and Atkinson, 2000) so that male-defined realities of organisations appear natural, and feminist views unnatural and shrill. You could use the readings in Clark et al. (1994) to identify instances of hegemony and the outcomes of power relations, such as the ‘management prerogative’; Watson (2000) throws light on the manager’s experience of these.

● Rhetoric
Rhetoric is ‘the art of using language to persuade, influence or manipulate’ (Gowler and Legge, 1989: 438). Its ‘high symbolic content’ ‘allows it to reveal and conceal but above all develop and transform meaning’ (Gowler and Legge, 1989: 439, their italics). It ‘heightens and transforms meaning by processes of association, involving both evocation and juxtaposition’. In other words, its artfulness lies in playing with meanings. It is something with which we are familiar, whether as political ‘spin’ or as the terminology used in effecting organisational change (Atkinson and Butcher, 1999). In the ‘eco-climate’ of an organisation, where meanings are shared and negotiated, power and knowledge relations are expressed rhetorically. For example, changes to structure and jobs might be described as ‘flexibility’ rather than as the casualisation of work (see, for example, Chapter 4), and increased pressures upon employees as ‘empowerment’ (see

Conclusion . . . and a new beginning?


Chapter 14). Moreover, Legge (1995) proposes, one way of interpreting HRM is to recognise it as ‘a rhetoric about how employees should be managed to achieve competitive advantage’ that both ‘celebrates’ the values of its stakeholders while ‘at the same time mediating the contradictions of capitalism’ (p. xiv). In other words, it allows those stakeholders to ‘have their cake and eat it’.

Conclusion . . . and a new beginning?
This chapter has examined something of the warp and weft that give the tapestry its basic form, pattern, colour and texture. To complete our understanding of the context of HRM we need to recognise that issues and people constitute the surface stitching that is drawn through the warp and weft to add further pattern and colour. You will be aware of examples from your own experience and the reading of this and other books, but we can instance the influences of recession, equal opportunities legislation, European directives, management gurus, Margaret Thatcher, ‘New Labour’, the euro debate, 11 September, that resonate with the warp and weft to produce the pattern that has come to be known as ‘HRM’. The tapestry of which HRM forms a part is continuously being woven, but we can now become aware of the sources of the differing approaches to organisation and management and of the contesting voices about the management of people. We can now recognise that their contest weaves multiple meanings into the organisational and conceptual pattern which is HRM. However, this awareness also allows us to recognise that yet other meanings, and hence potentials for the management of the employment relationship, remain to be constructed. By pointing to the need to recognise the significance of the context of HRM, this chapter is also acknowledging that you will find therein more interpretations than this book of ‘academic text’ (Parker and Shotter, 1990: see ‘Discourse’ earlier), shaped by its writers’ own agendas and values and the practicalities of commercial publication, can offer you. The process both of writing and of publication is that of decontextualisation, fragmentation, standardisation, and presentation of knowledge as ‘entertaining education’, in bite-sized chunks of knowledge or sound bites. But by urging you to become aware of the context of HRM, this chapter is at the same time inviting you to look beyond what it has to say, to recognise the nature of its discourse or, rather, discourses, to challenge its assumptions (and, indeed, your own) and to use your own critical judgements informed by your wider reading and personal experience. This, then, is why this book has begun its exploration of HRM by examining context. This chapter had a further aim (and this betrays this writer’s ‘agenda and values’). This is to orientate your thinking generally towards an awareness of context, to think contextually, for ultimately awareness of context is empowering. One of the outcomes could well be greater knowledge but less certainty, the recognition that there could be competing interpretations of the topic you are considering, that the several perspectives upon the area could all yield different conclusions. Attention to context, therefore, encourages us not to be taken in by our initial interpretations, nor to accept unquestioningly the definitions of reality that others would have us adopt (the ‘hegemony’ of the previous section). There are, however, no easy answers, and we have to make the choice between alternatives. Reality is much messier and more tentative than theory and, like ‘everyday talk’, it is ‘marked by its vagueness and openness’, its meaning open to interpretation through negotiation with others. The acceptance of this, however, as we shall later see in Chapter 8, is one of the marks of the mature learner: the ability to recognise alternative viewpoints but, nevertheless, to take responsibility for committing oneself to one of them.


Chapter 3 · Human resource management in context

By definition, one chapter cannot begin to portray the details of the context of HRM. Those, after all, are constantly changing with time. It will have achieved its purpose if it causes you to recognise the significance of context and the need to adopt ways of thinking that enable you to conceptualise it. It can point you in some directions, and you will find many others in the chapters that follow, but there are no logical starting points, because context is indivisible; and you will never reach the end of the story for, from the perspective of context, the story is never-ending.

● The chapter argues that the keys to the understanding of human affairs, such as HRM, lie within their context. Although context is difficult to conceptualise and represent, readers can draw on their existing understanding of environmental issues to help them comprehend it. Awareness and comprehension of context are ultimately empowering because they sharpen critical thinking by challenging our own and others’ assumptions. ● Multiple interests, conflict, and stressful and moral issues are inherent in the immediate context of HRM, which comprises the organisation (the nature of which generates a number of lateral and vertical tensions) and management (defined as the continuous process of resolving those tensions). Over time, managers have adopted a range of approaches to their task, including scientific management; the human relations school; humanistic organisation development; and now HRM. To understand this layer of HRM’s context calls for the recognition of the existence of some significant assumptions that inform managers’ differing practices and the competing interpretations that theorists make of them. ● The wider social, economic, political and cultural context of HRM is diverse, complex and dynamic, but three very different and unconnected strands of it are pulled out for examination. The two world wars left legacies for the management of the employment relationship, while emerging ‘postmodern’ experiences and critiques and the ‘new science’ locate HRM within a contemporary framework of ideas that could eventually challenge some assumptions about the management of the employment relationship. ● The chapter, however, finds it insufficient to conceptualise context as layered, like an onion. Rather, HRM is embedded in its context. The metaphor of a tapestry is therefore used to express the way in which its meaning is constructed from the interweaving and mutual influences of the assumptions deriving from basic perceptual, epistemological, philosophical and ideological positions. The notions of ‘warp’ and ‘weft’ are used to discuss such key contextual elements as positivism, phenomenology, constructivism, social constructionism, feminist thinking, systems thinking, ideology, hegemony, and rhetoric. People, events and issues are the surface stitching. ● The nature of this tapestry, with its multiple and often competing perspectives, ensures that HRM, as a concept, theory and practice, is a contested terrain. However, the chapter leaves readers to identify the implications of this through their critical reading of the book.




Drawing on your understanding of the environment
The nature of our environment concerns us all. As ‘environment’ and ‘green issues’ have crossed the threshold of public awareness to become big business, we have become concerned about our natural environment as no previous generations have been. We are now aware of the increasing complexity in the web of human affairs. We recognise the interrelationships within our ‘global village’, between the world’s ‘rich’ North and the ‘poor’ South, and between politics, economics and the environment, and at home between, for example, health, unemployment, deprivation and crime. Another feature of our environment that we cannot ignore is its increasingly dynamic nature. Our world is changing before our very eyes. Comparing it with the world we knew even ten years ago, and certainly with that known by our parents when they were the age we are now, it has changed dramatically and in ways that could never have been anticipated. 1 You will have considerable knowledge, and perhaps personal experience, of many environmental issues. These might be the problems of waste disposal and pollution, BSE and genetically modified food, the impact on the countryside of the construction of new roads, or the threats to the survival of many species of animals and plants. As a step towards helping you understand better the nature of context as defined in this chapter, and working individually or in groups, choose two or three such issues for discussion, and consider the following points. (a) Identify those who are playing a part in them (the actors) and those directly or indirectly affected by them (the stakeholders). How did the event or situation that has become an issue come about? Who started it? How do they explain it? Who benefits in this situation? How do they justify this? Who loses in it? What can they do about it? Why? Who is paying the cost? How and why? (b) Look for concrete examples of the following statements. – ‘We have an impact upon the environment and cause it to change, both positively and negatively.’ – ‘The environment and changes within it have an impact upon us and affect the quality of human life, both positively and negatively.’ – ‘The interrelationships between events and elements in the environment are so complex that they are often difficult to untangle.’ – ‘It may not be possible or even meaningful to identify the cause of events and their effects; the cause or causes may have to be inferred, the effects projected.’ – ‘Sometimes these effects are manifested far into the future, and so are not easily identifiable now, though they may affect future generations.’ – ‘Our relationship with our environment therefore has a moral dimension to it.’ – ‘To deal with some of the negative causes may be gravely damaging to some other groups of people.’ – ‘The understanding of these events will differ according to the particular perspective – whether of observer, actor, or stakeholder – and will arise from interpretation rather than ultimately verifiable “facts”.’ – ‘These issues often involve powerful power bases in society, each of which has its own interpretation of events, and wishes others to accept its definition of them.’ – ‘The nature of our relationship with our environment challenges our traditional scientific ways of thinking, in which we value objectivity, analyse by breaking down a whole into its parts, and seek to identify cause and effect in a linear model.’ – ‘It also therefore challenges our traditional methods of research and investigation, deduction and inference.’


Chapter 3 · Human resource management in context

2 The opening section of the chapter suggested that your examination of environmental issues would allow you to recognise that: – Context is multilayered, multidimensional and interwoven, like a tapestry. Concrete events and abstract ideas intertwine to create issues, and thinking, feeling, interpreting and behaving are all involved. – Our understanding of people and events depends upon our perspective. – It also depends upon our ideology. – There are therefore competing or contested interpretations of events. – Different groups in society have their own interpretations of events, stemming from their ideology. Their discourse incorporates an explanation for competing interpretations. They use rhetoric to express their own interpretations and to explain those of other people, thus distorting, or even suppressing, the authentic expression of competing views. – Powerful others often try to impose their interpretation of events, their version of reality, upon the less powerful majority: this is hegemony. From your knowledge of the environmental issues you have just discussed, can you give concrete examples of these points?

1 In what ways does the conceptualisation of context adopted by this chapter differ from more commonly used approaches (for example, in the models of HRM in Chapter 1)? Does it add to the understanding they give of HRM and, if so, in what way? 2 What assumptions and ‘world hypotheses’ underpin those models, and what are the implications for your use of them? 3 What assumptions and ‘world hypotheses’ appear to underpin this chapter, and what are the implications for your use of the chapter? 4 Identify some recent events that are likely to play a significant part in the context of HRM. 5 This chapter has been written from a British perspective. If you were working from a different perspective – South African, perhaps, or Scandinavian – what elements of the context of HRM would you include? 6 The chapter has been written for students of HRM. Is it also relevant to practitioners of HRM and, if so, in what way?

Having started to think in terms of context and to recognise the significance of our ways of thinking, you should be reading the rest of this book in this same critical manner. As you go through it, try to identify the following:
● the assumptions (at various levels) underlying the research and theory reported in the chap-

ters that follow;
● the implications of these assumptions for the interpretations that the researchers and theo-

rists are placing upon their material;

Case study
● the possibility of other interpretations deriving from other assumptions; ● the assumptions (at various levels) that the writers of the following chapters appear to hold; ● the implications of these assumptions for the interpretations that these writers are placing


upon their material;
● the possibility of other interpretations deriving from other assumptions; ● the implications of the various alternatives for the practice of HRM.

Case study
Awkward squad promises a rough ride at Blackpool
Blair faces bruising from less compliant union leaders, say David Turner and Christopher Adams
The awkward squad is up and running at this year’s Trades Union Congress, and they have a ringleader with attitude and power promising a rough ride for Tony Blair. Yesterday, the eve of conference was the first big opportunity for this expanding group of leftwingers to grab attention – and they revelled in it. None more so than Derek Simpson, who seized joint control of Britain’s biggest private sector union two months ago and is now threatening a series of high-profile industrial disputes with a promise to tear up long-standing ‘sweetheart’ deals with employers. Many of the agreements bar strikes. The left-winger and former communist, propelled to power at the Amicus union by grassroots discontent with the direction taken by Mr Blair’s government, chose robust terms to signal that the days of compliant trade unionism were over. Ramming home his campaign on workers’ rights, Mr Simpson predicted the prime minister would leave Blackpool after his address to the TUC in Blackpool tomorrow with a ‘fucking migraine’. Bob Crow, leader of the RMT rail union, picked up the theme. Mr Blair, he quipped, would be needing Anadin to treat his headache and he would be happy to supply it. Mr Blair’s first address to the TUC for two years, having been called away from last year’s conference by the September 11 attacks, is keenly awaited in Blackpool. Union leaders, moderate and militant, yesterday vented their dissatisfaction on a range of issues: Iraq, the demise of final salary pensions, privatisation of public services and the plight of manufacturing. Discontent has boiled over in a series of hostile motions agreed for debate this week. The government is criticised for neglecting workers’ rights and doing too little for public sector employees. Unions have united in support of the firefighters who, on Thursday, are expected to vote for strike action over a pay claim for the first time in 25 years. But underlying all this venom directed at the government is a recognition by moderate union leaders that their members are being swayed by the arguments of the left and that they themselves need to toughen their rhetoric. In truth, the TUC is more divided than at any time since Mr Blair became leader. Evidence of this is an angry split on the euro, reflecting the ‘anti’ views of several new generation leaders. Bill Morris, TGWU leader and a close ally of chancellor Gordon Brown, is to defy a motion advocating euro membership. The TUC line chiming with the government’s ‘in principle’ policy on joining faces challenge at the hands of the anti-euro union leaders who include Dave Prentis of Unison, Mr Simpson and Mr Crow. The split extends to Iraq, where union leaders have struggled for days to come up with a carefully constructed compromise opposing unilateral US action but leaving open the option of a military strike with United Nations support. Already facing backbench unrest and public scepticism about the need for war against Iraq, the prime minister has the additional problem of a long battle over public sector reforms, peppered with disputes over pay. Now Mr Simpson, who came from nowhere to unseat Sir Ken Jackson, is set on unpicking his Blairite predecessor’s employerfriendly regime. Amicus is to ask its million members whether they want to renegotiate agreements with employers that set out the terms for collective bargaining. Mr Simpson said many deals negotiated in the 1980s and 1990s contained compulsory arbitration, no time off for union



Chapter 3 · Human resource management in context

Case study continued
work and no right to negotiate pay and conditions. The recognition process had become an unseemly ‘beauty parade’, he said. To secure sole recognition, unions were falling over themselves to offer favourable terms to employers rather than their members. ‘We will tear up the form book on industrial relations and seek agreements that achieve real benefits for our members.’ The number of deals could run into several hundred, but union officials say they have already identified at least 30. The move is a significant break with policy for a union that, under Sir Ken, pioneered the kind of ‘partnership’ agreements that have become commonplace throughout industry. Mr Simpson said partnership had become a ‘euphemism for exploitation’. Other unions like the sound of that – Ucatt, the construction workers’ union, said it would ‘bring to an end the practice of employers choosing a union for their workers’. Mr Simpson, who has declined a meeting with the prime minister, personified the reception Mr Blair will face. There will be little escape from union leaders, awkward squad and moderates alike. All this makes for a week of hard-talking and drawn-out debate that will define relations with the government up until the next election. At the end of it, the unions may have found more common ground than they share now. On the other hand, and this is by far the more likely outcome, the true extent of the differences with the more vocal left will be clear. And the headache for Mr Blair is that the broad base of union support that underpinned him during his first term will be that little bit narrower.
Source: Turner, D. and Adams, C., Financial Times, 9 September 2002.

1 This article about the 2002 Trades Union Congress points to a number of elements within the context of HRM that threaten ultimately to affect HRM policies and practices within many organisations. Identify them, and develop a systems map to help you examine their likely influences upon the HRM of an organisation. (If you are working in a group, split in two, one half looking at this from the perspective of an HR director of a large private sector organisation, and the other from that of an HR director of a public sector organisation. Compare the two models. Are there differences between them? Why?) 2 What are the implications of changes in the wider context for the planning and development of an organisation’s HRM policies and practices? What are the implications for HRM strategy?

3 How many different perspectives are evident in this article? 4 Identify the several instances of ‘ideology’, ‘rhetoric’, and ‘discourse’ recognisable in this article. 5 (You can carry out the following individually or in two groups.) First, as a member of Mr Blair’s government, write a report on these TUC preoccupations for your colleagues. Next, as an HR director of a private sector organisation, write a report on them to your board. Now compare the two reports. How do they differ in rhetoric and discourse, and what do these differences suggest about their underlying ideology? 6 What are the implications of the significance of rhetoric and discourse for managing people in organisations?

References and further reading
Those texts marked with an asterisk are particularly recommended for further reading. Aldrich, H.E. (1992) ‘Incommensurable paradigms? Vital signs from three perspectives’, in Reed, M. and Hughes, M. (eds) Rethinking Organization: New Directions in Organization Theory and Analysis. London: Sage, pp. 17–45. Argyris, C. (1960) Understanding Organisational Behaviour. London: Tavistock Dorsey. Atkinson, S. and Butcher, D. (1999) ‘The power of Babel: lingua franker’, People Management, Vol. 5, No. 20, 14 October, pp. 50–52. Bakan, D. (1966) The Duality of Human Existence. Boston, Mass.: Beacon. Bannister, D. and Fransella, F. (1971) Inquiring Man: The Theory of Personal Constructs. Harmondsworth: Penguin. Baxter, B. (1999) ‘What do postmodernism and complexity science mean?’, People Management, Vol. 5, No. 23, 25 November, p. 49. Bhavnani, K.-K. (1990) ‘What’s power got to do with it? Empowerment and social research’, in Parker, I. and

References and further reading
Shotter, J. (eds) Deconstructing Social Psychology. London: Routledge, pp. 141–152. Braverman, H. (1974) Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century. New York: Monthly Review Press. Brittain, S. and Ryder, P. (1999) ‘Get complex’, People Management, Vol. 5, No. 23, 25 November, pp. 48–51. Brunsson, N. (1989) The Organization of Hypocrisy: Talk, Decisions and Actions in Organizations. Chichester: Wiley. Burr, V. (1995) An Introduction to Social Constructionism, London: Routledge. Calas, M.B. and Smircich, L. (1992) ‘Re-writing gender into organizational theorizing: directions from feminist perspectives’, in Reed, M. and Hughes, M. (eds) Rethinking Organization: New Directions in Organization Theory and Analysis. London: Sage, pp. 227–253. Callaghan, G. and Thompson, P. (2002) ‘We recruit attitude: the selection and shaping of routine call centre labour’, Journal of Management Studies, Vol. 39, No. 2, pp. 233–254. Cameron, S. (1997) The MBA Handbook: Study Skills for Managers, 3rd edn. London: Pitman. Capra, F. (1983) The Turning Point: Science, Society and the Rising Cultures. London: Fontana. Castaneda, C. (1970) The Teachings of Don Juan: A Yaqui Way of Knowledge. Harmondsworth: Penguin. Checkland, P. (1981) Systems Thinking, Systems Practice. Chichester: Wiley. Checkland, P. and Scholes, J. (1990) Soft Systems Methodology in Action. Chichester: Wiley. Cherniss, C. and Goleman, D. (eds.) (2001) The Emotionally Intelligent Workplace: How to Select for, Measure, and Improve Emotional Intelligence in Individuals, Groups, and Organizations. San Francisco, Calif.: Jossey-Bass. Child, J. (1969) British Management Thought: A Critical Analysis. London: George Allen & Unwin. *Clark, H., Chandler, J. and Barry, J. (1994) Organisation and Identities: Text and Readings in Organisational Behaviour. London: Chapman & Hall. Clegg, S.R. (1990) Modern Organizations: Organization Studies in the Postmodern World. London: Sage. Collin, A. (1996) ‘Organizations and the end of the individual?’, Journal of Managerial Psychology, Vol. 11, No. 7, pp. 9–17. Collin, A. (1997) ‘Career in context’, British Journal of Guidance and Counselling, Vol. 25, No. 4, pp. 435–446. Concise Oxford Dictionary (1982) 7th edn. Oxford: Clarendon Press. Connock, S. (1992) ‘The importance of “big ideas” to HR managers’, Personnel Management, June, pp. 24–27. Cooksey, R.W. and Gates, G.R. (1995) ‘HRM: A management science in need of discipline’, Asia Pacific Journal of Human Resources, Vol. 33, No. 3, pp. 15–38. Cooper, R. and Fox, S. (1990) ‘The “texture” of organizing’, Journal of Management Studies, Vol. 27, No. 6, pp. 575–582. Denzin, N.K. and Lincoln, Y.S. (eds) (1994) Handbook of Qualitative Research. Thousand Oaks, Calif.: Sage. Department of Scientific and Industrial Research (1961) Human Sciences: Aid to Industry. London: HMSO. *Eccles, R.G. and Nohria, N. (1992) Beyond the Hype: Rediscovering the Essence of Management. Boston, Mass.: Harvard Business School Press. Elliott, E. and Kiel, L.D. (1997) ‘Introduction’, in Kiel, L.D. and Elliott, E. (eds) Chaos Theory in the Social Sciences: Foundations and Applications. Ann Arbor, Mich.: The University of Michigan Press, pp. 1–15. Eve, R.A., Horsfall, S. and Lee, M.E. (eds) (1997) Chaos, Complexity, and Sociology: Myths, Models, and Theories. Thousand Oaks, Calif.: Sage. Fineman, S. (ed.) (1993) Emotion in Organizations. London: Sage. Fox, S. (1990) ‘Strategic HRM: postmodern conditioning for the corporate culture’, in Fox, S. and Moult, G. (eds) Postmodern Culture and Management Development, Special Edition: Management Education and Development, Vol. 21, Pt 3, pp. 192–206. *Frost, P.J., Moore, L.F., Louis, M.R., Lundberg, C.C. and Martin, J. (1991) Reframing Organizational Culture. Newbury Park, Calif.: Sage. Gavey, N. (1989) ‘Feminist poststructuralism and discourse analysis: contributions to feminist psychology’, Psychology of Women Quarterly, Vol. 13, pp. 459–475. Geertz, C. (1973) The Interpretation of Cultures. New York: Basic Books. Gergen, K.J. (1992) ‘Organization theory in the postmodern era’, in Reed, M. and Hughes, M. (eds) Rethinking Organization: New Directions in Organization Theory and Analysis. London: Sage, pp. 207–226. Gergen, K.J. (1999) An Invitation to Social Construction. London: Sage. Gilligan, C. (1982) In a Different Voice: Psychological Theory and Women’s Development. Cambridge, Mass.: Harvard University Press. Goldschmidt, W. (1970) ‘Foreword’, in Castaneda, C., The Teachings of Don Juan: A Yaqui Way of Knowledge. Harmondsworth: Penguin, pp. 9–10. Gowler, D. and Legge, K. (1989) ‘Rhetoric in bureaucratic careers: managing the meaning of management success’, in Arthur, M.B., Hall, D.T. and Lawrence, B.S. (eds) Handbook of Career Theory. Cambridge: Cambridge University Press, pp. 437–453. Harré, R. (1981) ‘The positivist-empiricist approach and its alternative’, in Reason, P. and Rowan, J. (eds) Human Inquiry: A Sourcebook of New Paradigm Research. Chichester: Wiley, pp. 3–17. Harvey, D. (1990) The Condition of Postmodernity. Oxford: Blackwell. Hassard, J. (1993) ‘Postmodernism and organizational analysis: An overview’, in Hassard, J. and Parker, M. (eds) (1993) Postmodernism and Organizations. London: Sage, pp. 1 – 23. Hassard, J. and Parker, M. (eds) (1993) Postmodernism and Organizations. London: Sage. Hatch, M.J. (1997) Organization Theory: Modern, Symbolic and Postmodern Perspectives. Oxford: Oxford University Press. Hatchett, A. (2000) ‘Call collective: ringing true’, People Management, Vol. 6, No. 2, January, pp. 40–42.



Chapter 3 · Human resource management in context
*Hearn, J., Sheppard, D.L., Tancred-Sheriff, P. and Burrell, G. (1989) The Sexuality of Organization. London: Sage. Heather, N. (1976) Radical Perspectives in Psychology. London: Methuen. Hebdige, D. (1979) Subculture: The Meaning of Style. London: Methuen. Hendry, C. and Pettigrew, A. (1990) ‘Human resource management: an agenda for the 1990s’, International Journal of Human Resource Management, Vol. 1, No. 1, pp. 17–43. Hodgson, A. (1987) ‘Deming’s never-ending road to quality’, Personnel Management, July, pp. 40–44. Hoffman, L. (1990) ‘Constructing realities: an art of lenses’, Family Process, Vol. 29, No. 1, pp. 1–12. Hopfl, H. and Hornby Atkinson, P. (2000) ‘The future of women’s career’, in Collin, A. and Young, R.A. (eds) The Future of Career, Cambridge: Cambridge University Press, pp. 130–143. Hosking, D. and Fineman, S. (1990) ‘Organizing processes’, Journal of Management Studies, Vol. 27, No. 6, pp. 583–604. Huczynski, A. and Buchanan, D. (2002) Organizational Behaviour: An Introductory Text, 4th edn. Harlow: FT/Prentice Hall. Huse, E.F. (1980) Organization Development and Change. 2nd edn. St. Paul, Minn.: West Publishing. Kanter, R.M. (1983) The Change Masters. New York: Simon & Schuster. Keenoy, T. (1990) ‘Human resource management: rhetoric, reality and contradiction’, International Journal of Human Resource Management, Vol. 1, No. 3, pp. 363–384. Kelly, G.A. (1955) The Psychology of Personal Constructs, Vols 1 and 2. New York: W.W. Norton. Kiel, L.D. and Elliott, E. (eds) (1997) Chaos Theory in the Social Sciences: Foundations and Applications. Ann Arbor, Mich.: The University of Michigan Press. Kvale, S. (ed.) (1992) Psychology and Postmodernism. London: Sage. Lee, M.E. (1997) ‘From enlightenment to chaos: toward nonmodern social theory’, in Eve, R.A., Horsfall, S. and Lee, M.E. (eds) Chaos, Complexity, and Sociology: Myths, Models, and Theories. Thousand Oaks, Calif.: Sage, pp. 15–29. Legge, K. (1995) Human Resource Management: Rhetorics and Realities. Basingstoke: Macmillan Business. Mant, A. (1979) The Rise and Fall of the British Manager. London: Pan. Marshall, J. (1989) ‘Re-visioning career concepts: a feminist invitation’, in Arthur, M.B., Hall, D.T. and Lawrence, B.S. (eds) Handbook of Career Theory. Cambridge: Cambridge University Press, pp. 275–291. McGregor, D. (1960) The Human Side of Enterprise. New York: McGraw-Hill. Medcof, J. and Roth, J. (eds) (1979) Approaches to Psychology. Milton Keynes: Open University Press. Mishler, E.G. (1986) Research Interviewing: Context and Narrative. Cambridge, Mass.: Harvard University Press. *Morgan, G. (new edn) (1997) Images of Organization. Thousand Oaks, Calif.: Sage. Moxon, G.R. (1951) Functions of a Personnel Department. London: Institute of Personnel Management. Parker, I. (1990) ‘The abstraction and representation of social psychology’, in Parker, I. and Shotter, J. (eds) Deconstructing Social Psychology. London: Routledge, pp. 91–102. Parker, I. and Shotter, J. (eds) (1990) ‘Introduction’, in Deconstructing Social Psychology. London: Routledge, pp. 1–14. *Pascale, R.T. and Athos, A.G. (1982) The Art of Japanese Management. Harmondsworth: Penguin. Peck, D. and Whitlow, D. (1975) Approaches to Personality Theory. London: Methuen. People Management (2002) The Guide to Work–Life Balance. London: People Management (www.peoplemanagement.co.uk/work-life). Pepper, S.C. (1942) World Hypotheses. Berkeley, Calif.: University of California Press. Peters, T.J. and Waterman, R.H. Jr (1982) In Search of Excellence: Lessons from America’s Best Run Companies. New York: Harper & Row. Pfeffer, J. (1981) Power in Organizations. London: Pitman. Pickard, J. (1992) ‘Profile: W. Edward Deming’, Personnel Management, June, p. 23. Pickard, J. (1999) ‘Emote possibilities: sense and sensitivity’, People Management, Vol. 5, No. 21, 28 October, pp. 48–56. Pirsig, R.M. (1976) Zen and the Art of Motorcycle Maintenance. London: Corgi. Price, B. (1997) ‘The myth of postmodern science’, in Eve, R.A., Horsfall, S. and Lee, M.E. (eds) Chaos, Complexity, and Sociology: Myths, Models, and Theories. Thousand Oaks, Calif: Sage, pp. 3–14. Pugh, D.S., Hickson, D.J. and Hinings, C.R. (1983) Writers on Organizations. 3rd edn. Harmondsworth: Penguin. *Reed, M. and Hughes, M. (eds) (1992) Rethinking Organization: New Directions in Organization Theory and Analysis. London: Sage. Ritzer, G. (1996) The McDonaldization of Society: An Investigation into the Changing Character of Contemporary Social Life. Thousand Oaks, Calif.: Pine Forge Press. Rose, M. (1978) Industrial Behaviour: Theoretical Development since Taylor. Harmondsworth: Penguin. Sanders, P. (1982) ‘Phenomenology: a new way of viewing organizational research’, Academy of Management Review, Vol. 7, No. 3, pp. 353–360. Schein, E.H. (1970) Organizational Psychology. 2nd edn. Englewood Cliffs, New Jersey: Prentice Hall. Schein, E.H. (1978) Career Dynamics: Matching Individual and Organizational Needs. Reading, Mass.: Addison-Wesley. *Senge, P. (1990) The Fifth Discipline: The Art and Practice of the Learning Organization. London: Century. Seymour, W.D. (1959) Operator Training in Industry. London: Institute of Personnel Management. Sloan, T. (1992) ‘Career decisions: a critical psychology’, in Young, R.A. and Collin, A. (eds) Interpreting Career: Hermeneutical Studies of Lives in Context. Westport, Conn.: Praeger, pp. 168–176. Southgate, J. and Randall, R. (1981) ‘The troubled fish: barriers to dialogue’, in Reason, P. and Rowan, J. (eds)

References and further reading
Human Inquiry: A Sourcebook of New Paradigm Research. Chichester: Wiley, pp. 53–61. Spender, D. (1985) For the Record: The Making and Meaning of Feminist Knowledge. London: Women’s Press. Stead, G.B., and Watson, M.B. (1999) ‘Indigenisation of psychology in South Africa’, in Stead, G.B. and Watson, M.B. (eds.) Career Psychology in the South African Context. Pretoria, South Africa: Van Schaik, pp. 214–225. Taylor, P., Mulvey, G., Hyman, J. and Bain, P. (2002) ‘Work organisation, control and the experience of work in call centres’, Work, Employment and Society, Vol. 16, No. 1, pp. 133–150. Townley, B. (1993) ‘Foucault power/knowledge, and its relevance for human resource management’, Academy of Management Review, Vol. 18, No. 3, pp. 518–545. Vaillant, G.E. (1977) Adaptation to Life: How the Brightest and Best Came of Age. Boston, Mass.: Little, Brown. *Watson, T.J. (2000) In Search of Management: Culture, Chaos and Control in Managerial Work. London: Thomson Learning. *Weick, K.E. (1979) The Social Psychology of Organizing. New York: Random House. Welch, J. (1998) ‘The new seekers: creed is good’, People Management, Vol. 4, No. 25, 24 December, pp. 28–33. Wheatley, M.J. (1992) Leadership and the New Science: Learning about Organization from an Orderly Universe. San Francisco, Calif.: Berrett-Koehler. Zohar, D. and Marshall, I. (2001) Spiritual Intelligence: The Ultimate Intelligence. London: Bloomsbury.


For multiple choice questions, exercises and annotated weblinks specific to this chapter visit this book’s website at www.booksites.net/beardwell

PART 1 Case study
Retailer derided for ‘moving the deckchairs’ at a crucial time – fears of double-digit fall in sales
M&S to split into seven business units. By Susanne Voyle
Marks and Spencer yesterday reshuffled its management and split the group into seven business units to improve its focus on customers. M&S, which has suffered a dramatic fall from grace in the fiercely competitive UK retail environment, has changed the job description of three board members and appointed seven executives just below board level to head the new units. The news came at the start of the crucial pre-Christmas trading week. M&S is believed to be suffering a steep fall-off in sales as rivals slash prices. The group has refused to comment ahead of a trading statement due in January. But people close to the company believe the fall in likefor-like sales has hit double digits. The group has yet to make its most eagerly awaited appointment – that of a chairman to replace Sir Richard Greenbury, who took early retirement in the summer. Shares in M&S, currently the centre of bid speculation, rose 31/4p to 2773/4. Last week, Philip Green, the retail entrepreneur, admitted he was considering a bid after the group’s shares jumped on repeated rumours. M&S yesterday stressed that the management changes were not a reaction to the possibility of a takeover. ‘The changes are a continuation of the move to more customer focused, flatter structures which were announced with the interim results in November,’ it said. M&S said the new business units would each be fully profitaccountable. ‘This means no one under-performing part of the business will be able to hide behind results of the group as a whole,’ said one insider. The biggest change comes for Barry Morris, formerly head of the food division, who has been put in charge of womenswear retail. Guy McCracken and Joe Rowe saw their roles changed slightly to reflect the devolution to buying power to the new business units. The group has been split with immediate effect into retail units for womenswear, menswear, lingerie, children’s wear, home, beauty and food. The heads of each unit will report directly to Peter Salsbury, chief executive. Most of the unit heads are longserving M&S employees, in line with the group’s tradition of promoting from within. But there are two exceptions. Rory Scott, who heads lingerie, joined the group less than two years ago from logistics group TNT, while Jacqueline Paterson, at beauty, joined from Boots just four months ago. The changes left some analysts unimpressed. ‘In the middle of one of the most important trading weeks in the calendar they have decided to reshuffle the deckchairs,’ said one. Another said: ‘Most people don’t know the insiders at M&S well enough to know whether changes like these will make any difference.’ Some institutional shareholders said the changes were unimportant while the chairmanship remains vacant. ‘The only interesting news will be when they appoint a chairman, and we don’t know when that will be,’ said one. M&S yesterday repeated that it had a preferred candidate and hoped to announce an appointment in the New Year.
Source: Financial Times, 22 December 1999.


This case describes the complex organisational issues facing Marks and Spencer. Assess the following HRM issues for the company. 1 What might be the strategic HRM issues facing the company in deciding to create business units? 2 To what extent does the company need to overhaul the relationship between HRM and its core businesses? 3 Using the styles and approaches to HRM outlined in this part, suggest a suitable HRM approach that Marks and Spencer might adopt for the medium term.

Pa r t


4 ■ Human resource management and the labour market 5 ■ Human resource planning 6 ■ Recruitment and selection 7 ■ Managing equality and diversity Part 2 Case study

Introduction to Part 2
This part deals with how organisations define and meet their needs for labour and how the ways in which they do this are influenced by factors internal and external to the organisation. For students and practitioners of management the main theme of the past decade has been change, uncertainty and risk. Technological change has transformed the nature of products and production systems, services and their delivery. Markets have become more unpredictable and competition more intense. Organisations have responded to this turbulence in a variety of ways, but the dominant trend has been towards smaller, ‘leaner’ organisations in which operational responsibilities are devolved and decentralised. These changes have called into question established approaches to management, not least the management of labour. Here the response to uncertainty and the competitive pressure to cut costs has been large-scale workforce reductions and an insistence on the need for greater ‘flexibility’ in the use of labour. This has had implications for employee recruitment as organisations consider the wider use of non-standard workers such as temporary, fixed-term and subcontracted labour. In many cases it has led to the erosion of employment systems based on offers of long-term employment security and internal promotion and has transferred risk from the employer to the employee, creating new patterns of advantage and disadvantage in the labour market. It has also called into question the usefulness of traditional approaches to planning as future labour requirements have come to be less predictable. These issues are explored in the chapters that make up this part of the book. Chapter 4 examines the factors that shape organisations’ employment systems – that is, their structured arrangements for acquiring, deploying, rewarding and controlling labour. It also explains why employment systems vary between organisations; why it is that some firms offer long-term employment security and career prospects and above-average pay, while others offer no such benefits. It analyses how recent changes in organisations and their environment influenced employment systems and examines recent debates concerning the future of employment; for example, are we seeing the end of long-term employment and is the traditional concept of employment itself becoming obsolete? Chapter 5 examines the specific issue of human resource planning. Traditionally, ‘manpower’ planning was seen as a set of objective techniques to enable managers to predict their future labour requirements and assess future labour supply. The emphasis was on quantitative measurement and predictions based on the extrapolation of trends derived from past data. The chapter explains this approach and the problems involved in attempting to plan in this way, particularly in the current organisational context as outlined above. It goes on to provide a critical explanation of how, in the light of these difficulties, the manpower planning concept has given way to more tentative, flexible and focused approaches embodied in human resource planning. Chapter 6 explains how contemporary developments are increasing the potential importance of having effective methods of recruiting and selecting employees. These developments include the growing need to ensure that diverse groups are treated fairly in terms of employment opportunity and the growing emphasis on the need for flexible, adaptable and cooperative (some might say compliant) workers. It goes on to explore the principles of employee recruitment and selection, how to judge the effectiveness of different methods of recruitment and selection, and the nature of recent developments in this area of HRM.


Introduction to Part 2

Chapter 7 takes up the theme of advantage and, more specifically, disadvantage in employment in depth by examining the nature and effects of unfair discrimination in employment, why managers should act to promote fairness in employment, and different, sometimes conflicting ideas on how they should do so. It highlights the complex nature of the issues raised by attempts to tackle disadvantage due to unfair discrimination. For example, should managers seek to treat all employees equally irrespective of ethnicity or gender, or should they take these differences into account when framing their employment policies? Should policies for combating disadvantage aim at equality of opportunity or equality of outcome? How useful is the concept of institutional discrimination? It also discusses the significance of the recent tendency to shift the focus of discussion away from the traditional idea of ‘equal opportunities’ to the concept of ‘managing diversity’.



Human resource management and the labour market
Tim Claydon
Explain the concept of employment systems and the ways in which different employment systems can be defined. Present an analysis of the factors that determine the type of employment system that an organisation operates. Show how changes in these factors have influenced trends in employment systems in the late twentieth and early twenty-first century. Present a critical appraisal of current ideas concerning the future of employment systems and their implications for HRM.

This chapter is concerned with how we think about the labour market and the place of employing organisations within it. Traditionally, those within the dominant paradigm in economics – known as neoclassical economics – have argued that competition means that market forces leave individual firms little scope for choice. High-cost firms eventually go out of business and the competitive search for lower costs means that firms tend to converge on the most efficient methods of production. This suggests that firms operating in the same industry or product market will employ the same technologies and types of labour, operate the same rates of pay and have pretty much the same employment/HRM policies. However, in recent years the growth of corporate strategy and HRM as bodies of ideas has encouraged scholars to focus on the ability of managers of organisations to exercise ‘strategic choice’ over a range of decisions, including employment matters. The implication of this is that employers’ decisions are not just determined by external market forces. Instead, employers have a certain amount of freedom to interpret their external environment and choose from a range of possible responses in a search for competitive advantage. This is an important issue for students of HRM in the light of its claim to be a strategic approach to the management of labour and thus superior to ‘traditional’ personnel and industrial relations management. One problem with the literature is that it often appears to be inconsistent. On the one hand it argues for the ability of managers to make strategic choices while on the other it tells us that contemporary developments such as the increased use of ‘flexible’ forms of employment are the inevitable result of


Chapter 4 · Human resource management and the labour market

changes in technology and markets. In order to avoid this inconsistency we need to ask how market environments might simultaneously create and constrain the scope for strategic choice in HRM. The specific focus of this chapter is the labour market. The chapter is divided into four main sections. In the first we consider various ideas about the nature of the labour market and employment systems. In the second we explore the factors that influence the type of employment system that an organisation operates. The third section discusses how and why employment has changed over the past 20 years and the final part of the chapter discusses some ideas about the future of employment systems and their implications for HRM.

The nature of labour markets and employment systems
The most general definition of the labour market is that it consists of workers who are looking for paid employment and employers who are seeking to fill vacancies. The amount of labour that is available to firms – labour supply – is determined by the number of people of working age who are in employment or seeking employment and the number of hours that they are willing to work. This number will be determined by the size and age structure of the population and by the decisions made by individuals and households about the relative costs and benefits of taking paid employment. These decisions are influenced by various factors, one of which is the level of wages on offer. Generally speaking, a higher wage will attract more people into the labour market and a lower wage will attract fewer as long as other factors, such the level of welfare benefits and people’s attitudes towards work, remain constant. The number of jobs on offer to workers – labour demand – is the sum of people in employment plus the number of vacancies waiting to be filled. The demand for labour is determined by the level of demand for the goods and services produced by firms in the market. When sales and production are rising, firms’ demand for labour rises. When sales fall and production is cut back, firms’ demand for labour falls.


Currently the UK and many other member states within the European Union face possible future problems of labour supply. The population of Europe is ageing as the birth rate has fallen and life expectancies have risen. More people than ever before are leaving the labour pool for retirement. At the same time there are fewer young people entering the labour market. Because of this, there is concern that the supply of labour will be inadequate to support desired rates of economic growth and to provide for the growing proportion of the population that is dependent on pensions and state benefits. Therefore policy initiatives are being put in place to develop new sources of labour supply to contribute to the available pool of labour. For example, more women are being encouraged to enter the labour market and governments are considering ways of encouraging immigrant workers to augment the domestic supply of labour. There is also widespread discussion of the possibility of reducing the rate at which people leave the labour market by increasing the age of retirement. Identify some of the implications of these developments for HR managers.

The simplest view of the labour market is that it is an arena of competition. Workers enter the arena in search of jobs and employers enter it in search of workers. Competition between employers for workers and between workers for jobs results in a ‘market wage’ that adjusts to relative changes in labour demand and supply. Thus, when

The nature of labour markets and employment systems


labour demand rises relative to labour supply, the market wage rises as firms try to outbid each other for scarce labour. When labour demand falls relative to labour supply, the market wage falls as workers compete with each other for the smaller number of available jobs. Competition means that no individual firm can set a wage that is out of line with the competitive market wage. Neither can workers demand such a wage. Should a firm try to offer a wage that is below the market rate, it will be unable to hire workers. Should a firm set a wage above the market rate, it will go out of business because its costs of production will be above those of its competitors. For the same reason, workers who demand a wage higher than the market rate will price themselves out of jobs. No firm will hire them because to do so would increase their costs of production relative to those of their competitors. While it is undeniable that competitive forces operate in the labour market to a degree, few would seriously pretend that this is a wholly accurate description of the real world. There are limits to competition between firms and among workers. Empirical research has shown that rates of pay vary between firms in the same industry operating in the same local labour market (Nolan and Brown, 1983). Wages do not respond instantly to changes in labour demand. Employment policies vary considerably among firms. For example, some employ labour on a casual hire and fire basis while others offer long-term employment security and career development. This has led labour economists to recognise that firms are not all equally influenced by the external labour market. Instead they develop a variety of employment systems which can be differentiated from each other in terms of the extent to which competitive labour market forces influence terms and conditions of employment.

■ Employment systems
Some of the most important contributors to the discussion of employment systems are Kerr (1954), Doeringer and Piore (1971) and Osterman (1984, 1987). Their classifications of employment systems vary in terms of the number of different systems they identify and the labels that they attach to them. For clarity and brevity a threefold classification is developed here. Employment systems can be seen to vary in terms of the extent to which they are based on three different types of labour market. These are:
● ● ●

the open or unstructured external labour market; the occupational labour market; the internal labour market.

These types can be differentiated from each other in terms of how close they are to the basic competitive model of the labour market. This in turn can be examined in terms of where they lie along three conceptual axes:
● ● ●

External–Internal. The extent to which firms rely on external or internal sources of labour to fill vacancies. Unstructured–Structured. The extent to which there are clear boundaries to the labour market in which the firm operates. Competitively–Institutionally regulated. The extent to which entry to jobs, progression within and between jobs, and terms and conditions of employment are determined by market competition or by formal rules administered through internal institutions (i.e. institutions developed by workers and employers) in addition to statutory protections afforded by the law (see Chapters 11 and 12).


Chapter 4 · Human resource management and the labour market

Employment systems that are closest to the basic competitive model will be external, unstructured and competitively regulated. Those furthest from it will be internal, structured and institutionally regulated.

● The open external labour market
This corresponds most closely to the simple model of the labour market as an arena of competition. It is external in the sense that employers draw their labour from an external pool and do not seek to foster long-term employment relationships. Workers are hired and fired as needed. It is also unstructured because there are no clear occupational boundaries within it and it is easy for workers to enter the market and move from job to job because no prior training or qualifications are necessary. Furthermore, there is little institutional regulation in the open external labour market. Workers have few legal rights or protections and trade unions are weak or non-existent. Therefore workers compete with each other for employment and employers determine the level of wages in the light of how abundant or scarce labour is in the market. This means that employees are continually exposed to external market forces.


In researching her recently published book Hard Work, extracts from which were published in the Guardian newspaper in January 2003, the journalist Polly Toynbee reported how she had seen a temporary nursery assistant’s job advertised in a London job centre. The job was advertised as paying £5 an hour. However, when Toynbee applied she found that in this case ‘temporary’ meant a zero hours contract. In other words, she would be ‘on call’ and only paid for the hours she actually worked. As she put it,‘It would be one shift this week, and three next, on call whenever necessary, never knowing what the hours or the pay would be from week to week.’
(P. Toynbee, Guardian G2, 14 January 2003, p. 9)

Why do some workers accept jobs on these terms? What are the advantages and disadvantages for employers of this type of employment?

● The occupational labour market
Occupational labour markets arise where workers have skills that can be transferred from one firm to another. Labour markets for professional workers are often of this type; for example, doctors can work in different hospitals, teachers can move from one school to another and lawyers from one law firm to another without having to retrain. Occupational labour markets are external in the sense that, because workers’ skills are transferable across firms, employers can fill vacancies by drawing on the pool of qualified workers that exists outside the firm. Workers can also look to further their careers by moving from one firm to another in search of promotion and better opportunities. Clearly there is potentially an element of competition in the occupational labour market. However, unlike workers in the open external labour market, those in structured occupational labour markets are able to insulate themselves from pressures of labour market competition to a considerable extent. Many analysts, following Kerr (1954), have argued that this means that the structured occupational labour market has been internalised to a degree, since it operates on the basis of rules generated internally within the occupation rather than being ruled by open competition. The reasons for this are as follows. Occupational labour markets are structured on an occupational basis, with occupational boundaries being defined in terms of the tools or materials used, or skills and qualifications. Movement between occupations is therefore difficult because of the time and expense involved in retraining to obtain a new set of occupational qualifications.

The nature of labour markets and employment systems


This limits the extent to which workers in an occupation are exposed to competition from workers outside it. This in turn enables workers to act collectively to influence their terms and conditions of employment through institutional regulation rather than leaving them to be determined by competitive market forces. Professional associations or trade unions control entry to the occupation, for example by making the right to work in it conditional on having certain minimum qualifications. Control of entry means that the number of workers can be restricted. This limits competition further and means that those in the occupation are ensured of employment. It also gives trade unions and professional associations a measure of bargaining power, which they can use through negotiation with employers to regulate pay and conditions.

Stop and think

What do structured occupational labour markets and open external labour markets have in common? Now recall the two main ways in which structured occupational labour markets differ from open external labour markets.

● The internal labour market
Internal labour markets are essentially enterprise-based employment systems. In other words, terms and conditions of employment are determined by rules that are internal to the organisation rather than by competitive forces in the wider labour market. They are internal in the sense that external recruitment is limited to junior and trainee positions within the organisation. Other vacancies are filled through internal transfers and promotion. Skills are learned on the job and are specific to the organisation in which they are acquired, rather than being transferable across firms. This restricts the mobility of workers between firms, since the skills learned in one organisation are not equally useful in another. Workforce reductions are achieved through ‘natural wastage’, that is by nonreplacement of workers who leave, rather than by dismissals. Therefore there is a high degree of long-term employment security for workers. Internal labour markets are also highly structured in that they consist of hierarchies of jobs that are graded in relation to each other in terms of skill, responsibility and pay. Job hierarchies are also designed to provide career progression paths or ‘job ladders’ that provide opportunities for internal transfer and promotion and so retain and motivate trained workers. Workers can climb job ladders by acquiring training and experience in lower-level jobs that prepare them for the next rung on the ladder. In practice, promotion is often based on length of service in a lower-level job. Internal labour markets are subject to a high degree of internal institutional regulation. This takes the form of bureaucratic, administrative rules that define the content of jobs, order the place of jobs in the job hierarchy, establish rules for promotion and set rates of pay for jobs (see Marsden, 1999). This results in a pay structure that reflects the different levels of skill and responsibility that attach to jobs as workers move up the job ladder. Such pay structures are unresponsive to pressures from the external labour market. Firms are reluctant to alter wage rates for particular jobs even when their demand for labour in these jobs falls or when they face labour shortages, because to do so would risk upsetting the entire pay structure. There may also be rules that regulate management’s ability to dismiss workers should this become unavoidable. A common example is the ‘last in, first out’ or seniority rule whereby it is those with the shortest length of service who are first selected for dismissal. In practice, internal labour markets vary in terms of the opportunities for internal promotion that they offer and the strength of their guarantee of long-term employment security. Empirical research has found that internal labour markets are more highly developed for technical and administrative workers in these respects than for manual workers (George and Shorey, 1985; Osterman, 1987). Therefore we can identify two


Chapter 4 · Human resource management and the labour market

variants of internal labour market: the salaried internal labour market (technical and administrative workers) and the industrial internal labour market (manual workers) (Osterman, 1987). Long-term employment security, structured career paths and opportunities for internal promotion are more highly developed in the salaried internal labour market than in the industrial internal labour market. This has led some to argue that the industrial internal labour market should be seen as a fourth type of employment system rather than as a variant of the internal labour market (Hendry, 1995). In reality, firms’ employment practices do not fit neatly into these categories. Firms that wish to keep employment costs low frequently draw back from casualised employment and the extremes of the open external labour market because they fear that it will demoralise workers and undermine the quality of production or service delivery. Firms that operate in occupational labour markets often seek to retain existing employees as they value their experience and it is not always easy to replace workers when they leave. This leads them to move, to some degree at least, in the direction of the internal labour market. Furthermore, the example of the industrial internal labour market above also shows that many organisations tend towards an employment system without conforming to it completely. It is clear that the employment policies of particular organisations cannot always be fitted exactly into one of the three employment system ‘boxes’ outlined above. It has also been argued that more than one employment system may exist within the same firm: a salaried internal labour market for managerial, administrative and technical staff, occupational labour markets for skilled production workers and open external labour markets for unskilled workers (Adnett, 1989). Therefore the categories of open external labour markets, structured occupational labour markets and internal labour markets are probably best seen as ideal types, that is, as conceptual categories that help to organise our thinking, rather than as completely accurate empirical categories into which organisations can be slotted neatly and unambiguously. The next section of this chapter looks at the factors that encourage employing organisations to internalise or externalise their employment systems.

Stop and think

What features distinguish internal labour markets from external labour markets?

Externalisation or internalisation of employment?
In the competitive model of the labour market, employment is externalised. There is no commitment to providing long-term employment. Wage rates are set in line with what appears to be the ‘going rate’ in the local labour market. In other words, labour is a variable factor of production. The advantage to employers of employment systems based on open external labour markets and occupational labour markets is that they can minimise labour costs by quickly adjusting the size of their workforce in response to changes in their production requirements. In the case of open external labour markets, where wage rates are set in line with the ‘going rate’ in the market, employers can be sure that they are paying the minimum that is necessary to attract a supply of workers. However, there are powerful reasons for internalising employment within the firm, at least to some extent. Internalisation includes a variety of measures that create, to varying degrees, a long-term employment relationship that is, also to varying degrees, insulated from external labour market pressures. Efforts are made to retain existing workers. Wages are set according to internal criteria, such as job evaluation or the need to motivate and reward performance, rather than by reference to an external ‘going rate’. Rather than being a variable cost, labour becomes a quasi-fixed cost. In such cases firms tend towards an employment system based on an internal labour market.

Externalisation or internalisation of employment?


Employment systems are shaped by a wide variety of factors that can be grouped into the following categories:
● ● ● ● ●

the nature of employers’ labour requirements; organisational constraints; workers’ pressure and influence; features of the wider labour market context; the influence of non-labour market institutions.

■ Employers’ labour requirements
One view of employment systems is that they represent different ways in which management addresses three fundamental issues with respect to labour:
● ● ●

how to obtain and retain an appropriately skilled workforce; how to ensure that workers deliver the levels of effort and the quality of performance that management requires for profitable or cost-effective production; how to achieve the first two objectives in such a way as to minimise employment costs relative to output.

How they do this – the employment strategy that they follow and the employment system that develops from it – will depend on the specific nature of their labour requirements, i.e.:
● ● ●

the extent of their need for a stable workforce; the relative importance of transferable and firm-specific skills; the extent of their need for workers’ active consent and cooperation in production.*

● The need for a stable workforce
The influence of labour turnover costs
The basic competitive model of the labour market assumes that the only cost to the employer of hiring workers is the wage that has to be paid. Consequently, replacing workers who leave does not add to costs. This means that the workforce at any point in time is disposable and the employer has no particular interest in retaining current workers in preference to hiring new ones from outside the firm. In practice, however, it is costly to replace workers who leave. The main costs are:

Disruption of production owing to the unplanned reductions in the workforce that result from workers leaving. There is usually a delay in replacing workers who leave because of the time it takes to advertise the vacancies and recruit a pool of job applicants and select from among the applicants. Once selected, new workers may also have to work out a notice period with their previous employer. During this time there may be a loss of production, causing revenues to fall. The costs of recruitment and selection, such as the financial costs of advertising for recruits and the cost in terms of management time spent in recruiting and selecting replacements.

* How these requirements are defined is bound up with consideration of a range of factors that include the nature of the product or service being provided, the technology of production and the extent and nature of product or service market competition. The extent to which labour requirements and employment strategies are derived from these factors or alternatively, how far they help to define them, depends on whether the firm takes a strategic approach to HRM and if so, whether it is ‘best fit’, ‘configurational’, ‘resource-based’ or ‘best practice’. See Chapter 2.


Chapter 4 · Human resource management and the labour market

The costs of training new recruits. These include more than just the direct costs of providing training, such as materials and equipment, paying trainers, etc. It also includes the costs in terms of reduced output while the new recruits are being trained. While undergoing training, new recruits are less productive because they are not fully occupied in production and neither are they fully competent. Where training includes a significant element of on-the-job training by experienced workers, the time spent training new recruits will also reduce the experienced workers’ productivity. Even after completing their training, new recruits may not be fully competent until they have gained some further experience in the job.

This means that employers may have a strong interest in limiting the extent of labour turnover. They will prefer to retain ‘insiders’ – those currently employed – to having to replace them with ‘outsiders’ drawn from the external labour market. In order to retain workers and reduce labour turnover, employers can adopt a variety of policies:

Deferred benefits. These are benefits that are contingent on workers remaining with the organisation. Examples are company pensions and holiday entitlements that become available only after a minimum period of service. Seniority wages, whereby pay increases with length of service. Where the cost of replacing workers is high, the addition to wage costs by ‘paying for seniority’ may be less than the costs saved by reducing labour turnover. Avoidance of redundancy dismissals during temporary downturns in production. Employers will try to avoid laying off workers by not replacing those who leave, cutting overtime and introducing ‘short time’ working. This is because, should the employer dismiss workers, there is no guarantee that they will be available when production recovers. The employer would then have to incur the costs of recruitment, selection and training. If these costs are perceived to be high it may be worth the employer’s while to retain workers even if they are temporarily under-employed. During upturns in production, employers may initially prefer to achieve higher output by increasing the output of the current workforce, for example through overtime working, before hiring additional workers. This is because the costs of overtime working may be lower than the costs of recruiting, selecting and training new recruits. Only if employers become confident that the increase in demand is going to be sustained will they add to the size of the workforce.

Policies such as these internalise employment by fostering long-term employment relationships and giving workers a degree of protection from external labour market pressures. Employers prefer to retain their current workforce to incurring the costs of replacing them with outsiders. However, measures to create stable workforces, such as pension schemes and other incentives to remain with the organisation, are themselves costly. Therefore the extent to which employers seek to internalise employment depends on the cost of labour turnover. The lower the costs of labour turnover, the less the incentive for employers to internalise employment.

The need to protect investments in training
When firms invest significantly in training their employees they will want to keep them once they are trained. This creates pressures for internalisation of employment and can be seen as an extension of the costly labour turnover argument above. The basic competitive model of the labour market assumes for simplicity of analysis that workers come to firms with the skills that are needed for their jobs. In reality this is often not the case, particularly for new entrants to the labour market. This is because many skills can only be learned through practical experience on the job in addition to off-job training. Training is usually seen as an investment in human capital, i.e. there is an initial cost of training (the investment) that increases skills (the addition to human

Externalisation or internalisation of employment?


capital) that produces a return on the investment in the form of higher productivity and higher wages. One of the main costs of investing in training from the employer’s point of view is that workers are not very productive while they are being trained, so during the training period the value of what they produce is less than the cost of their employment to the employer. Once trained, however, the value of their output starts to exceed the costs of employment and the firm begins to get a return on its investment. However, the employer will only get a positive return on that investment if the employee, once trained, stays with the firm for a sufficient length of time. The greater the training investment by the employer, the longer the period that workers have to stay with the firm before it can get a return on its investment and the greater the loss should they leave during that time. The need to retain trained workers will reinforce pressure on employers to offer deferred benefits, long-term employment security and the possibility of further training, internal promotion and career progression.

Stop and think

What types of workforce will have low turnover costs and why? What types of workforce will have high turnover costs?

● Transferable versus firm-specific training and skills
As shown above, occupational labour markets arise when workers have skills that are transferable from one firm to another. These skills are often acquired through formal training that leads to a certified qualification that serves as proof of ability. Occupational labour markets are efficient institutions for matching workers with defined occupational skills to jobs that have been designed to use them. In this respect they are in line with the competitive model of the labour market, which assumes that workers already possess the skills needed for their jobs when they are hired, as skills are acquired through training outside the firm. Also, the skills that are acquired are assumed to be transferable, that is, equally useful in all firms. However, employers frequently require firm-specific skills. Firm-specific skills are needed when a firm designs jobs in such a way that they do not match existing occupational skills. In such cases, firms will have to provide their own customised training for workers. Because the training is specific to a particular firm the skills it imparts are not transferable to other firms. Therefore firm-specific training and skills only increase the value of the worker (and hence their wage) in the firm where the training is provided. This provides an incentive for the worker to remain with the firm in which he or she was trained. How does a need for firm-specific skills arise? It may be that the firm in question operates an idiosyncratic technology. In other words, the firm’s technology is dissimilar to that of other firms. This means that workers who are not already employed in the firm will not be trained in the use of the technology. The training that workers are given will of necessity be specific to the firm. Because the technology is not widely used, this training will be of little use to workers should they leave the firm. Technological idiosyncrasy is less unusual than might be imagined. Not only does equipment vary significantly between firms, even in the same industry or sector; even where it is similar it may be configured differently, leading to differences in work organisation and to jobs being designed differently across firms. Workers trained in the operation of one firm’s system will be less competent in the operation of another and may well require further training. Designing jobs so that they require firm-specific skills creates a strong basis for internalising employment. It becomes easier to develop and promote an existing employee into a vacancy than hire someone from outside. This is because the insider’s familiarity with the internal systems and routines of the firm and its technology means that they require less formal training before they become competent in their new role than an out-


Chapter 4 · Human resource management and the labour market

sider does. It also increases the mutual dependence of the employer and the employee. Management’s dependence on the existing workforce is increased because they alone possess firm-specific skills. This protects them from competition from outsiders. At the same time the workers are more dependent on their current employer because their skills are not marketable in other firms and loss of their current job would mean a reduction in pay. Moves from transferable to firm-specific skills are, therefore, strong forces promoting internalisation of employment and the development of internal labour markets.


A paper manufacturing company reported that it used temporary workers for low-skilled labouring occupations only and not for skilled work. In contrast, a National Health Service hospital trust reported increased use of temporary workers because of a shortage of nurses and other skilled workers. Explain why one organisation can employ temporary workers in skilled jobs while the other cannot. What can you infer about the types of employment system in these two organisations?

● The need to gain workers’ cooperation in production
A further assumption behind the basic model of the labour market is that workers exert full effort in their work and that issues of motivation do not arise. In reality, workers can and do control and limit their effort levels. What employers want from workers is actual productive effort. What they get when they hire workers is their productive potential. The extent to which productive potential is utilised, that is, the actual level of effort provided by the worker, cannot be determined at the time the worker is hired and is dependent on a number of factors, one of which is the worker’s own motivation. One of the functions of management is to ensure that workers’ productive potential is converted into desired levels of actual productive effort because if this does not happen, firms will be paying for effort that is not being supplied and their costs will be increased. Of course, this begs the question of what is a reasonable level of effort relative to the wage and this is one of the most frequently contested issues between workers and management (see Chapter 12). One way of trying to ensure that workers supply the required level of effort is by subjecting them to direct control (Friedman, 1977). Traditionally, this took the form of direct personal supervision by a superior and externally imposed discipline. Today, direct supervision is supplemented with electronic surveillance, ‘mystery customers’ and customer questionnaire surveys in a managerial effort to make workers’ effort levels increasingly visible. Supervision is, however, costly and in certain circumstances the costs of implementing effective supervision may be so high that it is impractical as a means of ensuring workers’ compliance. These circumstances arise when the nature of the product or the production process makes it difficult to define what the appropriate effort levels are for each worker and to measure how hard they are actually working. Normally effort is defined and measured in terms of outputs achieved during a defined time-span, such as a working shift. However, this is not always straightforward. Some ‘outputs’, such as many services, are intangible and hard to quantify. Even when the product is tangible, the production process may involve complex links between operations that make it difficult to measure individual workers’ contributions to output. These problems become more intractable for managers when workers have detailed knowledge of the production process that managers do not. This makes it very difficult for managers to define appropriate effort levels without the agreement of workers. It also raises the possibility that workers might mislead managers about the level of effort needed to achieve a given level of output in an attempt to slow down the pace of work and/or increase their earnings.

Externalisation or internalisation of employment?


Heavy reliance on supervision and surveillance may also be counterproductive because of the resistance that it can generate among workers. Workers often perceive supervisors to be using their authority in arbitrary ways that fail to appreciate workers’ knowledge of production and disregard their concerns. Workers also often feel that close supervision means that management does not trust them. In such situations workers may resist managerial authority by restricting their effort levels and using what collective power they have to challenge management authority directly, for example by support for trade unions and possibly some form of industrial action. Alternatively, they may quit the organisation in search of more attractive working conditions. The costs of direct supervision mean that it is not always the best way for managers to obtain the levels of effort that they want from workers. The alternative is to encourage workers to exercise responsible autonomy at work (Friedman, 1977). In other words, it may be more cost-effective for managers to offer positive incentives to ensure that workers cooperate with management and use their job knowledge and their initiative to maintain and improve efficiency. These incentives are generally taken to include guarantees of long-term employment security, opportunities for training and internal promotion, fringe benefits and pay that is higher than the market rate. In other words, employment is internalised. The intention behind this is to generate a climate of trust between workers and management that provides a basis for cooperation and an incentive to high effort. It also raises the cost to the employee of losing their job should they fall short of the standards demanded by management.

Stop and think

How does management control your performance in your own job? How do you feel about it? Does your management provide positive incentives to encourage effort and initiative? Do you sometimes try to resist management control in order to make your work easier or more enjoyable?

As shown above, the extent of employers’ reliance on positive incentives to effort is related to the complexities of the production process and workers’ tasks. This suggests that positive incentives to effort will figure more highly in the management of highly skilled workers than low-skilled workers. From this it is tempting to argue that incentives to internalise employment will be greater where skilled workers are employed rather than unskilled workers. However, while this may be largely true, it is important to recognise that employers often rely on workers’ willingness to exercise a degree of responsible autonomy even when little skill is required, and that even low-skilled jobs require some training. Managers in service sector organisations often regard workers’ attitudes and behaviour towards customers as being important to the organisation’s success. This is particularly important for organisations that compete on the quality of their service and whose workers can control the way in which they interact with customers. Because of this, employers often provide training to enhance workers’ interpersonal skills and rely on a significant degree of voluntary cooperation from even relatively unskilled workers. This limits the scope for developing casualised employment systems. This is illustrated in the activity box overleaf. This example shows that although supermarket employees do not possess significant firm-specific skills, the two companies in question depended on them to develop attitudes and behaviours that create a favourable impression among customers. Therefore they had to offer terms and conditions that enabled them to achieve this and this meant offering permanent jobs to the majority of their employees. This differentiated them as employers from other supermarket chains that compete mainly on price rather than on quality of service and therefore seek to keep labour costs as low as possible. Here we can see that the need for cooperation limits the extent to which these employers felt able to operate extreme versions of the open external labour market.


Chapter 4 · Human resource management and the labour market


During 1998 two leading supermarket chains converted two-thirds of their temporary staff onto permanent contracts. Temporary workers had been hired to cope with seasonal peaks in demand or to enable stores to adjust more easily under uncertain trading conditions. However, workers who remained on temporary contracts for too long lost motivation and this had a damaging effect on the quality of customer service. Other problems that managers associated with employing workers on temporary and zero hours contracts were lack of training and difficulty of communication.
Source: People Management, June 1998

Why is it likely that workers on temporary contracts are less motivated than permanent employees? Identify other lines of employment that do not require high levels of skill but do rely on workers to provide a high level of customer service.

● Labour requirements and employment systems – summary
Different employment systems can be seen as ways in which firms seek to minimise the total costs of employment, including costs of turnover and the costs of gaining workers’ cooperation in production. These costs vary according to the technology of production and the levels and types of skill that employers require. Incentives to internalise employment will be greater where:
● ● ●

Costs of labour turnover are high. Costs of turnover will be higher the more the employer has to invest in training workers. There is a need for firm-specific training and skills. Costs of direct supervision are high and there is a need for workers to use their initiative and judgement to ensure the efficiency of the production process.

Conversely, there will be little incentive to internalise employment where turnover costs are low, employers invest little in training, firm-specific training and skills are unimportant, and desired effort levels can be achieved through various forms of direct supervision. It is possible to use this analysis to generate some hypotheses concerning the type of employment system that firms will develop as a result of their labour requirements. These are illustrated in Figure 4.1. The idea that an organisation’s employment system should provide the most efficient way of meeting its labour requirements is central to the concept of strategic human resource management. As shown in Chapter 1, there is an emphasis within HRM literature on the need for ‘fit’ between HRM policies and wider business strategy. Labour requirements are derived from competitive strategy in the product market. The analysis above indicates specific ways in which the employment systems of organisations reflect their strategic labour requirements from this point of view. This is a useful approach, since it focuses attention on how firms can act rationally to minimise labour costs, including those of labour turnover and supervision. However, it would be misleading to argue that there is a simple, direct link between firms’ labour requirements and the degree to which they internalise their employment systems. It is not just employers’ labour requirements that determine employment systems, but a broader range of factors that includes organisational constraints, workers’ pressure, the labour market environment and the wider institutional environment in which organisations operate.

■ Organisational constraints
Managers are constrained in their choice of employment system by features of their organisation such as size, financial and managerial resources. These constraints mean that what management may desire in principle cannot always be achieved in practice.

Externalisation or internalisation of employment?


Figure 4.1

Employment system chosen as a result of labour requirements
Labour requirements • Low labour turnover costs • Low skills • Limited requirement for workers to exercise responsible autonomy Employment system Open external labour market-based system

• Low labour turnover costs • Transferable skills • Responsible autonomy based on commitment to a profession or occupation Occupational labour market-based system

• High labour turnover costs • Firm-specific skills • Responsible autonomy based on commitment to the employing organisation Internal labour market-based system

The size of an organisation has considerable effect on the financial and managerial resources that it possesses and hence on its ability to develop particular types of employment system. Large organisations have greater financial resources than small ones and can support a wider range of specialist management functions, such as a human resource management function. Their financial resources also make them better able to provide favourable terms and conditions of employment and finance long-term investments in training. Opportunities for promotion are also greater in large organisations than in small ones. An organisation’s size therefore has a significant influence on the likelihood that it will develop an employment system based on an internal labour market. For the reasons just given, internal labour markets will be more likely in large organisations, less so in small ones. Small firms are more likely to have to rely on systems based on occupational or open external labour markets. This may create dilemmas for managers of small firms who wish to have long-term, stable and committed workforces.


Identify examples of the dilemmas faced by owner/managers of small businesses when trying to retain valued workers.

It is evident at this point that employers’ labour requirements are often complicated and that management’s choice of strategy is constrained by features of the organisation itself. Nevertheless, it is still possible to argue that employment systems embody management strategies. But this proposition becomes open to question once the influence of workers is taken into account.


Chapter 4 · Human resource management and the labour market

■ Employee pressure and influence
Pressure from employees can exert a powerful influence on how an organisation’s employment system develops. Workers have an interest in trying to protect themselves from the risks and uncertainties of a labour market that is otherwise controlled by employers. Workers have played an important role in the development of occupational labour markets through the actions of their trade unions. Historically, trade unions have imposed or negotiated rules that restrict entry to occupations and prevent employers from replacing workers being paid at union rates with cheaper, unqualified labour. In some cases unions gained considerable control over the labour market and were able to use this to boost wages and protect the employment of their members. Pressure from workers can also generate internal labour markets. Writers such as Kerr (1954) and Osterman (1984) have argued that internal labour markets are, in part at least, the outcome of workers’ and unions’ attempts to improve conditions of employment for those employed in firms by protecting them from competition from outsiders. The following quote from Osterman (1984) makes the point clear.
If a group of workers remains in the same firm for some time, then a set of expectations, or customs, will develop. These expectations, which can be enforced through non-cooperation or even sabotage on the job, tend over time to become codified into a set of rules. The process of unionisation speeds this up and formalizes it, and hence many internal labor markets emerge out of unionisation drives. However, even in non-union situations customary rules and procedures and the force of group expectations can lead to internal labor markets. (p. 12)

What Osterman is saying is that where workers stay with the same employer for a long time they develop a sense of group identity. This forms the basis for group norms concerning what is a reasonable level of effort in relation to pay and other rewards. It also provides a basis for collective organisation and action by workers to establish rules that shelter them from competition from outsiders and limit management’s freedom to hire, fire and redeploy labour and alter the pay structure. These rules can be established formally by trade unions negotiating agreements with employers, or informally by groups of workers on the shopfloor putting pressure on managers to accept them as ‘custom and practice’. Once these rules have been established they are difficult to remove because of workers’ ability to act collectively to maintain and even extend them. The influence of workers means that employment systems are not necessarily determined simply by management’s labour requirements. Where workers are able to develop significant bargaining power, employment systems represent a compromise between the conflicting goals and priorities of workers and their employers.

■ The labour market environment
All organisations operate within a wider external context that comprises their product markets, the markets for their inputs, i.e. labour, capital and raw materials, and political, economic and legal environments. The labour market environment provides employers with various ways of defining their labour requirements and meeting them. At the same time it constrains their choice by making some routes harder to follow than others. The relevant features of the labour market environment are as follows:

the overall state of the labour market as measured by the unemployment rate and the number of unfilled vacancies;

Externalisation or internalisation of employment?
● ●


the operation of labour market institutions such as the system of vocational education and training, the industrial relations system and the framework of employment law; the pattern of labour market segmentation, in other words the extent to which the labour market is divided into advantaged and disadvantaged groups of workers and how.

● The overall state of the labour market
Low unemployment means that employers have to compete more actively for workers and it also means that workers have a wider choice of employment opportunities. This will lead to higher rates of labour turnover as workers leave organisations for better jobs elsewhere. In response, firms may adopt policies aimed at retaining employees, since vacancies arising from labour turnover will be hard to fill. The difficulty of filling vacancies through external recruitment will mean that there will be more internal promotion and redeployment and this may necessitate increased investments in firm-specific training. While these responses might be seen as moves towards an internal labour market system, they are not driven by the technical and skill requirements of production or a long-term employment strategy but by immediate pressures from the labour market environment. These pressures may be reinforced by the increase in trade union bargaining power that results from low unemployment and unfilled vacancies. Once established, these practices may become embedded, although employers may seek to reverse them should labour demand slacken and unemployment rise.

● The operation of labour market institutions
Two major institutional influences on employment systems are how well the vocational education and training system ensures an adequate supply of skilled workers, and how the industrial relations system shapes relations between capital and labour. The system of vocational education and training at industry and national level plays a crucial role in influencing the extent to which employment systems are based on occupational labour markets. It was argued earlier in this chapter that for occupational labour markets to operate effectively there has to be a training system that ensures a plentiful supply of workers with transferable skills. This means a system that provides broad, all-round training for the occupation so that, once trained, workers possess skills that are transferable from one firm to another. It is also necessary that there is clear regulation of training and qualification standards so that employers and workers have confidence in them. Otherwise workers will see little point in undertaking training, as the qualification will have low status. Finally it is essential that there is an institutional mechanism for preventing ‘free riding’, that is preventing some firms from obtaining the benefits of trained labour without contributing to the costs of training. Without such a mechanism, firms that provide training for the occupation risk having their trained workers ‘poached’ by competitors who do not train. This makes firms less willing to bear the costs of training workers in transferable skills. Therefore firms will invest less in training workers to develop transferable skills and this will reduce the supply of labour with these skills further.

Stop and think

Why does the risk of having trained workers ‘poached’ by rivals deter firms from training workers in transferable skills?

In the absence of institutions that support training in transferable skills firms will, over time, act in one of two ways. One way is to redesign jobs on the basis of firm-specific skills to ensure that, once trained, workers stay with the firm. The other is to deskill jobs, i.e. redesign them so that they become simpler, thus removing the need for significant training.


Chapter 4 · Human resource management and the labour market

The first response encourages a move towards internal labour market structures. The second enables employers to externalise employment more completely because unskilled labour is relatively plentiful and so costs of turnover are low (Marsden, 1986). The system of industrial relations, including labour legislation, influences the development of employment systems through its effects on the balance of power between employers and workers. Strong trade unions and legal rights for workers raise pay, restrict employers’ freedom to hire and fire, and may put pressure on employers to provide training opportunities and promotion paths for workers. This has the effect of protecting employed workers from unilateral management action and from being exposed to competition from the external labour market. It can encourage occupational or internal labour markets, depending on the nature of the training system and the way in which collective bargaining between unions and employers is organised. Where unions negotiate detailed agreements with employers that cover all or most firms in an industry, the effect will be to provide a framework of regulation that supports occupational labour markets. Where unions negotiate with employers on a company-by-company basis there may be more of a tendency for firms to move towards internal labour markets. Conversely, if trade unions are weak and workers are granted few legal rights, employers have a freer hand to hire and fire and determine terms and conditions of employment unilaterally. Therefore they will be freer to determine their employment systems in the light of their labour requirements and the constraints imposed by their size and financial and managerial resources.

● The pattern of labour market segmentation
Some theorists have argued that the existence of different types of labour market reflects the division of the labour market as a whole into privileged and underprivileged, advantaged and disadvantaged segments. The advantaged segment, often referred to as the primary sector, is characterised by internal labour markets and institutionally regulated occupational labour markets. Workers enjoy high earnings, good working conditions, opportunities for training and promotion, and considerable employment security. These are the ‘good jobs’. The disadvantaged segment or secondary sector is characterised by open external labour markets. Workers in this sector have low status and pay, poor working conditions, no significant access to training or promotion (they are in ‘dead end’ jobs), and experience considerable employment insecurity. These are the ‘bad jobs’. How good and bad jobs get created has been a matter of ongoing debate surrounding the theory of labour market segmentation. One line of explanation, advanced by two economists, Doeringer and Piore (1971), is based on the analysis of employers’ labour requirements outlined above. Some firms face strong pressures to develop internal labour markets in order to train, develop and retain suitably skilled workers and gain their voluntary cooperation in production. Others do not and are able to meet their labour requirements by drawing on open external labour markets. Another explanation (Gordon et al., 1982) is that some firms enjoy monopoly power in their product markets and are able to use this power to increase the selling price of the product, thereby increasing profits. Some of these companies will be faced by workers who have developed strong trade unions that can use their bargaining power to gain a share of these profits in the form of high wages and other benefits, including job security provisions. Management seeks to limit union solidarity and bargaining power by dividing the workforce into horizontal segments and offering the prospect of promotion to those who are cooperative and trustworthy. Meanwhile, firms that are unable to use monopoly power to raise their prices do not have surplus profits to share with trade unions, so terms and conditions of employment will be less favourable. Since it is more likely that large, rather than small firms are able to exercise monopoly power, primary sector employment will be concentrated in large rather than small firms.

Externalisation or internalisation of employment?


One of the central predictions of the labour segmentation thesis is that there will be little movement of workers between the primary and secondary sectors of the labour market. Workers in the primary sector are unwilling to move to the secondary sector and the high level of employment security that they enjoy means that they are unlikely to be forced to do so through job loss. Workers who make up the disadvantaged segments of the labour market are unable to move up into the primary sector because employers see them as undesirable candidates for jobs. Primary sector employers want disciplined, cooperative workers with good work habits. Thus when selecting from applicants for jobs, primary sector employers will tend to reject those with unstable employment histories that involve frequent unemployment and job changes because they will assume that this indicates a poor-quality worker. This will automatically rule out secondary sector workers, regardless of their personal qualities, since by definition secondary workers are in unstable, insecure jobs. It is also the case, however, that because of their experience of poor work, some secondary sector workers will tend to develop negative attitudes to work and poor patterns of work behaviour that reinforce employers’ prejudices against secondary sector workers as a whole. These explanations for labour market segmentation emphasise the way in which firms’ employment decisions influence the wider labour market by dividing it into advantaged and disadvantaged groups. The question of whether the labour market is divided into primary and secondary sectors as a result of employers’ labour policies has generated considerable debate. Numerous empirical studies to test the theory have been carried out in Britain and the United States, with mixed results (see Joll et al., 1983; King, 1990 for a discussion of these). However, these are not the only explanations for the presence of disadvantaged groups in the labour market. Labour market segmentation can and does occur as a result of ‘broader social forces leading to discrimination within the labour market’ (Rubery, 1994: 53). Discrimination in the labour market means that workers’ chances of gaining access to ‘good’ or ‘bad’ jobs are heavily and unfairly influenced by non-work characteristics such as gender, race, class, work-unrelated disability and age. Thus two equally skilled workers will find themselves in different sectors of the labour market because one is a white male from a middle-class social background and the other is a working-class black woman. This reflects deep-seated patterns of discrimination within society in general as well as in the labour market. To take ethnic minorities as one example, the return to investments in education, that is, the amount that each extra year of education beyond minimum school-leaving age adds to lifetime earnings, is lower for most ethnic minority groups than for comparable white workers. This may be due to any or all of the following reasons that reflect patterns of racial discrimination:

● ●

Ethnic minority workers suffer unfair discrimination when they apply to enter higherpaying occupations and/or when employers are considering candidates for promotion. Therefore they get crowded into low-paid jobs. Ethnic minority workers are paid less than whites for doing the same jobs or jobs that are of equal value. Unfair discrimination means that ethnic minority workers are disproportionately likely to experience unemployment, so they spend less time in work and their lifetime earnings are reduced.

Women also occupy a disadvantaged place in the labour market, although their position relative to men does seem to be improving in some respects. Women’s employment disadvantage reflects deep-seated societal norms concerning the family and the respective roles of women and men in domestic roles and paid work. Women take a disproportionate share of domestic labour and still tend to be regarded as secondary income earners. The domestic roles played by many women mean that their employment opportunities


Chapter 4 · Human resource management and the labour market

are restricted geographically and contractually. This is particularly true of women with children. In the absence of highly developed systems of childcare, childcare responsibilities mean that many women cannot travel long distances to work and also that they cannot work ‘standard’ hours. Therefore they are restricted to part-time work in the immediate locality. This means that they have limited choice of employment and therefore little bargaining power and may have to accept secondary sector terms and conditions of employment. The effect of such institutionalised patterns of discrimination is to increase the range of options open to employers. The presence of disadvantaged groups in the labour market means that some employers can fulfil their requirements for a stable, cooperative workforce without having to offer the positive incentives associated with internal labour markets or regulated occupational labour markets (Rubery, 1994). This is because, as indicated above, disadvantaged groups have few employment alternatives so they have to take what they can get. The absence of better alternatives makes these jobs more attractive than they would otherwise be and therefore more highly valued by workers. This is reflected in the willingness of many disadvantaged workers to remain with their employer and cooperate with management in order to keep their jobs.


Recently a do-it-yourself supermarket chain announced that it was hiring older people to work part-time in its stores because they had better interpersonal skills than young workers did and they were more loyal and committed. Explain why older people with these positive attributes would be prepared to work in lowpaying, part-time jobs with few, if any, prospects.

■ Non-labour market institutions
Finally, employment systems are influenced by institutional arrangements that lie outside the labour market. As shown above, the family as a social institution is one of the main bases for defining gendered roles in employment and as such contributes to women’s disadvantage in the labour market. Another example of wider institutional influence on employment systems is the system of company finance. In the United Kingdom and the United States, financial systems are based on active stock markets, with investors buying and selling shares in order to maximise the value of their holdings on a yearly, monthly or even daily basis. This puts great pressure on managers to maximise the short-term financial performance of their companies. In order to do this, they minimise their expenditure on long-term investment because the amount invested counts immediately as a negative item on the balance sheet while the returns, which count on the positive side, do not start to accrue for some time. Therefore large long-term investments make shortterm financial performance look poor. This leads to a fall in the share price and to threats of hostile takeovers, which threaten managers’ jobs. The pressure to minimise long-term investment means that firms will invest relatively little in training and developing employees. Pressure to maximise short-term performance also puts pressure on firms to avoid committing themselves to long-term employment security for workers because if demand falls they need to be able to reduce costs quickly by cutting the workforce. Where financial systems are based more on bank credit, as in Germany, there is less pressure to maximise short-term profits and more scope for managers of firms to take a long-term view of how to grow the company. This means that they will be readier to make long-term investments in training and equipment and will be more prepared to commit themselves to providing long-term employment security for workers.

Externalisation or internalisation of employment?


Stop and think

What other non-labour market institutions might influence the nature of employment systems and how?

● Summary
In order to explain how employment systems develop it is necessary to take a wide range of influences into account. These are summarised in Figure 4.2. From the diagram it is possible to see how the various factors discussed above interact with each other to influence employment systems in complex ways. For example, an organisation might require a stable, cooperative workforce. This might suggest that the employment system should be internalised to a significant extent, e.g. above-average pay and benefits, long-term job security and career prospects. This could pose difficulties for organisations that are constrained by small size and limited financial resources or by pressures from financial institutions that judge firms on their short-term financial performance. However, as long as there is no need for a significant level of organisation-specific skill, it might be possible to attract such a workforce without having to internalise employment if the firm can draw from disadvantaged labour market groups. Yet again, the extent to which this is possible will be influenced by the power of workers to influence terms and conditions of employment through trade unions and collective bargaining as well as the extent to which employment practices such as fixed-term and temporary employment are restricted by legislation. Therefore we can say that:

An organisation’s employment system is the outcome of the combined effects of firms’ labour requirements, organisational constraints, pressure from workers, the labour market environment and the wider institutional environment. The wider institutional environment interacts with the labour market environment. Social institutions such as the family and institutionalised patterns of behaviour such as racism contribute to the presence of disadvantaged groups in the labour market. At the same time, labour market pressures may generate pressures for change in wider social institutions; for example, the growing participation of women in the labour market is beginning to challenge the traditional gendered division of family roles. The labour market environment affects how employers define their labour requirements. For example, the nature of the vocational training system will influence the

Figure 4.2

Influences on the development of employment systems
Wider institutional environment Organisational constraints – size, financial resources, managerial resources, history

Labour market environment – unemployment and vacancies, institutions, segmentation

Employers’ labour requirements – skills, stability, commitment Workers’ pressure and influence

Organisation’s employment system


Chapter 4 · Human resource management and the labour market

extent to which firms organise production on the basis of low skills, firm-specific skills or transferable skills. The labour market environment influences the nature and extent of workers’ ability to influence employment systems. For example, where trade unions and collective bargaining are highly developed, workers can exert more pressure on employers than where unions are weak and collective bargaining is uncommon. The presence of disadvantaged groups enables some firms to meet their requirements for stable, committed workers without having to offer primary sector employment conditions. Organisational constraints reflect features of the wider institutional environment, for example how the financial system influences the financial resources available for long-term investment in the workforce. The ways in which organisations develop their employment systems feed back into the wider labour market environment. For example, organisational responses to skill shortages such as poaching undermine occupationally based training systems and contribute to the decline of occupational labour markets. How organisations select their workforces can reinforce or modify patterns of labour market segmentation.

The rise and fall of internalised employment systems?
Internalised labour market systems became more widespread during the 1960s and 1970s. In the United States, salaried and industrial internal labour markets, first developed during the 1920s and 1930s, became increasingly widespread in large corporations during the 1960s and 1970s. Internal labour markets also began to develop more widely in the UK, despite the continued importance of occupational labour markets. Long-term employment and opportunities for internal promotion had been characteristic of the civil service, local government, banking and certain sections of retailing for many years. However, a number of studies also found evidence of salaried internal labour markets for professional engineers and professional chemists (Mace, 1979; Creedy and Whitfield, 1986) and more restricted versions of industrial internal labour markets for skilled and semi-skilled workers in engineering (George and Shorey, 1985). Moreover, even though fully developed internal labour markets were far from universal in the UK, the salaried internal labour market was an important influence on the development of ideas concerning personnel management and human resource management during the 1970s and 1980s. Increasingly, internalisation of employment came to be seen as best practice (Boxall and Purcell, 2003; Nolan and Slater, 2003). Corporations such as IBM, with highly developed salaried internal labour markets, were held up as examples of sophisticated personnel management and pioneers of human resource management.

■ Factors contributing to the internalisation of employment in the 1960s and 1970s
● Employers’ labour requirements
Increasingly, managers designed jobs on the basis of firm-specific skills. This was partly the result of differences in the ways firms made use of technologies of production. It was also partly a response to features of the labour market. This was a time of full employment, which meant that workers could move easily between jobs in search of higher pay or better conditions. This encouraged employers to develop ways of retaining workers and reducing labour turnover. In some countries such as the USA, UK and France, the absence of a training system that produced an adequate supply of workers with transferable skills meant that firms increasingly designed shopfloor jobs to require limited

The rise and fall of internalised employment systems?


firm-specific skills and trained their workers internally. In some other countries, notably Germany, the presence of highly effective apprentice training maintained a stronger basis for skilled occupational labour markets.

● Organisational constraints
Steady economic growth during the 1950s and 1960s provided a foundation for increasingly large-scale enterprises geared to producing for stable mass markets. As firms grew in size and complexity they needed more supervisory and administrative staff. This in turn created more layers of hierarchy, which extended job ladders and opened up career paths. At the same time, stable long-term growth made it rational for firms to commit themselves to developing long-term career paths for more of their employees. Large enterprises also had the financial and managerial resources to develop internal systems of training and promotion and set up formal internal pay structures.

● Employee pressure and influence
Trade union membership and influence rose during the 1960s and 1970s. In Britain, unions extended their membership and representation among white-collar workers during the 1970s, contributing to the development of salaried internal labour markets. In representing their more traditional constituency among manual workers they were also able to establish ‘seniority’ rules with respect to redundancy dismissals and restrict management’s freedom to hire and fire. In a number of European countries, workers’ ability to influence employment systems was encouraged to varying degrees by legally supported structures of collective bargaining and co-determination, as in West Germany and Sweden, or the ability of unions to influence government legislation, as in France. In West Germany an elaborate system of collective bargaining and employee co-determination was established after the Second World War, supported and regulated by law. German workers, through their representatives, were empowered to influence not only wages and hours but also procedures for ‘layoffs, promotion criteria, changes in working conditions, the use of overtime and of “short time”, and the introduction of new technologies’ (Osterman, 1988: 119). This resulted in management providing a high degree of employment security for incumbent workers in return for their acceptance of flexible working practices, i.e. broadly defined job roles and ‘willingness to learn new skills’ (Osterman, 1988: 123). In France, new developments in collective bargaining after the political unrest among workers and students in 1968 led to enhanced ‘job security, vocational training, [and] salaried status for manual workers’ (Goetschy and Rozenblatt, 1992). In the United States, even though trade union membership peaked in the mid-1950s and declined thereafter, unions were increasingly successful in pushing up wages in unionised firms. This gave firms an increasing incentive to avoid unionisation. Therefore, during the 1960s and 1970s, more employers began to introduce personnel policies that combined long-term employment security, training linked to internal promotion, high wages and employee involvement in an attempt to buy workers’ loyalty and avoid or weaken unionisation (Kochan et al., 1986).

● The labour market environment
The growth in trade union influence in most countries was supported by developments in the labour market. Unemployment was low throughout the 1950s and 1960s. This enhanced unions’ bargaining power and influence. However, the labour market retained long-established structural features. One of the most important of these was the gendered division of labour, leading to gendered patterns of labour market segmentation.


Chapter 4 · Human resource management and the labour market

Women continued to be regarded as secondary income earners. The concept of the man as the main ‘breadwinner’ remained dominant. Consequently, long-term jobs and careers were developed for men rather than women. The fact that household income depended on male earnings shaped trade union demands, which were for better pay, greater job security and better prospects for wage progression for men. During the 1960s and 1970s there was also a growth of legislative protection for workers in many countries, e.g. restricting employers’ freedom to make workers redundant, and laws protecting workers from unfair dismissal.

● The wider institutional environment
Developments in the wider institutional environment affected labour market policy and trade union influence. The development of social democracy in Europe after the Second World War involved the fuller recognition of the place of workers and their organisations within the nation-state. This was reflected in a commitment by governments to maintain full employment and create and support welfare states. These commitments reduced, although by no means eliminated, the inequality of power in the employment relationship and thus gave workers greater power to influence their terms and conditions of employment. The social democratic spirit also led to a greater degree of political legitimacy and support for trade unions, reflected in the development of ‘tripartite’ institutions of economic management. These involved trade unions, together with government and employer representatives, in decisions concerning economic and social policy. In addition, as shown above, the 1970s saw legal extensions of workers’ rights to participate in decision-making at workplace level in countries such as West Germany, Sweden and France.

■ Restructuring employment since the 1980s: the externalisation of employment?
Since the 1980s, large corporations, particularly in Britain and the United States but also in Europe, have undertaken processes of ‘restructuring’, aimed at reducing costs and improving responsiveness to more rapidly changing, intensely competitive and less predictable markets. Job cuts on a large scale have been a central feature of the process, as have new patterns of work organisation and changes to employment structures. The effect has been to weaken internal labour market structures (Cappelli et al., 1997; Boxall and Purcell, 2003: 121):

First, employers in Britain, the USA and a number of European countries have made greater use of part-time and temporary labour and in a minority of cases, highly casualised forms of employment such as zero hours contracts (Cappelli et al., 1997; Cully et al., 1999; Millward et al., 2000). During the 1990s, although the total number of jobs grew, there was a net reduction in the number of full-time jobs in Britain. All of the growth in employment was accounted for by a growth of part-time employment. This trend was replicated across the European Union, where the share of part-time jobs in total employment rose from 12.7 per cent to 17.9 per cent and that of fixedterm-contract jobs from 8.4 per cent to 13.4 per cent between 1985 and 2001 (European Commission, 2002: 173). Second, a number of companies have transferred some of their workers from employed to self-employed status by dismissing them and then offering them a contract to perform their job as self-employed workers. Third, employers have reduced their commitment to providing long-term employment security for ‘permanent’ employees. Increasingly, employers and employers’ organisa-

The rise and fall of internalised employment systems?


tions in Britain and the USA have claimed that workers should take greater responsibility for their own careers and ‘employability’ and be less reliant on employers to provide long-term employment security and career paths. The risk of job loss increased significantly for managers during the late 1980s and 1990s as restructuring usually involved changes in management organisation. It also increased for workers in occupations previously regarded as offering jobs for life, such as public administration, banking and education (Cappelli et al., 1997; Heery and Salmon, 2000). Fourth, senior managers have ‘downsized’ and ‘delayered’ their organisations. This has not only resulted in job cuts. It has also reduced the number of job levels. The result is that workers have fewer opportunities to gain access to internal promotion ladders. This has been noticeable in the banking and finance sector and in supermarkets, where jobs that used to provide stepping stones from junior to more senior grades have largely been eliminated (Cappelli et al., 1997; Grimshaw et al. 2001; Hudson, 2002). Fifth, a growing number of organisations no longer employ their own staff to perform jobs that are not ‘core’ functions of the business, e.g. cleaning, catering, security, payroll administration, but buy these services in from outside companies instead. In the UK this has been widespread in public administration, the public utilities sector, i.e. electricity, gas and water, and the financial services sector (Cappelli et al., 1997; Cully et al., 1999). Finally, employers have increased the variability of pay by linking elements of pay to measures of individual, team or organisational performance. This has undermined the principle of the ‘rate for the job’ which has been an important feature of internal labour markets. It has meant that in some organisations there is no longer a clear pay structure that links to different job levels so as to provide a path to promotion and higher pay (Cappelli et al., 1997; Grimshaw et al., 2001).


Consider the organisation that you or a friend or a family member works for. Which of the changes listed above has it introduced and for what reasons?

We can use the analytical framework developed in the previous section of this chapter to explain these developments.

● Changes in employers’ labour requirements
The effects of sectoral change – the shift from manufacturing to services
The proportion of workers employed in manufacturing has declined in the USA and all the major European Union economies since the 1970s. At the same time there has been absolute and relative growth in the number of people employed in the service sector. The decline of employment in manufacturing and the growth of the service sector have altered the nature of skills required by employers. Manufacturing is more likely to make use of idiosyncratic technologies and to require firm-specific skills. The growth of service sector employment has been concentrated at two poles – high-level professional and managerial skills at one pole, and low-skilled jobs at the other. High-level professional skills are largely acquired through formal training leading to nationally or internationally recognised qualifications. These skills are predominantly transferable, so there is no strong incentive for employers to develop internal labour markets for these workers, as they can easily move between firms in search of higher rewards. Under-performers can be dismissed and replaced with new hires from the external (occupational) labour market. At the low-skilled end of the labour market there are even fewer incentives for employers to develop internal labour markets. Even where certain behaviours are


Chapter 4 · Human resource management and the labour market

needed in order to ensure satisfactory levels of customer service, these are usually fairly rudimentary, easily learnt and transferable. Therefore there is only limited training investment and consequently little need to retain workers in order to protect long-term investments in training. Consequently, it can be argued that the shift away from manufacturing to service employment means that fewer employers have strong incentives to develop internal labour markets.

The effects of increased competition – cost reduction and labour flexibility
Since the 1970s, organisations have been subject to increasingly intense pressure from three main sources. First, markets have become increasingly competitive as a result of the emergence of new low-cost areas of production in China, South-East Asia and the Pacific Rim and, recently, Central and Eastern Europe. International competition has been encouraged by tariff reductions and freer trade between countries as a result of long-term projects such as the European Union and the World Trade Organisation. Within individual countries, government policies of privatisation and deregulation have encouraged domestic competition by enabling more firms to enter certain areas of economic activity, such as mail services, gas, electricity and water supply, telecommunications and transport. Competition has put pressure on producers to reduce costs as well as improve the quality of their products. Secondly, markets for goods and services have become more volatile. Customers are more demanding than they used to be and products become obsolete much more quickly. As a result of these changes, organisations have to be more innovative and responsive to change. Furthermore, the level of market demand is subject to sharper and more frequent variations than used to be the case, which means that organisations also have to be able to adjust the level of their labour inputs in line with changes in demand for their output. Organisational restructuring has been the widespread response to these pressures. Efforts at organisational restructuring have focused on decentralisation of hitherto large, centralised corporations and reductions in headcount in an attempt to eliminate unnecessary labour costs. Increasingly, organisations have sought to cut costs by reducing the number of employees who are not contributing directly to production or service delivery. This restructuring of organisations consists of four main elements:
● ●

Downsizing, i.e. reducing the size of the workforce while reorganising the production process and intensifying work so that production can be achieved with fewer workers. Externalisation of those activities that are required by the organisation but are not central to the production process by ‘contracting out’ or ‘outsourcing’. Outsourcing enables firms to reduce the number of workers they employ directly, together with the associated costs, by transferring responsibility for provision to specialist external organisations. Examples of such activities include cleaning and catering, security and maintenance, and some administrative services such as payroll administration. Delayering, i.e. stripping out layers of supervision and management. This cuts employment costs and also, in theory, increases the speed of communication and decision-making by ‘flattening’ the organisation, i.e. reducing the number of levels in the hierarchy. Devolution of responsibility for decision-making and problem-solving to more junior managers and production workers. This is a necessary consequence of delayering.

The result of restructuring is a ‘lean’ organisation that uses fewer employees to produce the same or a higher level of output. As part of organisational restructuring, employers and governments have come to insist on the need for greater labour flexibility in order to reduce costs and improve quality and competitiveness. From the employer’s standpoint labour flexibility refers to the ability of managers to:

The rise and fall of internalised employment systems?


Vary the size of the workforce in line with demand for output. This aspect of flexible labour utilisation is known as numerical flexibility. This is partly in response to the increased volatility of markets and the consequent unpredictability of demand. Firms cannot afford to carry workers who are surplus to requirements. At the same time they need to be able to respond rapidly to rising demand if they are to retain their shares of the market. Therefore they need to be able to reduce or increase labour inputs in line with changes in demand. Numerical flexibility can be achieved in various ways, i.e. by employing more workers on part-time, temporary, or fixed-term contracts of employment and by substituting outside contractors and self-employed workers for direct employees. Move away from fixed hours of work, such as the 9 to 5 working day. This means making more use of shift-working and part-time working to maximise the utilisation of plant and equipment or ensure that customer expectations are met while matching labour inputs to peaks and troughs in demand. This aspect of labour flexibility is known as temporal flexibility. Redeploy workers across tasks and jobs. Employers need to be able to ask workers to perform a wider range of tasks than before. There are various reasons for this. One is that organisational downsizing means smaller workforces. These have to be more productive. This has led managers to reorganise and intensify work in order to raise labour productivity by introducing multi-tasking and multi-skilling to ensure that when workers are not occupied with one task they transfer to another. Another reason is to enable organisations to make effective use of new technology. This creates a need for highly trained workers with a broad range of skills. This aspect of labour flexibility is known as functional flexibility. Control wage and salary costs by linking pay to various measures of performance such as individual performance, team performance or organisational performance, and to local labour market conditions. This is referred to as financial flexibility.

Stop and think

To what extent do you think these forms of labour flexibility operate in the organisations where you have worked?

Employers’ search for labour flexibility has led to an attack on ‘rigidities’ associated with internal labour markets and structured occupational labour markets. Both the narrowly defined jobs of the industrial internal labour market and the demarcation lines between jobs in structured occupational labour markets are claimed to be incompatible with the need for functional flexibility of labour. Narrowly designed jobs that are separated from each other by clear boundaries do not allow management to make full use of new technology and new methods of work organisation, which require broader skills and more versatile, adaptable workers. Pay scales that set a uniform rate of pay for the job, as in both variants of internal labour markets and in structured occupational labour markets, are seen by managers to be incompatible with their desire to link pay to team or individual performance. Finally, the guarantees of long-term employment and career progression associated with salaried internal labour markets restrict management’s ability to adjust the size of the workforce in response to changes in market demand.

● Organisational constraints
Increased international competition, combined with financial deregulation and the mobility of capital, has reinforced pressures on British and US firms to maximise shortterm profits to meet the demands of shareholders and introduced them to countries where they used to be relatively absent, such as Sweden and Germany. These pressures


Chapter 4 · Human resource management and the labour market

make it harder for senior managers to commit themselves to long-term investment in workers’ training and provisions for long-term employment security and career progression. Furthermore, the successive rounds of job cuts that were made during the 1980s and 1990s as corporate restructuring aimed to create ‘lean organisations’ meant that many firms reduced or ended their commitment to long-term job security for employees. In addition, externalisation, decentralisation and delayering have also meant that organisations are smaller and more fragmented and have fewer hierarchical levels. This has broken up the internal promotion ladders that underpinned salaried internal labour markets in previously large, centralised corporations (Hudson, 2002).

● Employee pressure and influence
Changes in the labour market environment and the wider institutional environment have weakened workers’ bargaining power and their ability to influence employment systems. High unemployment in the main European economies during the 1980s and 1990s weakened trade union membership and bargaining power. The impact of unemployment was reinforced by government policies that were aimed at reinvigorating European capitalism by encouraging competition and restricting the power of organised labour. In Britain the decline in trade union membership and power was dramatic, leading to the erosion of the trade union-based industrial relations system that had developed after the Second World War. This reflected the collapse of employment in manufacturing during the 1980s together with anti-union policies and legislation that were implemented by Conservative governments under Margaret Thatcher and John Major during the 1980s and 1990s and have largely continued under Tony Blair’s Labour government since 1997. In other countries such as Sweden, France and Germany, although unemployment rose significantly, public policy did not shift powerfully against the unions as it did in Britain. Thus while union membership has declined in relation to the employed workforce and unions have been forced to make concessions to employers in order to reduce costs, maintain competitiveness and save jobs, unions have not lost their influence in employment matters to the same extent they have in Britain. Thus it is to varying extents that employers have a freer hand to restructure employment systems in line with their own needs and constraints and with less regard to pressure from employees.

● The labour market environment
The 1970s in Europe saw a slowing down in the rate of economic growth, increasing inflationary pressures and rising unemployment. Unemployment increased more rapidly during the 1980s and 1990s. For example, unemployment across the 12 member states of the European Union (excluding East Germany) rose from 3.7 per cent in 1975 to 9.9 per cent in 1985 and was still 8.1 per cent in 1991. In 2001 the unemployment rate across the 15 member states was 7.4 per cent (European Commission, 1996, 2002). On the supply side of the labour market there has been a significant increase in the proportion of women in employment. Across the European Union the proportion of women aged 15–64 in employment rose from 45.1 per cent in 1985 to 54.9 per cent in 2001 (European Commission, 1996, 2002). In the UK and the USA there has also been a significant increase in the number of young people in part-time employment. This reflects the growth in the number of young people in further and higher education, for whom part-time or temporary work is a convenient way of supplementing their income. In terms of Rubery’s analysis outlined earlier, these groups have swollen the secondary segment of the labour market, providing a pool of cheap yet compliant labour from which employers can draw and so avoid having to invest in positive incentives to obtain desired levels of behaviour at work. Policies that are currently aimed at increasing labour market participation among ethnic minorities, women and older people may add

The rise and fall of internalised employment systems?


to the disadvantaged segments of the labour market unless they are linked to improvements in educational and training opportunities and forms of regulation that deter employers from adopting ‘cheap labour’ policies. However, high unemployment and low rates of job creation have led to growing criticism of labour market regulation in many EU member states. It has been argued increasingly that high levels of protection against dismissal and restrictions on employers’ freedom to employ people on part-time and temporary contracts deter employers from creating new jobs. The proposed remedy has been to increase labour market flexibility by reducing these protections and restrictions and in some cases by legislating to reduce the bargaining power of trade unions. Nevertheless, the European Union has not followed a simple course of labour market deregulation. Instead it has tried to encourage increased labour market flexibility within a reformed framework of regulation. While this has meant relaxing a number of regulations limiting, for example, the employment of workers on temporary and fixed-term contracts, there is a commitment to ensuring that such ‘non-standard’ workers enjoy the same employment rights as full-time, permanent workers (European Commission, 1999). The European Commission has also espoused the principle that in a more flexible, decentralised labour market, workers should have enhanced rights of representation and participation in decision-making (Gill et al., 1999). This is linked to the Commission’s continued emphasis on the importance of Europe competing internationally on the basis of highly skilled, adaptable workforces (see Chapter 16 for further discussion). The most radical policy shift in the direction of labour market flexibility has occurred in the UK, where trade unions and collective bargaining, rather than government legislation, were traditionally the main curbs on unilateral management action. The decline of trade union membership and collective bargaining coverage that resulted from economic policy and anti-union legislation during the 1980s and 1990s, together with the determination to minimise statutory protection for workers as far as possible, means that the British labour market is now the least regulated in Europe. Originally a Conservative government project, labour market flexibility has continued to be a priority for the Labour government since 1997. The introduction of a national minimum wage, the strengthening of workers’ protection against unfair dismissal and legislation providing trade unions with a legal right to claim recognition from employers can be seen as a partial reversal of some aspects of Conservative policy. However, the level of the minimum wage is low, workers in Britain continue to have weaker employment rights than their counterparts in Europe and British trade unions continue to be subject to the most restrictive laws in the European Union. The current government claims that labour market flexibility has enabled Britain to reduce unemployment far more successfully than the more highly regulated economies in Europe such as Germany and France. However, Britain has a higher incidence of low-paid employment than other major European economies and the most unequal earnings distribution (Rubery and Edwards, 2003). To varying degrees therefore, changes in the labour market emvironment have given employers greater freedom to restructure employment systems in line with their changing labour requirements and organisational constraints.

● The wider institutional environment
These policy shifts have been closely linked to radical changes in economic institutions. Financial markets have been deregulated, allowing capital to flow freely from one financial centre to another in search of the best possible short-term profits. This, together with advances in information and communications technology, has helped stimulate the growth of multinational corporations, which began during the 1970s. Furthermore, increasing pressures for free trade in goods and services, embodied in the formation of the Single European Market, the North American Free Trade Agreement and the World


Chapter 4 · Human resource management and the labour market

Trade Organisation, have given further stimulus to international competition and the internationalisation of production. This has in turn intensified the pressures on governments to pursue economic policies that are acceptable to international investors, such as promoting labour market flexibility, and on firms to offer consumers better value for money by reducing costs and prices while improving the quality of products and services. These pressures have also been transmitted to workers and their unions. They are increasingly aware that the continuation of jobs depends on maintaining the competitiveness of their workplaces. This competition is not confined to competition between companies. Multinational companies scrutinise the performance of their plants in different countries, comparing cost and productivity levels and concentrating investment in those that are deemed to be most efficient. This means that workers employed in different plants of the same company are in increasingly direct competition with each other. The consequence is that workers and their unions are less able to influence terms and conditions of employment or resist managerial initiatives aimed at weakening internal labour markets. This is true even in economies such as Germany, where public policy has not shifted as radically in favour of labour market flexibility as in the UK (Katz and Darbishire, 2000; Whittall, 2001).


Refer back to Figure 4.2. Construct your own version of the diagram, showing how specific influences have affected specific features of employment systems since the 1980s.

The future of employment systems: theory and evidence
The changes outlined above suggest that there is a move away from internalised employment systems and that organisations are having increased recourse to occupational and open external labour markets (Guest and Hoque, 1994; Katz and Darbishire, 2000). However, the question of how far organisations will go down the externalisation road is open to discussion. In moving away from long-term commitments to employment security, transparent pay structures and opportunities for internal training and promotion, organisations run the risk of undermining employees’ morale and commitment and possibly losing valued employees as a consequence. Organisations are subject to contradictory pressures with respect to the management of labour. On the one hand employers need to be able to treat labour as a commodity to be hired and fired as production requirements dictate (recall that the demand for labour is derived from the demand for goods and services). At the same time, employers need workers to cooperate actively in the production process. This means more than following management instructions. It also means using their creativity and judgement and taking some responsibility for the quality of their own performance. The contradiction exists because each of these requirements undermines the other. Workers’ awareness that they will be dismissed when the market dips reduces their trust in the employer and therefore their willingness to cooperate with management. After all, why cooperate in improving efficiency if it means that the job that is lost is your own? At the same time, managers’ need for workers’ cooperation limits the extent to which they can treat workers as a disposable commodity. Therefore there is never complete trust and cooperation between management and workers but at the same time management has to give some consideration to workers’ interests and concerns. This contradiction can never be ultimately resolved, but it can be managed; how to do this is one of the central concerns of personnel management and HRM. The drive to restructure organisations and employment since the 1980s has intensified these contradictory pressures on workers and managers and the personnel/HRM func-

The future of employment systems: theory and evidence


tion. On the one hand, management claims to need more highly skilled, functionally flexible workers who can be trusted to exercise responsible autonomy. This means that organisations have an interest in developing and retaining skilled employees and establishing a climate of trust and cooperation in employee relations. As we have seen, such outcomes are associated with long-term, stable employment relationships. On the other hand, pressures to reduce costs and achieve numerical flexibility of labour imply personnel policies that run counter to this by weakening employers’ commitments to long-term employment security and reducing opportunities for career development within the organisation. This raises the questions of how employers are attempting to manage this contradiction and what the implications are for HRM.


Review the activity relating to the two supermarkets on page 126. Explain to yourself how it illustrates the contradictory nature of management’s labour requirements.

■ The ‘flexible firm’ model
One model of how organisations could respond to the problem of managing these contradictions is for organisations to operate different employment systems for different sections of their workforce (Atkinson, 1984, 1985). This model, known as the ‘flexible firm’, became very influential in HRM thinking during the late 1980s and early 1990s. The model purported to show how firms could minimise employment costs and become more responsive to changes in markets and technology by reorganising their employment systems to achieve a combination of functional, numerical and financial flexibility. The model is illustrated in Figure 4.3. The model assumes that various labour requirements can be separated from each other so that they can be satisfied by different sections of the workforce. This enables different employment systems to be applied to the different segments. The main division of the workforce is into ‘core’ and ‘peripheral’ segments. ‘Core workers’ are trained in a range of firm-specific skills that make them functionally flexible, that is, competent to perform a range of different tasks and able to undertake further training as new technologies are adopted. These workers are the source of creativity, problem-solving capacity and adaptability within the organisation. They may include workers at most levels within the firm, from managerial and professional to skilled production workers. The employer has a strong interest in retaining these workers, so depending on the degree of responsible autonomy and discretion that they are required to exercise in their roles, they will be subject to salaried or industrial internal labour market systems of employment, i.e. favourable pay and benefits, long-term employment security and, to varying degrees, opportunities for internal training and promotion. ‘Peripheral workers’ are workers whose contribution to production, while significant, is not central and whose skills are transferable rather than firm-specific. The size of the peripheral workforce can be expanded or contracted as demand for the firm’s output rises or falls, so it is a source of numerical flexibility for the firm. This group is itself split into further segments that are subject to occupational labour market-based and open external labour market-based employment systems. Peripheral group I is made up of employees on full-time contracts but with no guarantee of long-term employment, i.e. an occupational labour market. Peripheral group II consists of various ‘non-standard’ forms of employment contract such as short-term contracts, temporary workers, job shares and part-time workers drawn from the open external labour market. A further characteristic of the ‘flexible firm’ model is that it envisages that organisations will cease to use their own employees to carry out some ‘non-core’ functions.


Chapter 4 · Human resource management and the labour market

Figure 4.3

The ‘flexible firm’

Peripheral group I Secondary labour markets Flexibility through quantitative adjustment

Agency temporaries

Core group Primary labour markets Flexibility through utilisation


Source: Institute for Employment Studies (1995)

Instead they will contract these activities out to ‘distanced workers’, i.e. self-employed workers, temporary help agency workers and specialist contracting companies that operate their own employment systems. A key feature of the model is that the peripheral workers provide a ‘buffer’ that protects core workers from external market pressures. When faced with a dip in demand for its product, the firm will cut peripheral jobs while retaining core workers. It can also offset the costs of maintaining high rates of pay and benefits for core workers by ensuring that the pay of peripheral workers is adjusted in line with market rates.

● The flexible firm: model and reality
It is clear that this model focuses almost entirely on organisations’ labour requirements and neglects the other influences on employment systems that have been identified in this chapter. This is a weakness, since it assumes that managers are free to organise their employment systems in this way. Empirical research in the UK has found very little evidence for the emergence of the flexible firm, largely because of some of these other influences. Organisations have been constrained in their ability to take such a sophisticated approach to their employment systems because of the inability or unwillingness of managers to take a strategic, long-term approach to business decisions (Hunter and MacInnes, 1992; Sisson and Marginson, 1995). This may have reflected pressure from

tor S h r m ts te ac tr co n

Peripheral group II P s u u b li btr a b si d c J o in g r in e y D e la y e d s ha es recr uit m en t Outsourcing

Pa t i m r te rs

The future of employment systems: theory and evidence


financial institutions in the City to concentrate on short-term financial performance rather than long-term planned development. Research has also found little evidence of multi-skilling and a functionally flexible core workforce. This reflects the low priority and limited investment that most British firms give to training, something that has been aggravated by the relatively heavy emphasis on short-term profits in British business that discourages long-term investment in training. Rather than developing internally differentiated employment systems along the lines of the flexible firm, British management has been found to have taken one of three approaches to labour flexibility, each of which is biased towards numerical rather than functional flexibility. These are:

● ●

To seek cost minimisation through the employment of so-called ‘flexible’ labour, i.e. low-paid, part-time, female workers. This approach takes advantage of the relatively high degree of ‘labour market flexibility’ in the UK. Put simply, this means the relative absence of constraints on hiring and dismissal and until recently, the absence of a minimum wage and the ability to pay part-time and temporary workers less pro rata than permanent full-time workers. However, recent changes in British and European Union legislation may make this cost-cutting route more difficult to pursue in future. To minimise costs by achieving numerical flexibility in ‘core’ as well as ‘peripheral’ functions. Extensive use is made of temporary workers and subcontracting. To combine functional flexibility in core functions with numerical flexibility in peripheral functions by contracting peripheral functions out to external agencies. However, functional flexibility is not developed to a high degree and consists more in the multi-tasking of semi-skilled labour than in the multi-skilling of highly trained workers (Cully et al., 1999).

Evidence from the USA suggests that employers have tended to divide their workforces into primary and secondary segments. The employment system for primary workers continues to be internalised, i.e. based on long-term commitments from the employer and the employee, while that for the secondary segment is externalised, i.e. organised on a short-term hire and fire basis. There is also some evidence that ‘firms which provide better benefit packages to their full-time, more permanent workers are more likely to rely on flexible staffing arrangements’ (Rosenberg and Lapidus, 1999: 77). This is in line with the idea that numerical flexibility in the periphery protects the employment conditions of core workers. However, this does not mean that US firms have made a strategic HRM choice to adopt the model of the flexible firm in order to combine functional and numerical flexibility. As in Britain, there is little evidence of widespread multi-skilling of ‘core’ workers. As in Britain, the main motive for hiring non-standard workers, particularly selfemployed and temporary agency workers, is to reduce costs. US employment law forbids employers from offering benefits to one group of full-time employees and withholding them from another, but employers are allowed to withhold such benefits from non-standard workers, i.e. self-employed workers and workers hired through temporary agencies (Rosenberg and Lapiches, 1999: 77; Heckscher, 2000). This has encouraged the wider use of these workers. Overall therefore, while there is evidence of increased differentiation and segmentation of employment systems in Britain and the USA, there is little evidence that the flexible firm model has been adopted as an employment strategy. Specifically, there is little evidence that employers have reorganised their employment systems to combine numerical and functional flexibility. Instead, numerical flexibility appears to have been extended to the majority of functions within enterprises as employers have taken advantage of weakened employee pressure and influence to reduce costs.


Chapter 4 · Human resource management and the labour market

■ An alternative model? ‘Flexible specialisation’
Critics of developments in Britain and the USA argue that they amount to a ‘low road’ path of economic development based on cheap labour. Low wages reflect low skills and low productivity, which are in turn the product of management’s pursuit of short-term profits and its neglect of long-term investment in training. These biases have been reinforced over the years by the operation of the British and American financial systems and their governments’ unwillingness to provide workers with strong, legally enforced employment rights. By making it easy for employers to make use of ‘cheap labour’ it has reduced incentives for employers to invest in highly skilled, functionally flexible workforces (Nolan, 1989; Cappelli et al., 1997; Dex and McCulloch, 1997). These critics argue that the long-run consequences of this are increasing technological backwardness, inability to compete in the markets for high-value, sophisticated goods and services, and an increase in low-paid, insecure employment. The alternative to the ‘low road’ is the ‘high road’ path of development that is based on high skills, high productivity and high wages. The ‘high road’ strategy is one of ‘flexible specialisation’. This seeks to develop new areas of competitive advantage by exploiting new technologies and new market opportunities rather than defending old ones against low-cost competition. The emphasis is on internal, functional flexibility of labour to support adaptation to new technologies and innovations in product design and production methods. Advocates of the ‘high road’ strategy argue that countries that develop a highly educated and trained workforce and foster labour–management cooperation are better placed to compete in the markets for high-quality goods and services. This is because highly skilled workforces are crucial to high levels of research and development, sophisticated design of goods and services and high quality in their manufacture or delivery. The benefit of this strategy is that premium goods and services sell at premium prices, with higher mark-ups and hence profits. This supports high wages, good working conditions and comprehensive, generous levels of social welfare provision. The ‘high road’ position on labour market policy is that it should aim to increase the capacity of workers to acquire new, high-level skills, broaden their range of skills and adapt to changes in technology, rather than pursuing wage and numerical flexibility. The viability of this alternative has come to be questioned in recent years. The main reason for this is that competition on the basis of quality is no longer a straight alternative to competition on the basis of price. High-quality goods can be produced using low-cost methods of production and high-cost producers are less able to rely on product quality to protect them from lower-cost competition. During the 1970s and 1980s, West Germany was seen as the best example of a country that was attempting to take the ‘high road’. Although sometimes exaggerated, the strengths of the German system included a strong legal framework of rights for workers, including co-determination rights, that limited management’s freedom to hire and fire workers at will and provided a basis for worker–management cooperation in the workplace. They also included a strongly developed system of initial vocational training that ensured a relatively large supply of skilled labour. However, in recent years German producers have come under increased competition and a growing number have located more of their production capacity outside Germany in order to avoid high labour costs. This has also created pressures for greater labour market flexibility in Germany. Trade unions in private and public sector organisations have agreed to various concessions in order to protect job security for incumbent workers, including the systematic use of part-time and fixedterm contracts to fill new vacancies. This creates a growing division between ‘insiders’, who retain job and income security and access to promotion and career progression, and the ‘outsiders’ on part-time, temporary and fixed-term contracts who increasingly occupy the periphery of the employment system (Jacobi et al., 1998; Katz and Darbishire, 2000).

The future of employment systems: theory and evidence


■ The virtual organisation, networks and the end of long-term employment?
Some analysts have interpreted recent developments as indicating a transformation in work patterns as greater flexibility is demanded of firms and workers. In their view, traditional careers are a thing of the past. As traditional internal labour markets decline, rather than progressing careers through vertical job mobility based on internal promotion within one organisation, workers now have to make sideways moves across organisations as they search for better pay and opportunities. It has been claimed that, in future, workers will have to change their careers several times in their working lives, acquiring new sets of skills and changing occupations as old skills and occupations become obsolete (Bayliss, 1998). For some of these observers, the whole concept of employment is becoming outmoded as a result of the emergence of the ‘virtual organisation’. The virtual organisation is presented as the antithesis of bureaucracy and hierarchy. There is minimal formal, permanent organisation and there are almost no direct employees. The virtual organisation is based on networks that bring individuals and groups of workers together for specific projects. Once the projects are complete, the assemblages of workers break up and new assemblages are created for the next set of projects. Some commentators have claimed that this is the future of work and that eventually most workers will no longer be employees of a single employer. Instead they will be ‘portfolio workers’ doing a range of jobs for different employers, as a ‘freelance’ worker or a self-employed producer of services. The most frequently cited examples of this emergent breed are the selfemployed business consultant, the freelance journalist and television producer (Bridges, 1995; Handy, 1995; Leadbeater, 2000). Therefore the picture being painted is one in which not only are long-term employment relationships giving way to more contingent forms of employment, such as temporary and fixed-term contracts; the employment relationship in general is giving way to commercial transactions between self-employed workers and organisations buying in their services.

Stop and think

What do you think are the main advantages and disadvantages of being a ‘portfolio worker’? Is this a pattern of work that appeals to you? Why or why not?

This picture, most frequently painted in popular management literature and press comment, is greatly exaggerated. It is true that there has been an increase in the number of temporary and fixed-term contracts of employment in various countries such as the UK, the USA and Spain. It is also true that prospects of long-term, stable jobs have declined for some labour market groups. In Britain and the USA in particular, men are facing increased competition for long-term jobs. Young men and older workers have been particularly affected in both countries and, in the USA, black workers have suffered the greatest drop in job stability (Gregg and Wadsworth, 1999; Bernhardt and Marcotte, 2000). Despite this, however, long-term employment relationships remain the norm. In 1985, 31.1 per cent of the UK working population were in jobs that had lasted more than ten years. In 1998, the proportion was 28.6 per cent. In 1998, 48.8 per cent of workers were in jobs that had lasted more than five years (Gregg and Wadsworth, 1999). Clearly the employment relationship is still a long-term one. Neither is there much evidence that the self-employed worker is replacing the employee. Freelance workers and self-employed teleworkers operating from home via computer modems remain a small minority of the British workforce. The proportion of workers who are selfemployed in Britain fell continuously as a proportion of total employment between 1994 and 2001, from 13.5 per cent to 11.7 per cent, and in the European Union from


Chapter 4 · Human resource management and the labour market

16.2 per cent to 14.8 per cent (Millward et al., 2000: 48; European Commission 2002: 173, 188). One reason for this is that most workers value the security and stability of long-term employment relationships. While there is evidence from the USA that most selfemployed workers and independent contractors are happy with their status and do not want standard jobs, most temporary workers would rather be in permanent employment (Polivka et al., 2000; Heckscher, 2000). Dissatisfaction is also widespread among temporary workers in Britain. Moreover, even among self-employed freelancers, there is evidence that insecurity is perceived as a problem (Gallie et al., 1998; Baines, 1999). A second reason is that the network form of organisation can carry significant disadvantages from a managerial point of view, so managers continue to have an interest in maintaining long-term employment relationships. The widespread use of temporary workers generates friction between temporary and permanent staff, leading to reduced commitment from permanent workers, especially where temporary workers are employed on inferior terms and conditions (Geary, 1992; Heckscher, 2000). Moving from conventional employment to ‘networks’ has been shown to carry the potential for considerable disruption. A study of a major shift from long-term employment to freelance and contract labour in the British television and broadcasting industry in the 1990s (Saundry and Nolan, 1998) found that it led to an increase in administrative costs, skill shortages and lower morale among workers. Eventually companies began to return to more traditional employment patterns through efforts to ‘improve job security for existing staff and persuade freelancers to return to permanent contracts’ (Nolan and Slater, 2003). Case study research in the USA has produced similar results. After an initial phase of radical organisational restructuring that broke up internal labour markets, problems of declining product quality, skill shortages and lower morale and employee commitment have led organisations to reintroduce elements of internal labour markets (Moss et al., 2000). The US economist Charles Heckscher gives a vivid summary of these issues from a US perspective:
For the vast majority of employees, the open labor market is a fearful place. It is hard to get training, it is hard to get placement, it is hard to get health care, and it is hard to explain to your family and friends – and to yourself – why you are not working. For managers the turbulence caused by employee turnover is far more dangerous than the possible gain from getting better people. Managers are better off working with what they have, which is at least predictable, than taking a wildly uncertain bet on the labor market.
(Heckscher 2000: 277).

For workers, long-term employment provides security of income and is also frequently valued as a source of psychological stability and personal identity (Sennett, 1998). For employers, the costs of labour turnover, the need for firm-specific skills and the need to gain workers’ cooperation in production will continue to provide a basis for long-term employment, even in the face of weakened trade unions, changes in the labour market and the wider institutional environment. However, this does not mean that internalised employment systems have remained unchanged. As shown above, although they have not collapsed, they have been weakened and modified as a result of organisational restructuring and the search for labour flexibility.

The future of employment systems: theory and evidence


■ Implications for HRM: strategic HRM and the new psychological contract
HRM has been distinguished from so-called ‘traditional personnel management’ on the grounds that:
● ●

HRM fulfils a strategic business function, i.e. is integrated closely with broader business strategy, i.e. it is vertically integrated. HRM policies are designed to support each other to generate strategic HRM outcomes, i.e. employee commitment, high-quality performance and flexibility in the use of labour. In other words, it is horizontally integrated.

In the context of this chapter, strategic integration of HRM with broader business strategy means defining what an organisation’s labour requirements are given its chosen competitive strategy, e.g. price or quality. The internal coherence or horizontal integration of HRM policies means operating an employment system that satisfies these requirements at least cost. In reality, as we have seen, things are not so simple. For one thing, employment systems are not the simple embodiment of employers’ strategies for meeting their labour requirements. They are also the outcome of organisational constraints, pressure from workers and external influences from the labour market and wider institutions. The force of these constraints varies across space and time. In Britain and the USA since the 1980s, the decline of trade union influence and connected changes in government policy towards the labour market have provided employers with relative freedom to develop employment systems unimpeded by externally imposed restrictions. One probable effect of this has been to limit the take-up of HRM by organisations and to bias it in particular directions. Minimal legal regulation of the labour market and weak trade union organisation and influence mean that employers and managers are under little pressure to develop long-term employment relationships, embark on long-term processes of training to develop high-level skills, or involve workers in decision-making. This means that they are less likely to take a strategic, forward-looking approach to the management of labour. A second and more fundamental factor that undermines the coherence of HRM as strategy is the fact that management’s labour requirements are not straightforward but contradictory. Management requires disposability on the one hand, commitment and cooperation on the other. This means that HRM policies can never be entirely coherent, even in the relative absence of external constraints on managerial action. For example, as we have seen, commitment and flexibility are contradictory goals; policies that aim to achieve one threaten to undermine the other. Consequently HRM strategies can never be wholly successful. This is illustrated by the way strategies aimed at reducing labour costs by downsizing and delayering organisations and increasing labour flexibility have generated significant costs in terms of skill shortages, lower morale and declining organisational commitment which threaten organisational performance. Within HRM one of the major themes in recent discussion has been how organisational restructuring has undermined employees’ trust in the organisations that employ them and what can be done to build a new basis for employee commitment and cooperation with management. As shown in Chapter 13, discussion of this issue has revolved around the concept of a ‘new psychological contract’ between the organisation and the individual employee to replace the ‘old’ (Bendall et al., 1998; Sparrow, 1998). Significantly, in most accounts, the ‘new’ psychological contract being ‘offered’ by organisations seeks to replace commitments to providing long-term employment security with commitments to providing workers with educational and training opportunities to enable them to acquire transferable skills to enhance their employability. This indicates that management is persuaded, for the time being at least, that commitment to longterm employment security and planned career progression within the firm are no longer practical propositions and is trying to get workers to accept this proposition also.


Chapter 4 · Human resource management and the labour market

What are the prospects for negotiating a new basis for the employment relationship on these lines? How can employers expect to get high commitment and effort while offering less security and fewer prospects for career advancement? One possible answer is that workers who are still in jobs are too afraid to resist, since to do so would be to invite dismissal. Slower economic growth, the decline of manufacturing and, of course, organisational restructuring itself have led to widespread job losses, historically high levels of unemployment and a heightened sense of insecurity among workers. The extent to which employment has become less secure has been debated widely in Britain and the USA. There is no strong evidence for a major increase in employment insecurity in general but there is evidence that for certain groups such as younger men, the risk of job loss has increased and the probability of getting a long-term job declined (Gregg and Wadsworth, 1999; Heckscher, 2000). Such workers may well be willing to submit to management’s demands in the hope of avoiding job loss or being taken on as a permanent employee. On this view the ‘new psychological contract’ is nothing more than an expression of the increased inequality of power between employer and employee. A more optimistic and sympathetic judgement would be that the success of the ‘new psychological contract’ depends on the ability of employers to provide workers with opportunities to develop their skills and experience in ways that enable them to improve their external job prospects. But how likely is it that employers will do this? It seems probable that those best able to take advantage of such opportunities will be the most able employees, yet these will be the ones that employers want to retain.

The simple economic model of the labour market and the employment relationship is that labour is a commodity like any other and its price is determined by competition in the labour market; between employers competing for the available supply of labour and between workers competing for job vacancies. The outcome is a uniform set of terms and conditions of employment across firms employing the same type of labour. The reality of labour markets is somewhat different. It is clear that firms adopt a variety of employment systems, i.e. open external labour markets, structured occupational labour markets or internal labour markets. These differ from each other in:
● ● ●

the degree to which they rely on external or internal sources of labour to fill vacancies; the extent to which they operate within occupational boundaries; the extent to which terms and conditions are regulated by market competition or by formal rules administered through internal institutions.

The extent to which employment systems are externalised or internalised depends on the interaction of the following influences:
● ● ● ● ●

employers’ labour requirements; organisational constraints; the ability of workers to influence terms and conditions; the labour market environment; the wider institutional context.

Using this framework of analysis we can explain recent changes in employment patterns and policies in the UK and elsewhere. Since the 1980s employers have responded to competitive pressures to reduce costs by restructuring organisations and their employment systems. Restructuring has involved downsizing, delayering, devolution of responsibilities, and the reorganisation of work. Work reorganisation has involved externalisation of non-core functions and greater use of



part-time, temporary and fixed-contract workers. These efforts by employers have received growing support in government policies that are aimed at increasing labour market flexibility. These developments have challenged the internalised employment systems that became widespread in large organisations during the 1960s and 1970s. This has given rise to speculation that not only are internal labour markets in decline but the concept of longterm employment is no longer relevant. Some have argued the concept of employment itself will soon become obsolete as the employment relationship is replaced by commercial contracts between freelance workers and ‘virtual’ or ‘network’ organisations. Empirical evidence shows that these speculations are exaggerated and that employment and indeed, long-term employment, continue to be valued by employers as well as workers. This is because long-term employment and internalised employment systems frequently provide employers with efficient ways of developing and retaining skilled labour and motivating workers to exercise responsible autonomy in their jobs. Such systems do, however, carry costs. Commitments to employment security make it difficult for employers to vary headcount at short notice. Clearly defined job demarcations get in the way of functional flexibility. Formal pay structures that link pay to jobs prevent employers from rewarding individual performance. These so-called ‘rigidities’ have come to be seen as increasingly unacceptable as managers have looked for ways to reduce labour costs. Therefore, while long-term employment is far from dead, internalised employment systems have been reformed and in many cases weakened and eroded. Attempts by managers to curtail internalised employment systems and move towards greater externalisation have, however, created problems in the form of skill shortages and declining morale and commitment. These problems stem from the contradictions between a search for flexibility and cost reduction on the one hand and commitment and cooperation on the other. In recent years managers have increasingly demanded more of both from their workforces. This has heightened the contradiction in the employment relationship and influenced the way mainstream HRM thinking has developed. There has been a retreat from the idea that employment security is an essential condition for employee commitment. This has been replaced with the following argument. The need for greater numerical flexibility of labour makes it impossible for employers to commit themselves to providing long-term employment security. At the same time, organisational performance depends on the committed efforts of workers. HRM has so far offered two ways of squaring this particular circle. The first is to develop internally differentiated employment systems, i.e. internalised systems for employees who are highly valued and externalised systems for the rest. There is evidence that while some organisations may operate in this way, it is often problematic, particularly where organisations have devolved responsibilities to more junior employees after downsizing and delayering. The second route to regaining commitment is the new psychological contract. The problem here is that it is doubtful whether employers will be willing to set up opportunities for workers to improve their employability if it increases the risk that they will lose their best employees.

● There are different types of labour market – open external, structured occupational and internal labour markets. They are the basis for different organisational employment systems. ● Labour market types can be differentiated from each other in terms of how close they are to the basic competitive model of the labour market. This in turn can be examined in terms of where they lie along three axes: external–internal; unstructured–structured: competitively–institutionally regulated.


Chapter 4 · Human resource management and the labour market

● Open external labour markets are closest to the competitive model of the labour market; internal labour markets are least like the basic competitive model. ● Organisations’ employment systems may range from externalised systems that draw on open external labour markets to highly internalised systems based on salaried internal labour markets. ● The extent of externalisation/internalisation is influenced by a variety of factors. These include employers’ labour requirements, organisational constraints, workers’ pressure and influence, the labour market environment, and the wider institutional environment. ● These factors interact in complex ways, sometimes reinforcing, sometimes counteracting each other in the way they shape an organisation’s employment system. ● There was a tendency to internalise employment systems during the 1960s and 1970s. This reflected the need to retain scarce skills at a time of full employment, increased reliance on firm-specific skills, increase in the size of organisations, rising trade union power and influence, government employment and industrial relations policies and the spread of social democracy in Europe. ● Internalised employment systems have been weakened during the past 20 years by organisational restructuring and government policies aimed at increasing labour market flexibility. ● Organisational restructuring has aimed at increasing flexibility in the use of labour – functional, numerical and financial flexibility. ● The flexible firm is a model for achieving a strategic combination of these different types of flexibility but there is little evidence that it has been adopted in practice. The emphasis of most organisations, especially in the UK and the USA, is on increasing numerical flexibility. ● The weakening of internalised employment systems has heightened the contradiction between the commodity status of labour (labour flexibility) and management’s need for workers’ commitment and cooperation. This has limited the extent to which many organisations have felt able to externalise employment. Even so, the decline of employee commitment is seen as a major issue for organisations. ● The concept of the new psychological contract has been offered as a way of rebuilding commitment in the absence of employment security but the practicability of such a contract is questionable.


Discuss critically the following quote from the management ‘guru’ Charles Handy:
Frankly I now believe that life-time employment is bad economics and bad morals. It is bad economics because it puts the organisation into a straitjacket and limits its flexibility. It is bad morals because it promises, or appears to promise, what it cannot deliver to more than a few… It would, I think, be more honest and more sensible to think in terms of specific jobs with fixed-term contracts of varying lengths, of money purchase pension schemes for all instead of retirement pensions, of ‘opportunities’ rather than ‘planned careers’, with people bidding for jobs but sometimes in competition with outsiders. It would be more sensible for individuals to think of ‘moving on’ rather than always ‘moving up’, as professionals move from one partnership to another to gain experience or look for richer pickings. Tenure, after all, is something that the good don’t need and the bad don’t deserve. (Handy, 1995a: 89–90)

Case study


1 What are the advantages to employers and employees of structured occupational labour markets? In what circumstances would employers prefer them to open external labour markets? 2 What are the possible reasons why internal labour markets are more highly developed for technical and administrative workers than for manual production workers? 3 What factors might be encouraging the re-emergence of open external labour markets in some areas of employment? 4 How do firms’ labour requirements influence the nature of their employment systems? 5 Identify the forces that encouraged the internalisation of employment systems during the 1960s and 1970s. 6 Explain why internal labour market-based employment systems have been weakened since the early 1980s. 7 How concerned should we be about any tendency to restrict or dismantle employment systems based on internal labour markets?

Case study
‘Fears for the thread of industry’
Stephen Houghton
North Staffordshire’s manufacturing base could lose hard-earned skills forever amid fears of a further slowdown in the sector. That was the view today of Allan Bourne, joint managing director of Trentham-based Biltmore Garments, after he closed the factory last week due to increased red tape and foreign competition. The move, which claimed the jobs of 125 people, came as warnings grew of a fresh crisis in the manufacturing sector. Mr Bourne, aged 66, explained many people no longer valued manufacturing as a credible or worthwhile career. He said: ‘For the last few years we haven’t been able to attract young people into the industry. For some reason they don’t want to come into manufacturing. ‘They are quietly told that if they don’t get on with their studies, this is where they will end up. ‘Everybody has this attitude now. When I was taught at school, I was taught the country had to be self-reliant in manufacturing. ‘We had girls at the factory with 20 or 30 years’ experience, who were always retraining because of changing styles. ‘That is now lost. They will never come back, and will be too old to train others in a few years.’ Mr Bourne added it was ‘sad’ that North Staffordshire and the rest of the country appeared to be depending on the service sector for wealth. His own company at Newstead Industrial Estate, which mainly supplied the retail chain Next, had suffered from price competition from overseas. North Staffordshire’s economy is predicted to lose a quarter of its 68,000-strong industrial workforce in the decade to 2010, partly due to cheap labour in the Far East and Eastern Europe. These would be on top of thousands of jobs already lost from coal mining, steel-making, textiles, ceramics and engineering. The Confederation of British Industry (CBI) is this week set to add to the gloom surrounding the sector by revealing more firms than expected will cut jobs in the first half of the year as foreign competitors make further in-roads into the British market. Its quarterly regional health check of UK manufacturing, due to be published tomorrow, will point to a sharp downturn in confidence and orders.


Chapter 4 · Human resource management and the labour market

Case study continued
CBI West Midlands assistant regional director Gil Murray told Sentinel Sunday that the situation was caused by ‘underlying factors’ rather than the Iraq war. Mr Murray pointed to poor He said: ‘We have not detected trading conditions, as well as a any of the optimism that the lack of labour market ‘flexibility’ Chancellor has been talking caused by legislation from the about recently.’ European Union. Source: The Sentinel (Stoke) 5 May 2003.
Discuss what kind of flexibility he has in mind and how far it would help Biltmore Garments.

1 What type of labour market/employment system
do you think used to be dominant in the North Staffordshire region?

3 Debate whether it would be possible for firms
such as Biltmore Garments to adopt a ‘high road’ approach to competing in world markets.

2 The CBI regional director claims that European
legislation is causing a lack of labour flexibility.

References and further reading
Those texts marked with an asterisk are particularly recommended for further reading. Adnett, N. (1989) Labour Market Policy. London: Longman. Atkinson, J. (1984) ‘Manpower strategies for flexible organisations’, Personnel Management, August, pp. 28–31. Atkinson, J. (1985) Flexibility, Uncertainty and Manpower Management. Brighton: Institute of Manpower Studies. Baines, S. (1999) ‘Servicing the media: freelancing, teleworking and “enterprising” careers’, New Technology, Work and Employment, Vol. 14, No. 1, pp. 18–31. Bayliss, V. (1998) Redefining Work: An RSA Initiative. London: Royal Society for the Encouragement of Arts, Manufactures and Commerce. Bendall, S.E., Bottomley, C.R. and Cleverly, P.M. (1998) ‘Building a new proposition for staff at NatWest UK’, in Sparrow, P. and Marchington, M. (eds) Human Resource Management: The New Agenda. London: Financial Times-Pitman, pp. 90–105. Bernhardt, A. and Marcotte, D.E. (2000) ‘Is “standard employment” still what it used to be?’, in Carre, F., Ferber, M.A., Golden, L. and Herzenberg, S. (eds) Nonstandard Work: The Nature and Challenges of Changing Employment Arrangements. Urbana-Champaign, Ill.: Industrial Relations Research Association, pp. 21–40. *Beynon, H., Grimshaw, D., Rubery, J. and Ward, K. (2003) Managing Employment Change: The New Realities of Work. Oxford: Oxford University Press. *Boxall, P. and Purcell, J. (2003) Strategy and Human Resource Management. Basingstoke: Palgrave Macmillan. Bridges, M. (1995) Job Shift: How to Prosper in a Workplace Without Jobs. London: Nicolas Brealey. *Cappelli, P., Bassi, L., Katz, H., Knoke, D., Osterman, P. and Useem, M. (1997) Change at Work. New York: Oxford University Press. Creedy, J. and Whitfield, K. (1986) ‘Earnings and job mobility. Professional chemists in Britain’, Journal of Economic Studies, Vol. 13, pp. 23–37. Cully, M., Woodland, S., O’Reilly, A. and Dix, G. (1999) Britain at Work. As Depicted by the 1998 Workplace Industrial Relations Survey. London: Routledge. Dex, S. and McCulloch, A. (1997) Flexible Employment: The Future of Britain’s Jobs. Basingstoke: Macmillan. Doeringer, P.B. and Piore, M.J. (1971) Internal Labor Markets and Manpower Analysis. Lexington, Mass.: Heath. European Commission (1996) Employment in Europe 1996. Luxembourg: Office for Official Publications of the European Communities. European Commission (1999) Employment in Europe 1999. Luxembourg: Office for Official Publications of the European Communities. European Commission (2002) Employment in Europe 2002. Luxembourg: Office for Official Publications of the European Communities. Friedman, A. (1977) Industry and Labour. London: Macmillan. Gallie, D., White, M., Chang, Y. and Tomlinson, M. (1998) Restructuring the Employment Relationship. Oxford: Oxford University Press. Geary, J.F. (1992) ‘Employment flexibility and human resource management: the case of three American electronics plants’, Work, Employment and Society, Vol. 6, pp. 251–270. George, K. and Shorey, J. (1985) ‘Manual workers, good jobs and structured internal labour markets’, British Journal of Industrial Relations, Vol. 23, No. 4, pp. 424–447. Gill, C., Gold, M. and Cressey, P. (1999) ‘Social Europe: national initiatives and responses’, Industrial Relations Journal, Vol. 30, No. 4, pp. 313–329. Goetschy, J. and Rozenblatt, P. (1992) ‘France: the industrial relations system at a turning point?’, in Ferner, A. and Hyman, R. (eds.) Industrial Relations in the New Europe. Oxford: Blackwell, pp. 404–444.

References and further reading
Gordon, D.M., Edwards, R. and Reich, M. (1982) Segmented Work, Divided Workers: The Historical Transformation of Labor in the United States. Cambridge: Cambridge University Press. Gregg, P. and Wadsworth, J. (1999) ‘Job tenure, 1975–98’, in Gregg, P. and Wadsworth, J. (eds) The State of Working Britain. Manchester: Manchester University Press, pp. 109–126. *Grimshaw, D., Ward, K.G., Rubery, J. and Beynon, H. (2001) ‘Organisations and the transformation of the internal labour market’, Work, Employment and Society, Vol. 15, No. 1, pp. 25–54. Guest, D.E. and Hoque, K. (1994) ‘The good, the bad and the ugly: employment relations in new non-union workplaces’, Human Resource Management Journal, Vol. 5, No. 1, pp. 1–14. Handy, C. (1995) The Empty Raincoat: Making Sense of the Future. London: Arrow. Handy, C. (1995a) Beyond Certainty: The Changing Worlds of Organisations. London: Hutchinson. Heckscher, C. (2000) ‘HR strategy and nonstandard work: dualism versus true mobility’, in Carre, F., Ferber, M.A., Golden, L. and Herzenberg, S. (eds) Nonstandard Work: The Nature and Challenges of Changing Employment Arrangements. Urbana-Champaign, Ill.: Industrial Relations Research Association, pp. 267–290. Heery, E. and Salmon, J. (2000) ‘The insecurity thesis’, in Heery, E. and Salmon, J. (eds) The Insecure Workforce. London: Routledge, pp. 1–24. *Hendry, C. (1995) Human Resource Management: A Strategic Approach to Employment. Oxford: Butterworth-Heinemann. Hudson, M. (2002) ‘Disappearing pathways and the struggle for a fair day’s pay’, in Burchell, B., Day, D., Hudson, M., Ladipo, D., Mankelow, R., Nolan, J., Reed, H., Wichert, I. and Wilkinson, F. Job Insecurity and Work Intensification: Flexibility and the Changing Boundaries of Work. York: Joseph Rowntree Foundation, pp. 77–93. Hunter, L.C. and MacInnes, J. (1992) ‘Employers and labour flexibility: the evidence from case studies’, Labour Gazette, June, pp. 307–315. Jacobi, O., Keller, B. and Muller-Jentsch, W. (1998) ‘Germany: facing new challenges’, in Ferner, A. and Hyman, R. (eds) Changing Industrial Relations in Europe. Oxford: Blackwell, pp. 190–238. Joll, C., McKenna, C., McNab, R. and Shorey, J. (1983) Developments in Labour Market Analysis. London: George Allen & Unwin. Katz, H.C. and Darbishire, O. (2000) Converging Divergences: Worldwide Changes in Employment Systems. Ithaca, NY: ILR Press. Kerr, C. (1954) ‘The balkanisation of labor markets’, in Bakke, F.W. (ed.) Labor Mobility and Economic Opportunity. Cambridge, Mass.: MIT Press, pp. 92–110. King, J.E. (1990) Labour Economics, 2nd edn. London: Macmillan. Kochan, T.A., Katz, H.C. and McKersie, R.B. (1986) The Transformation of American Industrial Relations. New York: Basic Books. Leadbeater, C. (2000) Living on Thin Air: The New Economy. London: Viking. Mace, J. (1979) ‘Internal labour markets for engineers in British industry’, British Journal of Industrial Relations, Vol. 17, pp. 50–63. Marsden, D. (1986) The End of Economic Man? Brighton: Wheatsheaf. Marsden, D. (1999) A Theory of Employment Systems: Micro Foundations of Societal Diversity. Oxford: Oxford University Press. Millward, N., Bryson, A. and Forth, J. (2000) All Change at Work? British Employment Relations as Portrayed by the Workplace Industrial Relations Survey Series. London: Routledge. *Moss, P., Salzman, H. and Tilly, C. (2000) ‘Limits to marketmediated employment: from deconstruction to reconstruction of internal labour markets’, in Carre, F., Ferber, M.A., Golden, L. and Herzenberg, S. (eds) Nonstandard Work: The Nature and Challenges of Changing Employment Arrangements. Urbana-Champaign, Ill.: Industrial Relations Research Association, pp. 95–122. Nolan, P. (1989) ‘Walking on water? Performance and industrial relations under Thatcher’, Industrial Relations Journal, Vol. 20, No. 1, pp. 81–92. Nolan, P. and Brown, W. (1983) ‘Competition and workplace wage determination’, Oxford Bulletin of Economics and Statistics, Vol. 45, pp. 269–287. Nolan, P. and Slater, G. (2003) ‘The labour market: history, structure and prospects’, in Edwards, P. (ed.) Industrial Relations: Theory and Practice, 2nd edn. Oxford: Blackwell, pp. 58–80. Osterman, P. (1984) ‘The nature and importance of internal labor markets’, in Osterman, P. (ed.) Internal Labor Markets. Cambridge, Mass.: MIT Press, pp. 1–22. Osterman, P. (1987) ‘Choice of employment systems in internal labour markets’, Industrial Relations, Vol. 26, No. 1, pp. 46–67. Osterman, P. (1988) Employment Futures: Reorganisation, Dislocation, and Public Policy. New York: Oxford University Press. Polivka, A.E., Cohany, S.R. and Hipple, S. (2000) ‘Definition, composition, and economic consequences of the nonstandard workforce’, in Carre, F., Ferber, M.A., Golden, L. and Herzenberg, S. (eds) Nonstandard Work: The Nature and Challenges of Changing Employment Arrangements. Urbana-Champaign, Ill.: Industrial Relations Research Association, pp. 41–94. Rosenberg, S. and Lapidus, J. (1999) ‘Contingent and non-standard work in the United States: towards a more poorly compensated, insecure workforce’, in Felstead, A. (ed.) Global Trends in Flexible Labour. Basingstoke, Macmillan, pp. 62–79. Rubery, J. (1994) ‘Internal and external labour markets: towards an integrated analysis’, in Rubery, J. and Wilkinson, F. (eds) Employer Strategy and the Labour Market. Oxford: Oxford University Press, pp. 37–68. Rubery, J. and Edwards, P. (2003) ‘Low pay and the minimum wage’, in Edwards, P. (ed) Industrial Relations: Theory and Practice, 2nd edn. Oxford: Blackwell, pp. 447–469. Saundry, R. and Nolan, P. (1998) ‘Regulatory change and performance in TV production’, Media, Culture and Society, Vol. 20, No. 3, pp. 409–426.



Chapter 4 · Human resource management and the labour market
Sennett, R. (1998) The Corrosion of Character: The Personal Consequences of Work in the New Capitalism. London: Norton. Sisson, K. and Marginson, P. (1995) ‘Management: systems, structures and strategy’, in Edwards, P. (ed.) Industrial Relations: Theory and Practice in Britain. Oxford: Blackwell, pp. 89–122. Sparrow, P. (1998) ‘New organisational forms, processes, jobs and psychological contracts: resolving the HRM issues’, in Sparrow, P. and Marchington, M. (eds) Human Resource Management: The New Agenda. London: Financial Times-Pitman, pp. 117–141. Whittall, M. (2001) ‘Modell Deutschland: regulating the future?’, in Jefferys, S., Beyer, F.M. and Thornqvist, C. (eds) European Working Lives: Continuities and Change in Management and Industrial Relations in France, Scandinavia and the UK. Cheltenham: Edward Elgar, pp. 115–129.

For multiple choice questions, exercises and annotated weblinks specific to this chapter visit this book’s website at www.booksites.net/beardwell



Human resource planning
Julie Beardwell
To identify multiple interpretations of human resource planning and define the concept. To discuss key stages in the traditional human resource planning process. To analyse and evaluate quantitative and qualitative methods of demand and supply forecasting. To identify and discuss contemporary approaches to human resource planning. To discuss the advantages and disadvantages of human resource planning. To investigate the application of human resource planning in practice. To explore the link between human resource planning and strategic HRM.

Planning for human resources has had a fairly chequered history (Torrington et al., 2002). The subject, initially termed ‘manpower planning’, first rose to prominence in the 1960s when the emphasis was on the means of achieving growth in production against a backdrop of skills shortages and relatively stable, predictable world markets. At this time, much of the emphasis was on the application of statistical and mathematical techniques (see, for example, Bartholemew, 1976). However, by the early 1980s manpower planning was seen by many as largely irrelevant as it had become associated with growth, five-year plans and bureaucracy at a time when many organisations were preoccupied with having to contract and become more flexible (Cowling and Walters, 1990: 3). Since then, human resource planning has often been denigrated, with the result that it has received relatively little attention in the literature and has become less widely used in organisations (Taylor, 2002). The demise of HRP can seem rather ironic as it appears to have occurred at the same time as there have been increasing calls for people management to become a more strategic activity. After defining the terminology, the chapter outlines the traditional approach to HRP; it then considers more contemporary variants; explores the application of HRP in practice; and finally explores the link between HRP and strategic HRM.


Chapter 5 · Human resource planning

Defining human resource planning
In Through the Looking Glass Humpty Dumpty tells Alice, ‘When I use a word it means exactly what I choose it to mean, neither more nor less.’ The same might be said of ‘human resource planning’ (HRP) as the phrase can be used in a number of different ways. The main distinction is between those who view the term as synonymous with ‘manpower planning’ and those who believe that ‘human resource planning’ represents something rather different (Taylor, 2002). Manpower planning has been defined as ‘a strategy for the acquisition, utilisation, improvement and retention of an enterprise’s human resources’ (Department of Employment, 1974). The prime concern is generally with enabling organisations to maintain the status quo; ‘the purpose of manpower planning is to provide continuity of efficient manning for the total business and optimum use of manpower resources’ (McBeath, 1992: 26), usually via the application of statistical techniques. The term ‘human resource planning’ emerged at about the same time as ‘human resource management’ started to replace ‘personnel management’, and for some (e.g. McBeath, 1992; Thomason, 1988) the terminology is just a more up-to-date, gender-neutral way of describing the techniques associated with manpower planning. For others, human resource planning represents something different but the extent of this difference can vary. In some instances, human resource planning is seen as a variant of manpower planning more concerned with qualitative issues and cultural change, than with hierarchical structures, succession plans and mathematical modelling (e.g. Cowling and Walters, 1990). In other instances, the term can be used to signal a significant difference in both thinking and practice (Liff, 2000). For example, Bramham (1989) argues that there are fundamental differences between the two approaches:
There are particularly important differences in terms of process and purpose. In human resource planning the manager is concerned with motivating people – a process in which costs, numbers, control and systems interact to play a part. In manpower planning the manager is concerned with the numerical elements of forecasting, supply-demand matching and control, in which people are a part. There are therefore important areas of overlap and interconnection but there is a fundamental difference in underlying approach.
(Bramham, 1989: 147)

This broad interpretation of HRP can be seen as rather vague and lacking explicit practical application or specification. For example, Marchington and Wilkinson (1996) argue that Bramham’s conception of HRP is synonymous with HRM in its entirety and, as such, loses any distinctive sense. Indeed, in his book Human Resource Planning, Bramham (1989) discusses a very wide range of people management issues, including employee development, reward management and employee relations, and only focuses on specific planning issues in one chapter. A third approach is to define HRP as a distinct process aimed at predicting an organisation’s future requirements for human resources that incorporates both the qualitative elements of human resource planning and the quantitative elements of manpower planning. These two elements are often labelled as ‘soft’ and ‘hard’ human resource planning respectively. Tansley (1999: 41) summarises the general conceptions of ‘hard’ HRP in the literature as follows:
● ●

emphasis on ‘direct’ control of employees – employees are viewed like any other resource with the need for efficient and tight management; akin to the notion of manpower planning – with emphasis on demand–supply matching;

The traditional approach to HRP
● ●


undertaken by HR specialists; related HR strategies are concerned with improving the utilisation of human resources.

In contrast, she summarises the general characteristics of ‘soft’ HRP as:
● ● ● ●

emphasis on ‘indirect control of employees – with increasing emphasis on employee involvement and teamwork; a wider focus to include an emphasis on organisational culture and the clearer integration between corporate goals and employee values and behaviour; involves HR specialists, line managers and possibly other employees; greater emphasis on strategies and plans for gaining employee commitment.

Like the broader interpretations of HRP, definitions of ‘soft’ HRP tend to assume a ‘best practice’, high-commitment approach to people management. Although there is emphasis on the need to integrate human resource planning activity with corporate goals, the implicit assumption is that this will be achieved via the design and application of plans aimed at developing employee skills and securing their commitment to organisational goals. However, as we shall discuss later in the chapter, there may be some business strategies, e.g. cost minimisation, that require different approaches to people management.

Stop and think

Which definition of human resource planning do you prefer and why?

In order to convey the meaning of HRP as a set of activities that represent a key element of HRM but are distinct from it, and to include both the soft and hard aspects of the planning process, the definition used in this chapter is as follows: HRP is the process for identifying an organisation’s current and future human resource requirements, developing and implementing plans to meet these requirements and monitoring their overall effectiveness. There are a number of ways in which this process can be undertaken. The chapter begins with an exploration of the key stages in the traditional approach to HRP (incorporating many of the ‘hard’ elements) and then considers more contemporary variants.

The traditional approach to HRP
The prime concern within traditional or ‘hard’ HRP relates to balancing the demand for and the supply of human resources. Demand reflects an organisation’s requirements for human resources while supply refers to the availability of these resources, both within the organisation and externally. Key stages within the traditional HRP process are largely derived from the techniques associated with manpower planning. The approach can be depicted in a number of different ways (see, for example, Armstrong, 2001; Bramham, 1988; Torrington et al., 2002) but the models have a number of key features in common. All are essentially concerned with forecasting demand and supply and developing plans to meet any identified imbalance resulting from the forecasts. The Bramham model has proved to be one of the most influential. It was initially devised in 1975 and the basic structure is still relevant, albeit with minor modifications, for example by Pilbeam and Corbridge (2002). This is the model used in this chapter as a framework for the key stages of traditional HRP; see Figure 5.1.


Chapter 5 · Human resource planning

Figure 5.1

The process of human resource planning
Internal labour market Turnover Cohort analysis Profiles Skills audit Succession External labour market Quality Availability Sources Price Corporate capability Performance Productivity Structure Technology Skill change Rewards Corporate strategy Growth/decay New markets/ opportunities Key objectives Work methods

Analysis and Investigation




HR imbalance – quantitative and qualitative


Working patterns Organisation structure and development Recruitment and selection Managing diversity Reward Performance management Retention Release Training and development Employment relations

Implementation and control

Using HR techniques Utilising technology Reviewing policies and practices against expected outcomes

Source: Adapted from Pilbeam & Corbridge (2002), adapted from Bramham (1994)

■ Investigation and analysis
This stage is not explicit in all models but, arguably, those responsible for human resource planning need to know something about the current situation in order to assess the extent to which it is likely to alter or be affected by future developments.

The traditional approach to HRP


● Internal labour market
A combination of quantitative and qualitative data can provide a ‘snapshot’ of the existing workforce. This can include analysis of the workforce on a variety of levels such as skills, qualifications, length of experience and job type as well as on factors relating to equal opportunities, i.e. gender, ethnic origin, disability and age. This can help to ensure that the organisation is making most effective use of existing resources and can identify any potential problem areas; for example, if the composition of the workforce does not reflect the local community or if the organisation is not fully utilising the skills it has available. Movement through the organisation can also be investigated by tracking promotions, transfers and the paths of those in more senior positions.

● External labour market
Investigation and analysis are primarily concerned with the availability of the type of labour the organisation requires at the price it can afford. It is likely that those responsible for human resource planning will need to collect data from local, national and international labour markets depending on the nature of jobs and the skills required. Data can be collected by formal and informal means, including local and national surveys, benchmarking and information provided by applicants on application forms and CVs. Analysis and investigation can potentially cover a broad range of issues as the external supply of labour can be affected by a number of factors.

Stop and think

What factors are likely to affect the external supply of human resources?

A number of factors can influence the availability of people and skills at both local and national level, for example:

● ● ● ● ●

competitor behaviour – the activity of other firms operating in the same labour markets, i.e. expansion or contraction; whether organisations secure the necessary skills through training or poaching from other firms; comparative pay and conditions; location – whether or not the organisation is based in a location that is attractive and affordable for potential recruits; factors to be considered here might include the availability and cost of housing and the reputation of local schools; transport links – the availability and cost of public transport and accessibility of the organisation; economic cycle – can affect people’s willingness to move jobs, e.g. people may be more concerned with job security in times of high unemployment; unemployment levels – nationally and regionally; education output – numbers and qualifications of school and college leavers, numbers going on to higher education; legislation – e.g. working hours, minimum wage, employment protection, flexible working.

● Corporate capability
Data can be gathered to provide a snapshot of the current situation within the organisation in order to identify current strengths and weaknesses. Information on organisational performance can include productivity and service levels, turnover and profitability and these may be measured at organisational, unit or department level. Analysis may also relate to ways in which human resources are currently managed, e.g. the extent to which the current workforce structure, job design and reward systems enhance or restrict productivity and performance levels.


Chapter 5 · Human resource planning

● Corporate strategy
Whereas corporate capability is primarily concerned with the current situation in the organisation, corporate strategy focuses on future direction. Factors to be considered here might include the organisation’s stage in its life cycle (see, for example, Kochan and Barocci, 1985); plans for consolidation or diversification; mergers, acquisitions and key organisational objectives. Each of these factors is likely to have some impact on the numbers and types of human resources required in the future. For example, a common consequence of mergers is for the rationalisation of merged activities to lead to a significant number of redundancies (CIPD, 2000).

■ Forecasting
The next stage in the process involves predicting how the need for and availability of human resources is likely to change in the future. Demand and supply forecasting can involve quantitative and qualitative techniques and the most popular approaches are outlined below.


This is an example of demand forecasting in a tyre and exhaust centre using the work study method. The main tasks have been classified as follows:
Key tasks Exhausts Tyres Brakes Forecasts jobs in 000s Year 1 Exhausts Tyres Brakes 30 100 25 Year 2 31 115 29 Year 3 32 130 34 Hours per task 0.6 0.3 1.1

Convert into total work hours Year 1 Exhausts Tyres Brakes TOTAL 18 30 27.5 75.5 Year 2 18.6 34.5 31.9 85 Year 3 19.2 39 37.4 95.6

Convert into employees required (assuming 1800 hours/employee) Year 1 Employees (fulltime equivalents) Year 2 Year 3




What key external and internal factors are likely to affect the accuracy of these forecasts?

The traditional approach to HRP


● Forecasting the demand for human resources
Demand forecasting is concerned with estimating the numbers of people and the types of skills the organisation will need in the future. There are three main approaches to demand forecasting: objective methods, subjective methods and budgets.

Objective methods
Objective methods identify past trends, using statistical and mathematical techniques, and project these into the future to determine requirements. Three methods frequently referred to in the literature are time trends, ratio analysis and work study. Time trends consider patterns of employment levels over the past few years in order to predict the numbers required in the future. This can be undertaken either for the organisation as a whole or for sub-groups of employees. It can also be used to identify cyclical or seasonal variations in staffing levels. Ratio analysis bases forecasts on the ratio between some causal factor, e.g. sales volume, and the number of employees required, e.g. sales people (Dessler, 2003). Work study methods break jobs down into discrete tasks, measure the time taken to complete each component and then calculate the number of people-hours required. The effectiveness of this approach is largely determined by the ease with which the individual components of jobs can be measured. For many jobs, e.g. knowledge workers, this is extremely difficult and therefore work study will only be appropriate in certain circumstances. Even when it is appropriate, care has to be taken to avoid manipulation of timings by either employee or employer. One of the major criticisms levelled at objective methods is that they are based on assumptions of continuity between past, present and future and are therefore only appropriate if the environment is relatively stable and productivity remains the same. In less stable environments, supplementary data on the causes of particular trends are necessary to distinguish between changes that are likely to recur and those that are not. Alternatively, past data can be used as a starting point and then amended to reflect potential or real productivity improvements.


Return to the forecasting exercise in the tyre and exhaust centre. This time management estimate that productivity improvements can be made each year as follows:
Time per job: Year 1 Exhausts Tyres Brakes 0.6 0.3 1.2 Year 2 0.55 0.25 1.1 Year 3 0.5 0.2 1.0

Calculate the full-time equivalent employees required for each year, incorporating these improvements. How does this affect employee demand?

Subjective methods
The most common approach used in demand forecasting is managerial judgement, i.e. managers estimate the human resources necessary for the achievement of corporate goals. Estimates are likely to be based on a combination of past experience, knowledge of changing circumstances and gut instinct. The approach is more flexible and adaptable than objective methods but is inevitably less precise. There is also a danger that forecasts


Chapter 5 · Human resource planning

will be manipulated due to organisational politics and ‘empire building’. For example, managers may inflate estimates of future requirements because they want to increase the size of their department (and thus possibly protect or improve their own position) or because they expect that estimates will be cut and want to secure at least some improvements in staffing levels. A more systematic use of the subjective approach is via the Delphi technique. A group of managers make independent forecasts of future requirements. The forecasts are then amalgamated, recirculated and managers then modify their estimates until some sort of consensus is reached. The process can help to minimise problems of manipulation in forecasts produced on an individual basis but, although the literature frequently refers to the technique as a common approach, empirical data suggest that it is rarely used in practice (Torrington et al., 2002).

In this method the starting point is not past data but future budgets, i.e. what the organisation can spend if profit and market targets are met. According to Bramham (1988: 59), this is an extremely attractive approach: ‘it has the supreme advantage that, in working from the future to the present, the manager is not necessarily constrained by past practices’. However, future budgets are likely to be determined, at least in part, by assumptions about changes to past and current performance and are still reliant on the accuracy of predictions. These different approaches to demand forecasting can be combined to provide more comprehensive forecasts. So, for example, objective methods may be used to give an indication of future requirements but projections can then be modified by managerial judgement or to take account of budgetary constraints. Similarly, estimates based on ratio data may be adjusted to take account of productivity improvements resulting from new working methods or the introduction of new technology.

● Forecasting the supply of human resources
Forecasts of internal supply are based primarily on labour turnover and the movement of people within the organisation. As with demand, the process for forecasting supply uses a combination of quantitative and qualitative techniques.

Measuring labour turnover – quantitative methods
The most common method of measuring labour turnover is to express leavers as a percentage of the average number of employees. The labour turnover index is usually calculated using the following formula: Number of leavers in a specified period –––––––––––––––––––––––––––––––––––––––––––– × 100% Average number employed in the same period This measure is used most effectively on a comparative basis and frequently provides the basis for external and internal benchmarking. Labour turnover can vary significantly between different sectors and industries; for example, a recent survey into labour turnover (CIPD, 2002a) reports that the average turnover rate in the UK is 26.6 per cent but this varies from 56 per cent in wholesale and retail to 11 per cent in transport and storage. There is no single best level of labour turnover so external comparisons are essential to gauge whether rates in an organisation are out of line with others in the same industry or sector (IRS, 2001a). However, even organisations with lower than average turnover rates can experience problems if people have left from critical jobs or from posts that are difficult to fill. Conversely, high turnover is not necessarily problematic. In circumstances where an organisation is seeking to reduce costs or reduce the

The traditional approach to HRP


numbers employed a high turnover rate might prove very useful (Sadhev et al., 1999). The main limitation of the labour turnover index is that it is a relatively crude measure that provides no data on the characteristics of leavers, their reasons for leaving, their length of service or the jobs they have left from. So, while it may indicate that an organisation has a problem, it gives no indication about what might be done to address it.
Example: Company A has 200 employees. During the year 40 employees have left from different jobs and been replaced. The turnover rate is 20%. Company B also has an average of 200 employees. Over the year 40 people have left the same 20 jobs (i.e. each has been replaced twice). The turnover rate is also 20%.

Limitations about the location of leavers within an organisation can be addressed to some extent by analysing labour turnover at department or business unit level or by job category. For example, managers generally have lower levels of resignation than other groups of employees (IRS, 2001a). Any areas with turnover levels significantly above or below organisational or job category averages can then be subject to further investigation. Most attention is levelled at the cost and potential disruption associated with high labour turnover. CIPD survey data (2002a) estimates the average cost per leaver to be £3933 a year, increasing to £6086 for managers. However, low levels of labour turnover should not be ignored as they may be equally problematic.

Stop and think

What are the key problems associated with low labour turnover?

Low labour turnover can cause difficulties as a lack of people with new ideas, fresh ways of looking at things and different skills and experiences can cause organisations to become stale and rather complacent. It can also be difficult to create promotion and development opportunities for existing employees. Nevertheless, many organisations are keen for some levels of stability. While the labour turnover index focuses on leavers, the stability index focuses on the percentage of employees who have stayed throughout a particular period, often one year. This therefore allows organisations to assess the extent to which labour turnover permeates the workforce. The formula used to calculate stability is: Number of employees with 1 year’s service at a given date –––––––––––––––––––––––––––––––––––––––––––––––––––––––– × 100% Number employed 1 year ago This can be a useful indicator of organisational stability but does require a pre-set decision about a relevant period for which it is important to retain staff. To return to our earlier example:
Company A has 160 employees with more than one year’s service and has a stability rate of 80%. Company B has 180 employees with more than one year’s service and has a stability rate of 90%.

As with demand forecasting, labour turnover and stability indices are frequently used to project historical data into the future. So, for example, if an organisation identifies an annual turnover rate of 8 per cent it may build this into future projections of available supply. Alternatively, managerial judgement may predict a reduction or an increase in turnover rates in the light of current circumstances and forecasts can be adjusted accordingly. More data on the length of service of leavers can be provided through the census method. This is essentially a ‘snapshot’ of leavers by length of service over a set period, often one year. Length of service has long been recognised as an influential factor in labour turnover. Hill and Trist (1955) identified three phases in labour turnover, the ‘induction


Chapter 5 · Human resource planning

crisis’, ‘differential transit’ and ‘settled connection’. People are more likely to leave during the first few months, as the relationship between the individual and the organisation is unsettled and insecure, and less likely to leave the longer they are in the organisation. The census method can help to identify patterns of leavers and any key risk periods. Another way of investigating the relationship between labour turnover and length of service is to consider the survival rate, i.e. the proportion of employees recruited in a specific year who are still with the organisation at a certain later date. So, for example, plotting the survival rate of a cohort of 30 graduate trainees might show that 12 remain with the organisation after five years, giving a survival rate of 40 per cent. It is also common to measure the half-life of a cohort, i.e. the time taken for the cohort to reduce to half its original size. Both survival rates and half-life measures can be useful for identifying problem periods and for succession planning purposes. The major drawback with all quantitative methods of turnover analysis is that they provide no information on the reasons why people are leaving. So, for example, the census method may show that the highest proportion of people leave in the first six months but the information on its own does not show whether this is due to poor recruitment or induction practices, the nature of the job, management style or other factors. Thus, quantitative analyses can help to highlight problems but they give those responsible for planning no indication about how these problems might be addressed.

Measuring labour turnover – qualitative methods
Investigations into reasons for turnover are usually undertaken via qualitative analysis. Popular methods include exit interviews and leaver questionnaires. Exit interviews are normally conducted soon after an employee has resigned. The benefits of exit interviews are that they can investigate reasons for leaving, identify factors that could improve the situation in the future and gather information on the terms and conditions offered by other organisations. Generally, exit interviews collect information on the following (IRS, 2002a):
● ● ● ●

reasons for leaving; conditions under which the exiting employee would have stayed; improvements the organisation can make for the future; the pay and benefits package in the new organisation.

There can also be a number of problems. The interview may not discover the real reason for leaving, either because the interviewer fails to ask the right questions or probe sufficiently or because some employees may be reluctant to state the real reason in case this affects any future references or causes problems for colleagues who remain with the organisation, for example in instances of bullying or harassment. Conversely, some employees may choose this meeting to air any general grievances and exaggerate their complaints. Some organisations collect exit information via questionnaires. These can be completed during the exit interview or sent to people once they have left the organisation. They are often a series of tick boxes with some room for qualitative answers. The questionnaire format has the advantage of gathering data in a more systematic way which can make subsequent analysis easier. However, the standardisation of questions may reduce the amount of probing and self-completed questionnaires can suffer from a low response rate. Reasons for leaving can be divided into four main categories:
● ●

voluntary, controllable – people leaving the organisation due to factors within the organisation’s control, e.g. dissatisfaction with pay, prospects, colleagues; voluntary, uncontrollable – people leaving the organisation due to factors beyond the organisation’s control, e.g. relocation, ill-health;

The traditional approach to HRP
● ●


involuntary – determined by the organisation, e.g. dismissal, redundancy, retirement; other/unknown.

Attention is usually concentrated on leavers in the voluntary, controllable category as organisations can do something to address the factors causing concern. However, distinctions between controllable and uncontrollable factors can become blurred. For example, in some instances, advances in technology and greater flexibility can facilitate the adoption of working methods and patterns to accommodate employees’ domestic circumstances, while the ‘reasonable adjustments’ required under the Disability Discrimination Act can reduce the numbers of people forced to leave work on health grounds. The involuntary category is also worthy of attention as high numbers of controlled leavers can be indicative of organisational problems, e.g. a high dismissal rate might be due to poor recruitment or lack of effective performance management, while a high redundancy rate might reflect inadequate planning in the past. While exit interviews or leaver questionnaires can provide some information about why people are leaving, they do not necessarily get to the root of the problem. For example, someone might say that they are leaving to go to a job with better pay but this does not show what led the person to start looking for another job in the first place. In order to produce human resource plans that address labour turnover problems, organisations need to differentiate between ‘push’ and ‘pull’ factors. The former relate to factors within the organisation (e.g. poor line management, inadequate career opportunities, job insecurity, dissatisfaction with pay or hours of work) that weaken the psychological link between an individual and their employer (IRS, 2001a). Once an individual has decided to look for another job they are likely to base their decision on ‘pull’ factors, i.e. the attractions of the new job or organisation in relation to their existing circumstances. A report from the HR benchmark group (cited in IRS, 2002a) listed the top five factors affecting an employee’s decision to stay or leave an organisation as:
● ● ● ● ●

the quality of the relationship with their supervisor or manager; an ability to balance work and home life; the amount of meaningful work they do – giving a feeling of making a difference; the level of cooperation with co-workers; the level of trust in the workplace.

One way to identify the key ‘push’ factors is to conduct attitude surveys within the organisation. Over half of respondents to a recent survey (IRS, 2002a) use surveys to gather data that can be used to address labour turnover. Attitude surveys have an advantage over exit interviews and leaver questionnaires in that they can identify potential problems experienced by existing employees rather than those that have already decided to leave. This means that any response can be proactive rather than reactive. However, it also means that organisations can make problems worse if they do not act on the findings. ‘Telling employees that an organisation cares enough to get their opinion and then doing nothing can exacerbate the negative feelings that already existed, or generate feelings that were not present beforehand’ (IRS, 2002a: 40). The final method to investigate labour turnover to be discussed here is risk analysis. This involves identifying two factors: the likelihood that an individual will leave and the consequences of the resignation (Bevan et al., 1997). Statistically, people who are younger, better qualified and who have shorter service, few domestic responsibilities, marketable skills and relatively low morale are most likely to leave (IRS, 2001b). The consequences of any resignations are likely to be determined by their position in the organisation, performance levels and the ease with which they can be replaced. The risk analysis grid (Bevan, 1997) shows how the two factors can be combined (Figure 5.2). This then enables the organisation to target resources or action at the people it would be most costly to lose.


Chapter 5 · Human resource planning

Figure 5.2

Risk analysis grid
Likelihood of leaving High Impact on organisation Low

Danger zone

Watching brief


‘Thanks for all you’ve done’

No immediate danger

Source: Bevan (1997) p. 34

Within human resource planning literature most attention is concentrated on forecasts of people joining and leaving the organisation but internal movement is also a key factor in internal supply. Techniques to analyse movement of employees within an organisation are potentially more sophisticated than the techniques for analysing wastage rates but the most sophisticated tools, e.g. Markov chains and renewal models, are rarely used (Torrington et al, 2002). A simpler approach is to track employee movement to identify patterns of promotion and/or lateral mobility between positions as well as movement in and out of the organisation or function, see Figure 5.3. In many respects forecasting is the key stage of traditional human resource planning. A combination of quantitative and qualitative methods can be used to determine the organisation’s future requirements and the availability of human resources. Therefore much hinges on the accuracy of forecasting but there are a number of potential problems that can affect the reliability of any predictions. The first issue here is the difficulty of relying on past data to cope with a volatile and uncertain environment. Recent examples of significant discontinuities include the foot and mouth epidemic in the UK and the terrorist attacks in New York on 11 September 2001. Both events were largely unforeseen and both had significant impact on certain industries, e.g. foot and mouth affected farming and tourism in the UK and the terrorist attacks severely affected the airline industry. Other problems can include the lack of reliable data, the manipulation of data for political ends and the low priority given to forecasting in many organisations.

■ Human resource plans
The likely results of forecasting activity are the identification of a potential mismatch between future demand and supply. If future demand is likely to exceed supply, then plans need to be developed to match the shortfall but if future supply is likely to exceed demand, then plans need to be developed to reduce the surplus. A number of options are illustrated in Figure 5.4. While the detailed content of action plans will be determined by the nature of the imbalance between demand and supply and HR and corporate objectives, they are likely to cover at least some of the following areas:
● ●

working patterns – e.g. balance of full-time and part-time workers, overtime, shortterm contracts, annualised hours, job sharing, remote working; organisation structure and development – e.g. workforce size and structure, degree of centralisation, use of subcontracting;


The traditional approach to HRP


Figure 5.3

Employee ‘movements’ in an organisation

Directors D Senior management Regional management B Middle management A Supervisory Junior employees C E



D A: Upward mobility B: Development and upward mobility C: Lateral mobility


D Promotions, maturity Lateral development, experience, flexibility, diversification Job rotation, personal development, diversification Replacement stock, growth, business objectives, diversification Age structure, opportunities diversification, new technology

D: Recruitment

E: Wastage

● ● ● ● ● ● ● ●

recruitment and selection – e.g. skills and experience required, main sources of applicants, methods to attract suitable candidates, recruitment freezes; workforce diversity – e.g. monitoring of current and prospective employees, equal opportunities/diversity policies, awareness training; pay and reward – e.g. mix of financial and non-financial rewards, use of contingent pay, market position; performance management – e.g. type of performance appraisal, links to reward, attendance management; retention – e.g. family friendly policies, terms and conditions, employee development; training and development – induction, training programmes, development reviews, education; employment relations – e.g. union recognition, communication, grievance and disciplinary policies; release – e.g. natural wastage, redundancy programmes, outplacement support.


Chapter 5 · Human resource planning

Figure 5.4

Reconciling demand and supply
If demand exceeds supply: Increase external supply • Alter recruitment and selection criteria – different ages, gender, ethnic origin – different skills, qualifications and experience • Alter recruitment and selection practices – advertise in different ways – target different labour markets – introduce new selection techniques – offer relocation • Change terms and conditions – more flexible working – improve pay and benefits Increase internal supply • Train & develop existing staff • Alter internal movement patterns – promote differently – encourage lateral movement • Improve retention – change terms and conditions – more flexible working patterns • Reduce absenteeism Reduce demand • Redesign work • Use existing staff differently – overtime – multi-skilling – high performance work teams • Subcontract work • Relocate work • Automate If supply exceeds demand: Decrease supply • Early retirements • Compulsory/voluntary redundancy • Assisted career change and alternative employment • Secondments, sabbaticals, career breaks Discourage retention • Short-term contracts • Part-time contracts Increase demand • Increase markets for products and services • Diversification

Source: Adapted from Rothwell (1995)

The traditional approach to HRP


BOX 5.1

Shortage of nurses in the UK
The Labour government has put in place targets to cut hospital waiting lists, increase the numbers of patients treated and improve the quality of health care in the UK. One of the key problems in achieving these targets is a shortage of nurses and many hospitals are now recruiting from overseas. For example, Manchester Royal Infirmary has recruited more than 250 nurses from India over the last two years – placing advertisements in local newspapers, hiring recruitment agencies and holding interviews by video link. Staff are also recruited from a number of other countries, including the Philippines, Australia, Spain, Ghana, Germany, Iceland and the Yemen. The head of nursing stated that ‘we anticipate there will be 4000 vacancies across Greater Manchester by 2005 unless we do something to boost recruitment … services are expanding but the available workforce has shrunk. There is huge competition for staff.’ In total, over 15 000 nurses from countries outside the European Union arrived in Britain in 2001, four times as many as the number entering in 1998–99. The recruitment of overseas nurses has meant that the government target of an additional 20 000 nurses by 2005 has already been achieved. A new target of 35 000 nurses by 2008 has now been set.
Source: Laurance (2002)

1 What are the main short- and long-term implications for the NHS of a focus on the recruitment of nurses from overseas? 2 What other options could be considered to address skills shortages?

The scope and content of plans are also influenced by the time-scales involved. Schuler (1998) suggests that the main phases of HRP should be undertaken for three different time horizons – short term (1 year), medium term (2–3 years) and long term (3 years+). Advocates of human resource planning argue that the process helps to ensure vertical and horizontal integration, i.e. the alignment of human resource policies and practices with corporate goals and with each other. So, for example, plans to address supply shortages by altering selection criteria can influence the type of training required, the level of pay and reward offered to existing and prospective employees and the way the employment relationship is managed. However, in practice the situation is likely to be complicated by the fact that the balance between demand and supply may vary in different parts of the organisation; for example, supply shortages may be identified in some areas while surpluses are predicted in others. The development of action plans can potentially help to ensure that managers are aware of significant inconsistencies. The adoption of a more holistic approach can therefore reduce some of the problems associated with these complexities; for example, an organisation may need to recruit some staff at the same time as it is making others redundant but knowledge of this can help to ensure that both activities are handled sensitively.

■ Implementation and control
The final stage of the traditional HRP process is concerned with implementation of HR plans and evaluation of their overall effectiveness. This stage of the model tends to be rather neglected in the literature but there is little point in developing comprehensive plans if they are not put into practice. Implementation of plans is likely to involve a number of different players, including line managers, employee representatives and employees, but the extent of involvement can vary considerably. The shift towards


Chapter 5 · Human resource planning

‘softer’, more qualitative aspects of human resource planning places far more emphasis on the need to involve employees throughout the process (e.g. through the use of enhanced communication and tools such as attitude surveys) than is apparent in a ‘harder’ focus on headcount. Control relates to the extent to which the planning process has contributed to the effective and efficient utilisation of human resources and ultimately to the achievement of corporate objectives. The IPM (now CIPD) suggests three criteria for evaluating the effectiveness of the HRP process (IPM, 1992):
● ● ●

the extent to which the outputs of HR planning programmes continue to meet changing circumstances; the extent to which HRP programmes achieve their cost and productivity objectives; the extent to which strategies and programmes are replanned to meet changing circumstances.

This latter point emphasises the need for the constant review and modification of human resource plans in the light of changing circumstances. One of the main criticisms levelled at traditional approaches to HRP has been the inflexibility of plans resulting from the extrapolation of past data and assumptions about the future. The emphasis on flexibility is much more explicit in later models of HRP as the purpose of HRP has become less concerned with ensuring continuity and more on enabling organisations to adapt within unpredictable environments.

Human resource planning – a contemporary approach
Armstrong (2001) has modified the phases of traditional human resource planning to reflect aims more appropriate for contemporary circumstances. He outlines these aims as:
● ● ● ● ●

to attract and retain the number of people required with the appropriate skills, expertise and competences; to anticipate problems of potential surpluses or deficits of people; to develop a well-trained and flexible workforce, thus contributing to the organisation’s ability to adapt to an uncertain and changing environment; to reduce dependence on external recruitment when key skills are in short supply by formulating retention and development strategies; to improve the utilisation of people by introducing more flexible systems of work.

This approach differs from traditional HRP in that it puts greater emphasis on the ‘soft’ side of HRP but there are still elements of the ‘hard’ approach, e.g. in the balance between demand and supply forecasting. It also differs from the traditional approach in its emphasis on the internal labour supply. The key stages of the model are shown in Figure 5.5. A fundamental difference between this model and the traditional HRP model is the underlying assumption that much of the process might be rather vague:

It cannot be assumed that there will be a well-articulated business plan as a basis for the HR plans. The business strategy may be evolutionary rather than deliberate; it may be fragmented, intuitive and incremental. Resourcing decisions may be based on scenarios that are riddled with assumptions that may or may not be correct and cannot be tested. Resourcing strategy may be equally vague or based on unproven beliefs about the future. It may contain statements about, for example, building the skills base, which are little more than rhetoric. (Armstrong, 2001: 362)

Human resource planning – a contemporary approach


Figure 5.5

HRP – A contemporary approach
Business strategy

Resourcing strategy

Scenario planning

Demand/supply forecasting

Labour turnover analysis

Human resource plans Resourcing Flexibility Retention Downsizing

Source: Adapted from Armstrong (2001) A Handbook of Human Resource Management Practice, p. 363. Reprinted with permission of Kogan Page.

Such statements could lead one to question whether there is any point to the process at all! Armstrong (2001) goes on to argue that even if all that is achieved is a broad statement of intent, ‘this could be sufficient to guide resourcing practice generally and would be better than nothing at all’. However, this does suggest that any plans inevitably have to be tentative, flexible and reviewed and modified on a regular basis.

■ Business strategy
The first key element of this model is business strategy. Strategy has been defined as:
the direction and scope of an organisation over the long-term, which achieves competitive advantage for the organisation through its configuration of resources within a changing environment and to fulfil stakeholder expectations.
(Johnson and Scholes, 2002: 10)

Business strategy can be either deliberate or emergent (Whittington, 1993). Deliberate strategies assume a rational evaluation of external and internal circumstances and an identification of the best way to ensure competitive advantage. Emergent strategies, on the other hand, are the product of market forces: ‘the most appropriate strategies … emerge as competitive processes that allow the relatively better performers to survive while the weaker performers are squeezed out’ (Legge, 1995: 99).

■ Resourcing strategy
In this model the resourcing strategy derives from the business strategy and also feeds into it. For example, the identification of particular strengths and capabilities might lead to new business goals, especially if strategy formation is emergent rather than deliberate. The rationale underpinning Armstrong’s perception of this strategy is related to the resourcebased view of the firm (see Chapter 2): ‘the aim of this strategy is therefore to ensure that


Chapter 5 · Human resource planning

a firm achieves competitive advantage by employing more capable people than its rivals’ (Armstrong, 2001: 364). Thus, the implicit assumption is that the vertical integration between business strategy and resourcing strategy will include practices designed to attract and retain a high-quality workforce, such as offering rewards and opportunities that are better than competitors and seeking to maximise commitment and trust.

Stop and think

Under what circumstances might a high-commitment resourcing strategy not be appropriate for an organisation?

Porter (1985) proposes three strategic options for securing competitive advantage: cost reduction, quality enhancement and innovation. A high-commitment approach is more likely to ‘fit’ with the latter two strategies than with a strategy based on cost reduction. Work in the USA (Arthur, 1992) found that the majority of firms in the study that were following a cost reduction business strategy had poor HR practices (e.g. relatively low pay, minimal training, little communication and no formal grievance mechanisms). However, the cost reduction model is frequently associated with a lack of formalisation and planning (see, for example, Sisson and Storey, 2000; Marchington and Wilkinson, 2002) so the process of developing a resourcing strategy may be more likely to include a high-commitment approach.

■ Scenario planning
This element is not explicit in traditional HRP models and reflects a development in planning models designed to cope with increased uncertainty and unpredictability in the environment. Scenario planning can be used to supplement or replace more traditional demand and supply forecasting. This approach is ‘predicated on the assumption that if you cannot predict the future, then by speculating on a variety of them, you might just hit upon the right one’ (Mintzberg, 1994: 248). Mintzberg (1994) argues that it is difficult to determine the required number of scenarios, i.e. enough to have a good chance of getting it right but not so many as to be unmanageable. The ease with which scenario planning can be undertaken has been greatly improved by the use of computer modelling, in which figures and formulae can be altered to calculate the implications of different predictions. However, this can in itself lead to problems of information overload and difficulties in how to respond to the results. Porter (1985) suggests five key options:
● ● ● ● ●

Bet on the most probable one. Bet on the best one for the organisation. Hedge bets so as to get satisfactory results no matter which one results. Preserve flexibility. Exert influence to make the most desirable scenario a reality.

This approach can help to broaden perspectives and consider a number of future options but each decision has its own costs and these also need to be considered. For example, opting to preserve flexibility might be at the expense of following a clear-cut business strategy to secure competitive advantage. Similarly, devoting resources to the best scenario for the organisation might be little more than wishful thinking. Scenario planning has been described here as a fairly formal process but it can also be regarded as an informal approach to thinking about the future in broad terms, based upon an analysis of likely changes in the internal and external environment (Armstrong, 2001).

Human resource planning – a contemporary approach


■ Forecasting and labour turnover
Demand and supply forecasting in the model includes all the objective and subjective techniques described in the traditional model. The key difference lies in the emphasis given to labour turnover analysis; in the traditional model this is seen as an element of supply forecasting but here it is deemed worthy of its own category. Nevertheless, the techniques used to measure it are the same as discussed earlier in the chapter.

■ Human resource plans
Human resource plans are derived from the resourcing strategy and take into account data from a combination of scenario planning, demand and supply forecasting and labour turnover analysis. The model again reflects the lack of certainty and predictability: ‘the plans often have to be short term and flexible because of the difficulty of making firm predictions about human resource requirements in times of rapid change’ (Armstrong, 2001: 375). The plans are divided into four broad areas: resourcing, flexibility, retention and downsizing.

● Resourcing plan
This is primarily concerned with effective use of the internal labour market as well as attracting high-quality external applicants. Armstrong (2001) identifies two main components to the resourcing plan: the recruitment plan (e.g. numbers and types of people required, sources of candidates, recruitment techniques, etc.) and the ‘employer of choice’ plan. Steps that organisations have taken to find additional sources of applicants to address skills shortages and improve the diversity of the workforce are discussed in Chapter 6, so here we highlight some of the initiatives used to make employers more attractive to high-quality applicants. The CIPD Recruitment and Retention Survey (2002b) found that nearly two-thirds of employers have increased starting salaries or benefits for recruits and 70 per cent have either introduced or improved the flexibility of working hours. Some organisations also offer ‘golden hellos’ (financial inducements to new recruits), particularly to graduates. The CIPD survey found little evidence of this but other studies (e.g. IRS, 2001c) list a number of organisations that offer signing-on bonuses, e.g. Boots, Barclays, HSBC and PriceWaterhouseCoopers. The practice is mainly restricted to larger, private sector organisations but has recently spread to the public sector, e.g. teaching and some areas of local government. The main reasons for introducing a golden hello (IRS, 2001c) are:
● ● ● ●

to ease recruitment difficulties; as a response to competition; to help graduates settle in a new job; to help retain staff.

Stop and think

To what extent would you be more attracted to an employer that offered a ‘golden hello’ than one that did not?

In addition to being able to attract high-quality applicants, organisations also have to be able to keep them. Other initiatives to become an ‘employer of choice’ might include providing opportunities for development and career progression and addressing work–life balance issues. Williams (2000) takes this a step further by arguing that organisations need to create the right environment in order to win ‘the war for talent’:


Chapter 5 · Human resource planning

In essence, creating a winning environment consists of developing a high-achieving company with values and brand images of which employees can be proud. At the same time, their jobs should permit a high degree of freedom, give them a chance to leave a personal mark and inject a constant flow of adrenalin. Leadership, of course, should be used to enhance, enable and empower, rather than to inhibit, constrain or diminish.
(Williams, 2000: 31)

● Flexibility plan
The flexibility plan is likely to involve the use of functional and numerical flexibility (discussed more fully in Chapter 4). Armstrong (2001: 376) suggests that the aim of the flexibility plan should be to:
● ● ● ● ●

provide for greater operational flexibility; improve the utilisation of employees’ skills and capabilities; reduce employment costs; help to achieve downsizing smoothly and avoid the need for compulsory redundancies; increase productivity.

From this perspective, flexibility appears to be mainly employer-driven rather than a means to help employees achieve work–life balance and therefore there may be some potential contradictions between this and the ‘employer of choice’ plan described above. Alternatively, it may be that different plans can be applied to different sections of the workforce. Purcell (1999) suggests that distinctions are growing in the treatment of core workers, who may be nurtured owing to their contribution to competitive advantage, and non-core peripheral or subcontracted workers.

● The retention plan
Manfred Kets de Vries (cited in Williams, 2000: 28) stated that ‘today’s high performers are like frogs in a wheelbarrow: they can jump out at any time’. It seems that increasing numbers of organisations recognise this and are turning their attention to the retention of key staff. The exact components of the retention plan will be largely determined by the outcomes of labour turnover analysis and risk analysis and initiatives are likely to focus on ‘pull’ factors. Retention measures can include some or all of the following (Bevan, 1997; IDS, 2000):

● ●

● ●

Pay and benefits – competitive rates of pay, deferred compensation (e.g. share options, generous pension scheme), retention bonuses, flexible benefits, benefits package that improves with service. Recruitment and selection – set appropriate standards, match people to posts, provide an accurate picture of the job. Training and development – good induction processes, provision of development opportunities to meet the needs of the individual and the organisation, structured career paths. Job design – provision of interesting work, as much autonomy and teamworking as possible, opportunities for flexible working to meet the needs of the individual. Management – ensure managers and supervisors have the skills to manage effectively.

Attention to the skills and abilities of managers is perceived by some as a key element of retention: ‘put simply, employees leave managers not companies’ (Buckingham, 2000: 45). Buckingham (2000) argues that employees are more likely to remain with an organisation if they believe that their manager shows interest and concern for them; if they

Human resource planning – a contemporary approach


know what is expected of them; if they are given a role that fits their capabilities; and if they receive regular positive feedback and recognition. However, he also suggests that ‘most organisations currently devote far fewer resources to this level of management than they do to high-fliers' (p. 46).

● Downsizing plan
The fourth element of the human resource plan is the downsizing plan. This is concerned with the numbers to be ‘downsized’, the timing of any reductions and the process itself. Methods of reducing the size of the workforce include natural wastage, redeployment, early retirement, voluntary and compulsory redundancy. Armstrong (2001: 382) implies that this plan is implemented as a last resort: ‘if all else fails, it may be necessary to deal with unacceptable employment costs or surplus numbers of employees by what

BOX 5.2

Improving retention at Makita Manufacturing Europe (MME)
The UK site of MME is based in Telford. It is owned by the Japanese Makita Corporation and was set up as a greenfield site in July 1991. MME manufactures power tools for the professional end of the market. It promotes and sells its products to the various Makita sales subsidiaries around the world, competing with other Makita manufacturing sites on its range and prices. The Telford site currently has 460 permanent employees, of whom 444 are full time. About 300 employees are ‘direct workers’ employed on the production side; the remainder fulfil service functions. Two-thirds of the production workforce are semi-skilled assembly operators who manufacture tools from ready-made components. The other third – who are mostly machine operators and setter operators – manufacture electric motors. Their role requires slightly higher skill levels than assembly line work. About 40% of the total workforce are women. High labour turnover has been a problem since the site opened. Having a constantly changing team on the assembly line causes problems because new recruits are inevitably slower, increasing pressure on the other workers to meet production schedules. High staff turnover can also affect the quality of products, leading to delivery problems and complaints from customers. MME is not alone in experiencing high turnover in Telford; many businesses suffer from shortages of unskilled and semi-skilled workers, particularly assembly operators. Low unemployment in the area has encouraged job-hopping. Operators can leave a company one day and get another job the next – even if they have been dismissed. Some employees do not even give formal notice – they just disappear and never return. Another characteristic of the Telford labour force is the large number of temporary workers. MME has found that many people do not want to work permanently for one employer, preferring to try out a few working environments before they commit themselves. While MME realises that these external factors contribute to its turnover problem, it has also recognised that there is scope for improvement in the way people are managed. Questionnaires sent out to people who have recently left the company indicate a variety of reasons for leaving, including transport difficulties, the way employees had been managed and problems during induction.
Source: IDS (2000) Study 692, July

1 What steps would you recommend to improve retention? 2 How might your recommendations be best implemented? 3 How would you monitor the effectiveness of action taken?


Chapter 5 · Human resource planning

has euphemistically come to be known as downsizing’. However, other commentators suggest that downsizing is fairly endemic in the UK:
The lack of labour market protection, the weakness of unions and the intense pressure on private and public sector companies alike to improve their profitability and efficiency have meant that the fashionable doctrine of downsizing has spread like contagion.
(Hutton, 1997: 40)

Hutton was writing in the late 90s but it is still relatively easy to find examples of organisations radically reducing the size of the workforce. For example, Shell plans to lay off 4000 staff (Griffiths, 2003) and Corus plans to lose a further 3000 (Harrison, 2003). Several studies (e.g. Bennet, 1991; Cascio, 1993) suggest that downsizing frequently fails to bring the anticipated cost savings for organisations, leading Redman and Wilkinson (2001: 319) to state that ‘ despite the real sufferings of many workers in an era of redundancy there have been few long-term benefits to justify its level of severity, nor an overwhelming economic justification for its continuing blanket use’.

■ ‘It’s human resource planning, Jim, but not as we know it’
Changes in organisational structures and the uncertainty of the environment have led to the development of more flexible and focused approaches to planning. Taylor (2002: 78–85) suggests a number of variants on the traditional planning process that may be more appropriate to organisations with unpredictable markets and structures. Micro-planning uses similar techniques to more traditional HRP but concentrates on key problem areas rather than the organisation as a whole. The more limited scope, both in terms of coverage and time, makes the process more manageable and the results more immediately visible. Micro-planning is likely to be a one-off activity rather than an ongoing process. It can be used to address a variety of issues such as skills shortages, new legislation, competitor activity or a new business opportunity. Contingency planning is based on scenario planning and enables organisations to draw up a number of different plans to deal with different scenarios. This can enable HRP to switch from being a reactive process undertaken in order to assist the organisation achieve its aims, to become a proactive process undertaken prior to the formulation of wider organisational objectives and strategies (Taylor, 2002: 79). On the other hand, Mintzberg (1994: 252) argues that, in practice, contingency planning presents several problems. Firstly, the contingency that does occur may not be one that was thought of; and secondly, the presentation of a number of different options may lead to no action at all – ‘paralysis by analysis’. In succession planning the focus is primarily on recruitment and retention and the ability of the organisation to fill key posts. It is likely that this will relate to a relatively narrow group of people. There is nothing new about organisations identifying and grooming people to fill key posts; in fact, succession planning has always been an element of traditional HRP. The traditional approach relied on identifying a few key individuals who would be ready to take on senior roles at certain points in time. However, to be effective, this requires a stable environment and long-term career plans. In response to a rapidly changing environment where the future is uncertain, the focus has moved away from identifying an individual to fill a specific job towards developing talent for groups of jobs and planning for jobs that do not yet exist. In addition, the emphasis is on balancing the needs of the organisation with the aspirations of employees and on increasing the diversity of the senior management group in terms of competencies and qualities (IRS, 2002b).

Human resource planning – a contemporary approach


BOX 5.3

Succession planning at Astra Zeneca
Astra Zeneca is a pharmaceutical company, formed from the merger of the Swedishbased Astra and the UK-based Zeneca in 1999. The organisation employs 50 000 staff worldwide. Its main products are prescription-only medicines, including cardiovascular, oncological, gastrointestinal and respiratory. The key drivers of the succession planning process are to:
● ● ● ●

ensure a leadership capability that can drive a larger, more global business; integrate the business culturally; ensure a diverse cross-functional talent base to take this new business forward; develop the ability to lead teams across functional and national boundaries.

Succession planning is not a stand-alone activity but is incorporated into a wider framework of employee development in a number of ways:
● ● ● ● ●

informing staff about internal job opportunities and encouraging cross-functional mobility; ensuring individual and team development targets are set in line with business goals; ensuring developmental feedback is future-focused and encourages open discussion about needs and aspirations; offering global leadership programmes, local and functional development programmes (both internal and external), mentoring and coaching; building the internal talent pool.

Source: IRS (2002b)

Succession planning is often linked to competency frameworks and the key challenge is to identify the competencies that will contribute to future organisational performance rather than those that have been valued in the past. Astra Zeneca identifies seven leadership competencies: provides clarity about strategic direction, builds relationships, ensures commitment, develops people, focuses on delivery, builds self-awareness and demonstrates personal conviction (IRS, 2002b: 42). Holbeche (2000) cites the five key types of skills, knowledge and aptitude critical to future success identified by Brent Allred et al.:

● ● ● ●

technical specialisms, including computer literacy – the ability to make practical use of information is more likely to lead to career advancement than the management of people; cross-functional and international experience – the ability to create and manage multidisciplinary teams and projects; collaborative leadership – the ability to integrate quickly into new or existing teams; self-managing skills – with an emphasis on continuous development and the ability to manage work–life balance; flexibility – including the ability to take the lead on one project and be a teammember on another.

Another key issue in contemporary succession planning concerns the balance between internal and external labour markets. Succession planning can be used as a means to retain and motivate key members of the existing workforce but there is a danger that the organisation can become stale in the absence of ‘new blood’. Some senior external appointments are therefore necessary to improve diversity and to bring on board people with different skills and experience but too many can result in frustration and the loss of some key talent. Skills planning, an adaptation of traditional HRP, moves away from a focus on planning for people to one that looks primarily at the skills required (Taylor, 2002).


Chapter 5 · Human resource planning

Forecasting concentrates on the identification of competencies necessary for future organisational performance rather than on the numbers and types of people required. Skills planning builds on the ideas inherent in Armstrong’s (2001) flexibility plan in its assumption that the required skills might be secured by a variety of means, including short-term contracts, agency workers, subcontracting, outsourcing, etc. Various meanings of soft human resource planning were discussed earlier in the chapter. Taylor (2002: 84) interprets this in its relatively narrow sense, i.e. as a distinct range of activities focusing on forecasting the supply and demand for particular attitudes and behaviours rather than attitudes and skills. Part of this process involves gathering data on employee attitudes in a number of areas, e.g. motivation, job satisfaction, management effectiveness and commitment to the organisation. This can be done in a variety of ways, such as employee interviews, attitude surveys and focus groups. Attitude surveys appear to be growing in popularity: a recent survey (IRS, 2001d) found that 66 per cent of respondents are currently using them and a further 21 per cent are either planning to use them in the next year or are seriously considering their use in the future. The same study (IRS, 2001c: 8) found the main topics covered in attitude surveys to be:
● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

management style and performance; internal communication; personal morale; job satisfaction; organisation’s values; career development opportunities; personal motivation; working environment; working conditions; teamwork; training opportunities; assessment of senior management; training needs; relations with immediate colleagues; pay and benefits.

As in traditional HRP, forecasting is also concerned with external supply issues. The main difference is that soft HRP is less concerned with the availability of people and skills than with the attitudes and expectations of potential employees. Schuler (1998: 79) highlights the different expectations and values of three distinct age groups in today’s workforce:
● ●

Traditionalists (born between 1925 and 1945) value job security, employment security and income security. Baby Boomers (born between 1946 and 1964) tend to value trust and authority; see work as a duty and a means to financial wealth; and expect that performance will be rewarded more than years of experience. Generation X (born between 1965 and 1985) value recognition and praise; time with their managers; opportunities to learn new things; fun at work; unstructured, flexible time; and small, unexpected rewards for jobs well done.

Stop and think

What are the main implications of these different expectations and values for effective people management?

Acting on the results of attitude surveys and assessments of broader societal expectations can help organisations attract and retain the attitudes believed necessary for future success. Retention can be viewed as one of the key aims of soft HRP, but again the con-

The advantages and disadvantages of human resource planning


cern is less with keeping specific people and more to do with securing commitment and loyalty to the organisation. One way to achieve this is through career management, i.e. processes to encourage the progression of individuals in line with personal preferences and capabilities and organisational requirements. Like succession planning, this can provide a potential win–win situation in that employees gain opportunities for development and feel valued while the organisation is able to fill posts internally. However, it can be difficult to sustain in times of uncertainty when job security is threatened.

The advantages and disadvantages of human resource planning
HRP, in both its traditional and more contemporary forms, can be perceived to have a number of distinct advantages. Firstly, it is argued that planning can help to reduce uncertainty as long as plans are adaptable. Although unpredictable events do occur, the majority of organisational change does not happen overnight so the planning process can provide an element of control, even if it is relatively short term. Taylor (2002: 73–74) suggests that in the HR field there is potentially more scope for change and adaptation in six months than there is in relation to capital investment in new plant and machinery. Thus he argues that many of the assumptions about the difficulties of planning generally are less relevant to HR. Other advantages relate to the contribution of planning to organisational performance. For example, the planning process can make a significant contribution to the integration of HR policies and practices with each other and with the business strategy, i.e. horizontal and vertical integration. Marchington and Wilkinson (2002: 280) suggest that HR plans can be developed to ‘fit’ with strategic goals or they can contribute to the development of the business strategy, but conclude that ‘either way, HRP is perceived as a major facilitator of competitive advantage’. Another way that HRP can contribute is by helping to build flexibility into the organisation, either through the use of more flexible forms of work or through identification of the skills and qualities required in employees. IRS (2002c) report that a number of organisations have predicted that jobs are likely to change radically over the next few years and so are using selection techniques to assess core values rather than job-specific skills. One of the key problems with planning relates to the difficulties of developing accurate forecasts in a turbulent environment but this does not reduce the need for it. Rothwell (1995: 178) suggests that ‘the need for planning may be in inverse proportion to its feasibility’, while Liff (2000: 96) argues that ‘the more rapidly changing environment … makes the planning process more complex and less certain, but does not make it less important or significant’. Bramham (1988, 1989) states that the process is more important in a complex environment and uses a navigation metaphor to emphasise the point:

The good navigator uses scientific methods in applying his [sic] knowledge and skills, within the limits of the equipment available, in order to establish first his position and then his best possible course and speed, with a view to arriving at the chosen destination by the most suitable route. From time to time during the voyage he will take fresh readings; calculate what action is necessary to compensate for hitherto unforeseen changes in wind, current and weather; and adjust his course accordingly. If the wind changes dramatically the navigator is not likely to abandon compass and sextant, go below and pray to God to get him to port. He is more likely to apply his knowledge and skills to a reassessment of his position and course as soon as it is practicable.
(Smith, 1976 cited in Bramham, 1988: 6)


Chapter 5 · Human resource planning

This metaphor suggests that HRP can make a significant contribution to the achievement of strategic goals but does imply that the destination remains constant even if other factors change. It also suggests that the person responsible for planning has sufficient information on which to make accurate judgements. Sisson and Storey (2000) argue that the planning process is based on two, highly questionable assumptions: firstly, that the organisation has the necessary personnel information to engage in meaningful HR and succession planning; and secondly, that there are clear operational plans flowing from the business strategy. Furthermore, they suggest that business planning is incremental rather than linear and therefore ‘the implication is that the would-be planner will never have the neat and tidy business plan that much of the prescriptive literature takes for granted’ (p. 55). Other key criticisms of the process relate particularly to the difficulties of forecasting accurately. Mintzberg (1994) highlights problems in predicting not only the changes to come but also the type of changes, i.e. whether they are likely to be repeated or are a one-off event. Incorrect forecasts can be expensive but accurate forecasts might provide only limited competitive advantage if other organisations also adopt them:
The ability to forecast accurately is central to effective planning strategies. If the forecasts turn out to be wrong, the real costs and opportunity costs … can be considerable. On the other hand, if they are correct they can provide a great deal of benefit – if the competitors have not followed similar planning strategies.
(Makridakis, 1990 cited in Mintzberg, 1994: 229)

Furthermore, Mintzberg (1994) argues that the reliability of forecasts diminishes as the time-scale of projections increases: two or three months may be ‘reasonable’ but three or four years is ‘hazardous’. This is because predictions are frequently based on extrapolations from the past, adjusted by assumptions about the future so there is considerable room for error in both. The relevance of HRP to contemporary organisations can also be questioned. Taylor (2002) argues that the traditional systematic approach is still appropriate for large organisations operating in relatively stable product and labour markets but other conditions might be less compatible. For example, moves towards decentralisation and the devolution of HR matters to managers at business unit level can make detailed planning impractical. At the same time, the increased fluidity in some organisational structures (e.g. the emphasis on flatter structures, the absence of clearly delineated jobs and the variety of contractual arrangements) can be incompatible with some objective methods of forecasting. Finally, the short-term focus evident in many UK organisations means that long-term planning is just not given high priority.

Human resource planning in practice
While much is written about HRP in theory, evidence about its application in practice is harder to obtain. The Workplace Employee Relations Survey (Cully et al., 1999) reports that 91 per cent of managers with senior responsibility for employment relations include ‘staffing or manpower planning’ in their list of tasks. Analysis of data from the three most recent workplace surveys (Millward et al., 2000) shows a shift in responsibility for HRP. The proportion of HR specialists with responsibility for HRP declined from 87 per cent in 1984 to 80 per cent in 1990 and remained stable at 80 per cent in 1998, while the proportion of non-specialists with responsibility for HRP has increased from 85 per cent in 1984 to 90 per cent in 1998. This could be seen as indicative of a general trend

HRP and strategic HRM


in the devolution of people management matters to line and general managers. However, HRP seems to be a unique case as, of the six HR functions covered in the surveys, reduced responsibility for HRP is ‘the only enduring change’ (Millward et al., 2000: 62). There are significant sectoral variations in this shift: the proportion of HR specialists with responsibility for ‘staffing or manpower planning’ declined in the private sector but increased substantially in the public sector. However, the scope for different interpretations inherent in the term ‘staffing or manpower planning’ means that we know little about the type of HRP activity actually carried out and so are unable to draw firm conclusions about the reasons for shifts in responsibility. There is also the potential danger that the high proportion of respondents reporting HRP activity could be indicative of intent rather than actual practice. A number of authors (see, for example, Liff, 2000; Rothwell, 1995) have noted the gap between widespread claims and relatively limited activity. Storey (1992) observed that the majority of companies in his sample would have ‘ticked’ survey questions about HRP, but a substantial number were not doing it. In the past, studies investigating HRP in practice (e.g. Mackay and Torrington, 1986; Cowling and Walters, 1990) have tended to find evidence of only partial activity and limited implementation of any plans. Rothwell (1995: 178–179) suggests four principal reasons for the lack of empirical proof of HRP activity:

The extent of change impacting on organisations makes planning too problematic, even though there is a growing need for it. This might also explain why plans, even if developed, are rarely implemented. The need to account for the ‘shifting kaleidoscope of policy priorities’ (p. 178) and the relatively weak power-base of the HR function meaning that either inadequate resources are devoted to planning activities or there is a lack of ability to ensure implementation of plans. The preference for pragmatism and the distrust of theory and planning prevalent amongst UK management and the potential inconsistencies in organisational goals, e.g. need for consistency and flexibility, for prediction and planning and speed of response, etc. Research into HRP is often over-theoretical and fails to take sufficient account of organisational reality. A lot of HRP activity is undertaken but because it is on an ad hoc rather than a systematic basis it is frequently discounted by researchers.

This last reason could help to account for the potential discrepancy between the proportion of managers reporting involvement in ‘staffing or manpower planning’ in WERS and the limited evidence of systematic planning activity in more detailed studies. In his study into people management practices in SMEs, Hendry (1995) found some evidence of HRP-related activities (e.g. managers considered recruitment and selection, training and pay in relation to issues identified in labour and product markets) but approaches tended to be tentative and incremental rather than classical and rational.

HRP and strategic HRM
The concept of strategic human resource management (SHRM) has many different interpretations (as discussed in Chapter 2) and ‘different definitions carry different assumptions, assert different causal relationships, even seek different goals’ (Mabey et al., 1998: 58). Nevertheless, there are two key assumptions that are particularly relevant to the role of HRP: firstly, human resources are the key source of competitive advantage; and secondly, the importance of vertical and horizontal integration. The need for planning is therefore a key component of SHRM in that it can help organisations determine the best use of human resources to meet organisational goals and can facilitate the integration of HR policies and practices with each other and with the business strategy.


Chapter 5 · Human resource planning

Planning is such a key component of SHRM that the terms planning and strategy are sometimes used interchangeably, for example: ‘the key message of the HRM literature is the need to establish a close, two-way relationship between business strategy or planning and strategic HRM strategy or planning’ (Beaumont, 1992: 40). However, it is useful to differentiate between the HRP process and the long-term HR strategy of the organisation. Brews and Hunt (1999) highlight the difference between ends and means; ends relate to what an organisation desires to achieve while means relate to how it intends to achieve them. Thus, the HRP process produces action plans (means) to help the organisation achieve its key objectives or strategy (ends). Many of the SHRM models are particularly concerned with the notion of ‘fit’, i.e. the matching of HR policies and practices with the business or product strategy (see, for example, Kochan and Barrocci, 1985: Fombrun et al., 1984; Schuler and Jackson, 1987). The models have been subject to criticism on a number of grounds (see Chapter 2 for a more detailed discussion of the key criticisms). Criticisms relate principally to the over-simplification of the concepts of strategy and ‘fit’; for example, ‘both these elements are much more complex and uncertain in reality than they are in many SHRM models’ (Mabey et al., 1998: 81). This complexity and ambiguity challenges a number of assumptions underpinning SHRM models, for example: the assumption that a preferred business strategy can be identified; that consistency in HR practices can be achieved; and that these practices can be implemented with no resistance from the human resources involved. While these logistical problems are recognised, the process of HRP can help to identify the preferred approach (or approaches, if scenario planning is used) and attempt to predict any potential barriers to implementation. At the very least, HRP ‘allows managers to consider a range of solutions rather than feeling pressurised into adopting the only realistic option which remains open to them as a last-ditch attempt to avoid a crisis’ (Marchington and Wilkinson, 1996: 105). Lam and Schaubroeck (1998: 5) go further and argue that:
Planning is critical to strategy because it identifies gaps in capabilities which would prevent successful implementation; surpluses in capabilities that suggest opportunities for enhancing efficiencies and responsiveness; and poor utilisation of highly valued organisational resources because of inappropriate HR practices.

This emphasises the need for a two-way relationship between business strategy and HR strategy. However, in the UK it appears that ‘the dominant model of the link between business plans and HR plans sees HR as the “dependent variable” – fleshing out the personnel implications of pre-determined business plans, implementing appropriate policies to fulfil the requirements identified’ (Liff, 2000: 98). Lam and Schaubroeck (1998) found that, in the majority of firms in their study, the approach to planning was operational rather than strategic. This reflects findings from another study into HRP in large UK organisations (Hercus, 1992) which noted that the priority given to HRP was largely determined by a mismatch between demand and supply. Four of the eight firms had made significant staff reductions in response to difficult economic conditions and ‘as they emerged from this period, HR planning has been given priority . . . because of the shortages of professionals and skilled employees, and corporate goals emphasising productivity improvement and quality’ (Hercus, 1992: 422). Thus, even if HR is the ‘dependent variable’, HRP can contribute to the achievement of organisational goals. HRP has a role to play even in the absence of a clear-cut strategy. Sisson and Storey (2000) suggest that:
The would-be HR planner will never have the neat and tidy business plans that so much of the prescriptive literature takes for granted. Even so, pressure has to be applied to secure operational plans, however rudimentary, if there is to be any sensible attempt to forecast the number of employees and their skills. (Sisson and Storey, 2000: 59)

Future directions


However, Boxall and Purcell (2003: 235) argue that ‘it is not a question of choosing between short-term or long-run planning systems. Both forms of planning are important and HR planning needs to play an appropriate role in both.’ They also cite research (Koch and McGrath, 1996) that shows that labour productivity is better in firms that formally plan for their future human resource needs. The study by Brews and Hunt (1999) also identifies a link between improvements in organisational performance and the HRP process but the findings indicate that this only becomes apparent after at least four years of formal planning. Thus, firms who prioritise HRP only on a ‘needs-must’ basis may miss out on the potential advantages. Hercus (1992: 425) found that ‘the role of senior management and the board, and that of the HR director, appears to be particularly important to the success of the HR planning process’. Findings from the Workplace Industrial Relations Survey series show an overall decline in HR representation at board level, thus suggesting that HR issues are not given priority by senior management in many UK workplaces, particularly smaller, non-union workplaces (Millward et al., 2000). The most recent survey, WERS (Cully et al., 1999) found that over two-thirds (68 per cent) of workplaces had a strategic plan which included employee development issues and in more than half of workplaces (57 per cent) the strategic plan was drawn up with some input from the person with responsibility for employment relations. This strategic approach was most likely to be found in larger workplaces and in the public sector.

Stop and think

What factors might account for the discrepancy between the proportion of workplaces with strategic plans that include employee development issues and the proportion of workplaces that involve HR in the development of these plans?

Future directions
Much of the criticism levelled at traditional HRP concerned its inflexibility and inability to cope with changing circumstances. Many of the more contemporary variants attempt to address these problems in some way. For example, contingency planning provides greater flexibility by considering the implications of a number of different scenarios while other approaches (e.g. succession planning) focus on specific issues rather than attempting to tackle everything at once. It seems likely that this drive for greater flexibility will continue and HRP will become increasingly dynamic. Boxall and Purcell (2003) argue that ‘it is vital to accept that change is inevitable and that some preparation for the future is therefore crucial’ (p. 232). They further suggest that short-term planning is necessary for survival but long-term planning is a good thing providing it does not make the organisation inflexible. Schuler (1998: 176) makes a similar point, suggesting that planning will become more tentative and short-term to deal with the rapidly changing environment but long-term needs are still important because some changes take time. These arguments can be seen to underpin the need for both traditional HRP techniques for short-term forecasting and for more contemporary variants such as scenario planning for longer-term plans. HRP appears to have moved a long way from the mechanistic approach associated with traditional manpower planning. Contemporary approaches are less concerned with maintaining stability and more with shaping and managing change. Brews and Hunt (1999) argue that unstable environments make HRP more, rather than less, necessary but the key focus needs to be on adapting to change:
When the going gets tough, the tough go planning: formally, specifically, yet with flexibility and with persistence. And once they have learned to plan, they plan to learn.
(Brews and Hunt, 1999: 906)


Chapter 5 · Human resource planning

The chapter began by outlining seven key objectives and these are revisited here. ● Human resource planning can be interpreted in a number of different ways. For some it means the same as manpower planning, for others it is significantly different and has many similarities to HRM. The definition used in this chapter relates to HRP as a set of distinct activities that incorporates both the hard elements associated with manpower planning and some of the softer elements associated with HRM. ● The key stages in the traditional human resource planning process are investigation and analysis, forecasting demand and supply, developing action plans to address any imbalance, implementing the plans and evaluating their effectiveness. ● Methods of demand forecasting discussed are time series, ratio analysis, work study, managerial judgement, the Delphi technique and working back from budgets. Quantitative methods can be problematic as the extrapolation of past data might be inappropriate in a changing environment but they can provide a reasonable starting point for forecasts. Qualitative methods are more flexible but can be manipulated for political ends. Supply forecasting tends to focus mainly on various analyses of labour turnover and stability and movement through an organisation. Quantitative analysis can help to highlight problem areas but gives little indication about how problems might be addressed. Qualitative data can help to address this gap but can sometimes be difficult to obtain. Organisations can exacerbate problems if they are not seen to act on the information they receive. ● A more contemporary approach to HRP aims to enable the organisation to adapt to an uncertain and changing environment and emphasises the need to develop a welltrained and flexible workforce. Variants to HRP include micro-planning, contingency planning, succession planning, skills planning and soft human resource planning. ● The main advantages of HRP are that plans can help reduce uncertainty, can build flexibility and can contribute to vertical and horizontal integration. The key disadvantages relate to difficulties of predicting an uncertain future, the lack of necessary data to make accurate predictions and the absence of clear business plans. ● Evidence of HRP in practice is varied but the dominant approach seems to view HR as the ‘dependent variable’ and tends to be tentative and incremental rather than systematic. ● HRP’s main role in SHRM is as a means to facilitate the integration of HR strategy with business strategy and to ensure that HR policies and practice are compatible with each other. In addition, some studies associate formal planning activity with improved organisational performance, particularly if planning is sustained over a number of years. The key emphasis, however, needs to be on building adaptability and managing change.

1 Explain the importance and limitations of demand and supply forecasting to the human resource planning process. 2 To what extent is it worth undertaking HRP activity in the face of economic and business uncertainty? 3 How successfully have contemporary approaches to HRP addressed the criticisms levelled at traditional HRP?

References and further reading


Case study
ASDA and staff retention
Asda, the supermarket chain, uses a variety of methods to gather information on employee attitudes, including attitude surveys, ad hoc focus groups and questionnaires to staff who have left the organisation. These various sources of information indicated that lack of career progression was seen as a problem: for example, in the attitude survey conducted in 1997, fewer than half of hourly-paid staff (the vast majority of Asda employees) agreed with the statement ‘there is ample opportunity for promotion at Asda’. In response, Asda developed a new programme to train hourly-paid staff to become managers. Staff nominate themselves for the programme but must meet stiff entry criteria in terms of skill and training levels before being accepted; for example, they must have reached the final stage of the job ladder for their current role. The programme consists of three stages: Stage 1 – staff attend an open day that explains the good and bad aspects of being a manager. Staff also complete four off-the-job courses in communication skills, coaching, training and organising work. At the end of each course participants complete a small project. Once they have been satisfactorily completed, staff attend a one-day development centre where they are assessed against the competencies required for managers. Once they have reached a certain level of competence they progress to stage 2. Stage 2 – staff undertake four weeks of full-time training in store. This includes both on- and offthe-job training and focuses on people management skills, including how to give feedback and conduct appraisal interviews. Once this training is successfully completed, they spend the next four weeks undergoing in-depth management training in one of eight ‘stores of learning’, chosen for being well run by highly experienced managers. A self-learning package is included here as well as more on and off-the-job training. On successful completion, participants move directly to stage 3. Stage 3 – appointment to a departmental manager post. Asda believes that the new programme has contributed to reduced turnover rates amongst hourly-paid staff and managers. In addition, the proportion of hourly paid staff who agreed that Asda offers ample opportunity for promotion had increased to 64% in 2000.
Source: IDS (2000).

1 To what extent is this programme likely to reduce turnover? 2 In what circumstances might Asda find it difficult to retain staff and what could they do about it?

References and further reading
Armstrong, M. (2001) A Handbook of Human Resource Management Practice, 8th edn. London: Kogan Page. Arthur, J. (1992) ‘The link between business strategy and industrial relations systems in American steel minimills’, Industrial and Labor Relations Review, Vol. 45, No. 3, pp. 488–506. Bartholemew, D. (ed.) (1976) Manpower Planning. Harmondsworth: Penguin. Beaumont, P. (1992) ‘The US human resource management literature’, in Salaman, G. et al. (eds) Human Resource Strategies. London: Sage. Bennet, A. (1991) ‘Downsizing doesn’t necessarily bring an upswing in corporate profitability’, The Wall Street Journal, 6 June, p. 1. Bevan, S. (1997) ‘Quit stalling’, People Management, 20 Nov. Bevan, S., Barber, L. and Robinson, D. (1997) Keeping the Best: A Practical Guide to Retaining Key Employees. London: Institute for Employment Studies. Boxall, P. and Purcell, J. (2003) Strategy and Human Resource Management. London: Palgrave. Bramham, J. (1988) Practical Manpower Planning, 4th edn. London: IPM. Bramham, J. (1989) Human Resource Planning. London: IPM. Bramham, J. (1994) Human Resource Planning. London: IPD. Brews, P. and Hunt, M. (1999) ‘Learning to plan and planning to learn: resolving the planning school/learning school debate’, Strategic Management Journal, Vol. 20, pp. 889–913. Buckingham, G. (2000) ‘Same indifference’, People Management, 17 Feb, pp. 44–46. Cascio, W. (1993) ‘Downsizing: what do we know, what have we learned?’, Academy of Management Executive, Vol. 7, No. 1, pp. 95–104.


Chapter 5 · Human resource planning
Chartered Institute of Personnel and Development (2000) The People Management Implications of Mergers and Acquisitions, Joint Ventures and Divestments. CIPD Research Report, September. Chartered Institute of Personnel and Development (2002a) Labour Turnover. CIPD Survey Report. Chartered Institute of Personnel and Development (2002b) Recruitment and Retention. CIPD Survey Report. Cowling, A. and Walters, M. (1990) ‘Manpower planning – where are we today?’, Personnel Review, Vol. 19, No. 3, pp. 3–8. Cully, M., Woodland, S., O’Reilly, A. and Dix, G. (1999) Britain at Work. London: Routledge. Department of Employment (1974) Company Manpower Planning. London: HMSO. Dessler, G. (2003) Human Resource Management, 9th edn. Englewood Cliffs, New Jersey, Prentice Hall. Fombrun, C., Tichy, N. and Devanna, M. (1984) Strategic Human Resource Management. New York: John Wiley. Griffiths, K. (2003) ‘The face of corporate Britain’, The Independent, 24 April, p. 1. Harrison, M. (2003) ‘Sir Brian Moffat forced out at Corus’, The Independent, 24 April, p. 21. Hendry, C. (1995) Human Resource Management: A Strategic Approach to Employment. Oxford: Butterworth-Heinemann. Hercus, T. (1992) ‘Human resource planning in eight British organisations: a Canadian perspective’ in Towers, B. (ed.) The Handbook of Human Resource Management. Oxford: Blackwell. Hill, J. and Trist, E. (1955) ‘Changes in accidents and other absences with length of service’, Human Relations, Vol. 8, May. Holbeche, L. (2000) ‘Work in progression’, People Management, 8 June. Hutton, W. (1997) The State to Come. London: Vintage. IDS (2000) ‘Improving staff retention’, IDS Study 692, July. IPM (1992) Statement on Human Resource Planning. London: IPD. IRS (2001a) ‘Benchmarking labour turnover 2001/02, part 1’, IRS Employment Review 741, 3 Dec. IRS (2001b) ‘Risk analysis and job retention’, IRS Employee Development Bulletin 141, Sept. IRS (2001c) ‘Hanging up the welcome sign’, IRS Employee Development Bulletin 135, March. IRS (2001d) ‘Reality check: using attitude surveys to manage retention’, IRS Employee Development Bulletin 137, May. IRS (2002a) ‘Facing the retention challenge’, IRS Employment Review 750, 29 April. IRS (2002b) ‘The changing face of succession planning’, IRS Employment Review 756, 22 July: 37–42. IRS (2002c) ‘Focus of attention,’ IRS Employment Review 749, 15 April, pp. 36–42. Johnson, G. and Scholes, K. (2002) Exploring Corporate Strategy. Harlow: Prentice Hall. Koch, M. and McGrath, R. (1996) ‘Improving labor productivity: human resource management policies do matter’, Strategic Management Journal, Vol. 17, pp. 335–354. Kochan, T.A. and Barocci, T. (1985) Human Resource Management Industrial Relations: Text, Readings and Cases. Boston, Mass.: Little, Brown. Lam, S. and Schaubroeck, J. (1998) ‘Integrating HR planning and organisational strategy’, Human Resource Journal, Vol. 8, No. 3, pp. 5–19. Laurance, J. (2002) ‘Why foreign nurses hold the nation’s health in their hands’, The Independent, 26 Nov. p. 18. Legge, K. (1995) Human Resoure Management: Rhetorics and Realities. Basingstoke: Macmillan. Liff, S. (2000) ‘Manpower or human resource planning – what’s in a name?’, in Bach, S. and Sisson, K. (eds) Personnel Management: A Comprehensive Guide to Theory and Practice, 3rd edn. Oxford: Blackwell. Mabey, C., Salaman, G. and Storey, J. (1998) Human Resource Management: A Strategic Introduction, 2nd edn. Oxford: Blackwell. Mackay, L. and Torrington, D. (1986) The Changing Nature of Personnel Management. London: IPM. Marchington, M. and Wilkinson, A. (1996) Core Personnel and Development. London: IPD. Marchington, M. and Wilkinson, A. (2002) People Management and Development. London: CIPD. McBeath, G. (1992) The Handbook of Human Resource Planning. Oxford: Blackwell. Millward, N., Bryson, A. and Forth, J. (2000) All Change at Work? London: Routledge. Mintzberg, H (1994) The Rise and Fall of Strategic Planning. Hemel Hempstead: Prentice Hall. Pilbeam, S. and Corbridge, M. (2002) People Resourcing: HRM in Practice. Harlow: FT/Prentice Hall. Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press. Purcell, J. (1999) ‘The search for best practice and best fit in human resource management: chimera or cul-desac?’, Human Resource Management Journal, Vol. 9, No. 3, pp. 26–41. Redman, T. and Wilkinson, A. (2001) Contemporary HRM. Harlow: FT/Prentice Hall. Rothwell, S. (1995) ‘Human resource planning’, in Storey, J. (ed.) Human Resource Management: A Critical Text. London: Routledge. Sadhev, K., Vinnicombe, S. and Tyson, S. (1999) ‘Downsizing and the changing role of HR’, International Journal of HRM, Vol. 10, No. 5, pp. 906–923. Schuler, R.S. (1998) Managing Human Resources, 6th edn. Cincinnati, Ohio: South-Western College Publishing. Schuler, R. and Jackson, S. (1987) ‘Linking competitive strategies with human resource management’, Academy of Management Executive, Vol. 1, No. 3, pp. 207–219. Sisson, K. and Storey, J. (2000) The Realities of Human Resource Management. Buckingham: Open University Press. Storey, J. (1992) Developments in the Management of Human Resources. Oxford: Blackwell. Tansley, C. (1999) ‘Human resource planning: Strategies, systems and processes’, in Leopold, J., Harris, L. and Watson, T. (eds) Strategic Human Resourcing: Principle, Perspectives and Practice. Harlow: FT/Pitman. Taylor, S. (2002) People Resourcing. London: CIPD. Thomason, G. (1988) A Textbook of Human Resource Management. London: IPM. Torrington, D., Hall, L. and Taylor, S. (2002) Human Resource Management. Harlow: FT/Prentice Hall. Whittington, R. (1993) What is Strategy and Does It Matter?, London: Routledge. Williams, M (2000) ‘Transfixed assets’, People Management, 3 August, pp. 28–33.



Recruitment and selection
Julie Beardwell and Mary Wright
To explore the external and internal context in which recruitment and selection occur. To examine recent developments in the systematic approach to recruitment and selection. To consider the effectiveness of recruitment and selection practices.

The importance of ensuring the selection of the right people to join the workforce has become increasingly apparent as the emphasis on people as the prime source of competitive advantage has grown. Beaumont (1993) identifies three key issues that have increased the potential importance of the selection decision to organisations. First, demographic trends and changes in the labour market have led to a more diverse workforce, which has placed increasing pressure on the notion of fairness in selection. Second, the desire for a multi-skilled, flexible workforce and an increased emphasis on teamworking has meant that selection decisions are concerned more with behaviour and attitudes than with matching individuals to immediate job requirements. And third, the emphasis between corporate strategy and people management has led to the notion of strategic selection: that is, a system that links selection processes and outcomes to organisational goals and aims to match the flow of people to emerging business strategies. Selective hiring (i.e. the use of sophisticated techniques to ensure selection of the ‘right’ people) is frequently included in the ‘bundles’ of best HR practice (see, for example, Pfeffer, 1998). The contribution of effective recruitment and selection to enhanced business performance is also illustrated by the findings of empirical studies. For example, a study into small and medium-sized manufacturing establishments (Patterson et al., 1997) found the acquisition and development of employee skills through the use of sophisticated selection, induction, training and appraisals to have a positive impact on company productivity and profitability. Thus the practice of recruitment and selection is increasingly important from an HRM perspective. At the same time, however, many of the traditional methods of recruitment and selection are being challenged by the need for organisations to address the increased complexity, greater ambiguity and rapid pace of change in the contemporary environment. This chapter, therefore, discusses key contemporary approaches to recruitment and selec-


Chapter 6 · Recruitment and selection

tion, and examines the influence of external and internal factors on the process. After clarifying what we mean by recruitment and selection, we begin by describing the external context in which recruitment and selection occur, including government policy and legislation. Next, we turn our attention to the internal organisational context in order to examine factors that might account for variations in recruitment and selection practice. We then explore the systematic approach to recruitment and selection, and discuss recent developments at each stage of the process. In the final section we emphasise the two-way nature of recruitment and selection, and consider ethical issues in the treatment of individuals. The chapter concludes with a summary and a number of self-test exercises.

■ Definitions
Stop and think
What do you see as the key differences between recruitment and selection?

The recruitment and selection process is concerned with identifying, attracting and choosing suitable people to meet an organisation’s human resource requirements. They are integrated activities, and ‘where recruitment stops and selection begins is a moot point’ (Anderson, 1994). Nevertheless, it is useful to try to differentiate between the two areas: Whitehill (1991) describes the recruitment process as a positive one, ‘building a roster of potentially qualified applicants’, as opposed to the ‘negative’ process of selection. So a useful definition of recruitment is ‘searching for and obtaining potential job candidates in sufficient numbers and quality so that the organisation can select the most appropriate people to fill its job needs’ (Dowling and Schuler, 1990); whereas selection is concerned more with ‘predicting which candidates will make the most appropriate contribution to the organisation – now and in the future’ (Hackett, 1991).

The external context
The processes of recruitment and selection take place within a framework of external and internal influences. External direction, through legislation and published codes of practice, suggests that approaches will be standardised, in the UK at least. However, other factors in both external and internal contexts result in variations in both philosophy and practice. The overall context in which human resources are managed is well illustrated in Figure 6.1 (Schuler and Jackson, 1996). This section concentrates on the potential impact of factors in the external environment on recruitment and selection activities. A later section considers the impact of internal organisational factors.

■ External labour market factors
When organisations choose to recruit externally (as opposed to in-house), the search takes place in local, regional, national and/or international labour markets, depending on numbers, skills, competences and experiences required, the potential financial costs involved and the perceived benefits involved to the organisation concerned. External labour markets vary considerably in size, as Table 6.1 demonstrates. Some, like China, Brazil and Mexico, are growing rapidly, others such as Germany, Japan and Great Britain are static or falling. Within a given external labour market, the recruiter requires knowledge on the makeup of that population. Age profiles give a potential indication of ‘trainees’ as opposed to

The external context


Figure 6.1

The contexts of managing human resources

External context Local–National–Multinational Laws and regulations National culture Unions Labour markets Industry

Internal organisational context Technology Structure Size and life-cycle stage Prescribed and enacted HRM activities in planning, staffing, appraising, rewarding and developing Competitive strategy Corporate structure

Formal and informal sense making and decision-making

Stakeholder satisfaction: stakeholders, customers, employees, society and strategic partners

Source: Adapted from Schuler and Jackson (1996).

Table 6.1 National comparisons of economically active populations 2001
Country China India United States Indonesia Brazil Japan Russia Mexico
Source: Euromonitor plc (2002a, 2002b)

Million 728 346 139 95 83 67 65 41

Country Germany Great Britain France South Korea Egypt Canada Australia Sweden

Million 40 28 27 22 19 16 9 4

‘experienced’ people available, as well as the proportion of those close to retirement age. Knowledge of gender breakdown is important. While some southern European countries have only half or less of women active in the labour market, nearly three-quarters of women in Scandinavian countries are deemed ‘economically active’ (Social Trends, 2002). In 2001, UK census figures suggest that 13.2 million women and 16.3 million men make up the UK labour force, with nearly 5 million of the women working parttime. A high proportion of women in the labour market may suggest a higher proportion of people seeking part-time or ‘family friendly’ contracts as opposed to inflexible and/or full-time hours. Unemployment rates affect the number of people potentially available and in the UK unemployment levels were running at a national average of 4.9 per cent in spring 2001. However,


Chapter 6 · Recruitment and selection

unemployment is not equally distributed across the UK labour force. Age, qualifications, gender, ethnicity and location all have an impact on whether or not people become unemployed and on the length of time people spend out of work. (Social Trends, 2002)

Younger rather than older people, men rather than women, people from minority ethnic groups (especially black and Pakistani/Bangladeshi groups) rather than white groups, and people with a disability have a greater tendency to be unemployed. Difficulties overcoming ill health (men) and family commitments (women) were the two most common reasons given by those not actively seeking employment (Social Trends, 2002). Further discussion of labour market issues is found in Chapter 4. The skills and experiences available in a labour market, and the extent of competition for them, are critical factors for recruiters. Where shortages of appropriate recruits have occurred, moves towards flexible work patterns can be considered. The 2002 Labour Force Survey reports statistics on flexible working and annualised hours, four and a half-day weeks, term-time working, job sharing and nine-day fortnights (Office for National Statistics, 2002a). While it is not suggested that all of these have been established to alleviate recruitment difficulties, some have the potential to increase the number of potential recruits available. The availability of required skills and competences is influenced by the range and quality of learning experiences available to individuals within that market. Table 6.2 suggests that illiteracy levels still block potential skills development in a number of countries and affect the potential use of these labour forces by firms looking to recruit in the global labour market

Table 6.2 Adult literacy rates as percentage of population
Country Egypt India Nigeria Brazil China
*figures only available for 1997 NB figures disguise considerable differences in some countries between male and female illiteracy rates.
Source: Euromonitor (2002b)

Literacy rate (2000) 52.7 53.5 57* 80* 83

However, Crabb (2003: 30) reports a rapidly growing pattern of UK organisations shifting their operations to the Indian sub-continent (especially where these operations involve information technology and/or financial services), taking advantage of significantly lower wage rates available in the ‘huge, well-educated, English speaking labour force’. The number of young people remaining in full-time compulsory education in European countries varies considerably, as Table 6.3 demonstrates. Take-up of higher education influences both the extent of higher-level skills available within the economy and conversely the numbers of young people available to undertake focused work-based learning. Labour markets, education and learning activities are considerably influenced by government policy. For example, within the UK there has been a long-standing debate about the relative roles and responsibilities of central and local government, employers and individuals in respect to skills training and qualifications. Historically, reliance has been placed on voluntarist approaches, with employers expected to achieve an adequate level of skill for the nation as a whole, the market supposedly ensuring that such provision is made.

The external context


Table 6.3 Education and training rates 1995 (%)
Aged 15–19 France Germany Ireland Greece Spain UK Luxembourg

Aged 20–24 42.5 39.1 30.1 29.2 41.8 23.6 36.5

93.2 93.0 83.7 80.0 79.1 71.2a 38.8

By 1998 this had risen to 74% (Social Trends, 2000)

Source: Adapted from Leat (1998: 247)

More recently, the issue of preparing current and future workforces through lifetime learning has resulted in national learning targets being set by the UK government for young people and adults (see also Chapter 9).

Table 6.4 UK national learning targets 2002
Selection of national learning targets for 2002: (NB all at stated level or equivalent) 50% of 16-year-olds to achieve 5 GCSEs grades A*–C 85% of 19-year-olds qualified to at least NVQ level 2 60% of 21-year-olds qualified to at least NVQ level 3 Economically active adults to be qualified: 28% to at least NVQ level 4 50% to at least NVQ level 3
Source: Social Trends (2002)

By autumn 2002 it was reported that nearly 52 per cent of 19-year-olds, 54 per cent of 21-year-olds and 49 per cent of adults had qualifications at NVQ level 3 or equivalent, with 28 per cent of adults possessing NVQ level 4 or equivalent qualifications (Department for Education and Skills, 2003). The highest qualification held appears to be related to a number of factors, such as ethnic group (the highest percentage of people of working age with qualifications at levels 4 and 5 being of Chinese origin), gender (with males far more likely to hold qualifications at GCE A level or equivalent) and age (with older people of both genders, but especially women, more likely to hold no qualifications at all) (Social Trends, 2002). Other government initiatives to influence the number of people and levels of skill available in the labour market include the New Deal (for young people age 18–24, 25+, 50+ and New Deal jobseekers with disabilities) and Modern Apprenticeship schemes (foundation and advanced). Current proposals in the government White Paper on higher education may affect the demand for traditional and foundation higher education places. Through the growth of technological applications, alternative ‘university’ provision becomes possible, some via government initiatives (e.g. University for Industry under its brand name Learn Direct, and the National Health Service University) or private initiatives such as Barclays University or Unisys University. Despite these initiatives to increase the quality and quantity of skills and competencies available in the UK, difficulties remain when recruiting externally. The sixth CIPD annual report on recruitment and selection practices, issues and trends reports widespread and increased recruitment difficulties in 2001. Major causes cited are:


Chapter 6 · Recruitment and selection
● ● ● ●

candidates’ lack of relevant experience (54.8%); candidates’ lack of relevant technical skills (53.5%); recruiters’ inability to meet salary expectations, (48.8%); a shortage of high-quality applicants (48.8%). (CIPD, 2002a)

Organisations experiencing severe problems included those in the public sector (where over a quarter of employers reported receiving no applications for some posts) and those in the South East and South West, irrespective of organisational size. These difficulties exist despite ‘harsher economic conditions for manufacturers and some services firms in the private sector’. (CIPD, 2002a: 6)

● Technological developments
Advances in technology, particularly the growth and use of both the Internet as a whole and organisation-specific intranets, are affecting the type of labour demanded, with more requirements for those with expert systems and knowledge management experiences and knowledge. By the end of 2004, it is estimated that the number of jobs in call centres worldwide will have doubled since 1999 to 10.5 million from 1999. ‘Call centres are getting ready to become overall customer contact centres, working with the opportunities afforded by the Web to offer a full range of services at a cost effective price’ (Bradshaw, 1999). Within existing organisations the potential for a growth in employment based away from the traditional office environment grows as technology allows individuals to communicate with others and be supervised at a distance. Homeworking and teleworking become possible through the use of e-mail and videoconferencing. The potential exists for wide-scale change from traditional classroom-based group learning to individual and ongoing computer-based training and development. Technological developments permit the constant (and sometimes covert) monitoring of employee behaviour. As jobs are lost in manufacturing (with technological advances replacing shopfloor employees with robots), traditional retailing (a wide range of goods and services are available via the Internet), and the financial sector (where Internet and internal computer systems are introduced to enhance profitability and retain competitiveness), new employment opportunities are found in organisations supporting and using this technological growth. Further discussion of the impact of job redesign is found in Chapter 14. These changes impact on the skills required by both existing jobholders and potential applicants. The recruiter has to be able to locate those possessing these skills (or the potential to learn and apply them effectively).

■ Government policy and legislation
While organisations have considerable freedom of choice in the type of people they want to recruit, legislation plays a significant role in the recruitment and selection process, particularly in attempts to prevent discrimination on the grounds of sex, race or disability (see also Chapter 7).

● Sex and race discrimination
Two Acts are specifically designed to prevent discrimination in employment on the basis of sex or race. The Sex Discrimination Act 1975 makes it unlawful to discriminate against a person directly or indirectly in the field of employment on the grounds of their sex or marital status. The Race Relations Act 1976 makes it unlawful to discriminate against a person in the field of employment on the grounds of their race, colour and nationality, including ethnic or national origin.

The external context


Both Acts prohibit direct and indirect discrimination. Direct discrimination occurs when an individual is treated less favourably than another because of their sex, marital status or race. Indirect discrimination occurs when requirements are imposed that are not necessary for the job, and that may disadvantage a significantly larger proportion of one sex or racial group than another. Both Acts make it lawful for employers to take positive action to encourage applications from members of one sex or of racial groups who have been under-represented in particular work over the previous 12 months. However, positive discrimination is unlawful, which means that, although advertisements can explicitly encourage applications from one sex or particular racial group, no applicant can be denied information or be discriminated against in selection because they do not fit the ‘preferred’ category. Sex or race discrimination is permitted only where sex or race is a defined ‘genuine occupational qualification’ (GOQ). Examples of GOQs include those for models, actors and some personal welfare counsellors. These Acts have had only limited success in achieving sexual and racial equality: there has been a significant reduction in overt discrimination, particularly in recruitment advertising, but there is less evidence of eradication of discrimination in employment practices generally. National statistics indicate that, at a macro level, little has changed in the distribution of employment on the grounds of gender and race.

● ● ●

44% of all those of working age in employment are women. 43% of women are in part-time employment, compared with 8% of men. Women account for 69% or more of administrative and secretarial, personal service, sales and customer service occupations, while men make up 69% or more of managers and senior officials, skilled trades, and process, plant and machine operatives (ONS, 2002a). Female employees working full-time earn on average 82% of the average pay of men in full-time employment (ONS, 2002b).

Ethnic minorities (ONS, 2002a)
● ●

58% of the working age population of ethnic minority groups are in employment compared with 76% of white people. Unemployment statistics vary widely for different ethnic communities: for example, unemployment rates are highest for Bangladeshi men at 21%, compared with 7% for Indian men and 6% for Chinese men. Cultural diversity is also reflected in varying rates of labour market participation for women. Bangladeshi and Pakistani women have the lowest employment rates at 17% and 24%, compared with 69% for Black Caribbean women and 71% for white women.

Continued indications of inequality in the labour market may be partly due to the fact that, until fairly recently, legislation has been aimed at ending discrimination rather than requiring organisations to promote equality. The situation has now changed, at least with regard to race in the public sector. The Race Relations (Amendment) Act 2001 imposes a positive duty on public authorities to promote racial equality. In relation to recruitment and selection this includes:
● ● ●

ensuring that employment practices attract good candidates from all ethnic groups; setting targets and taking action to encourage applicants from ethnic groups currently under-represented in particular areas of work; monitoring employees and applicants for employment, training and promotion by ethnic group.


Chapter 6 · Recruitment and selection

Findings of the fourth Workplace Employee Relations Survey, WERS 4 (Cully et al., 1999), suggest that monitoring does not occur as much as one might expect. Fewer than half of organisations with a formal equal opportunities policy collect statistics on posts held by men and women, or keep employee records with ethnic origin attached, and only a third review selection procedures to identify indirect discrimination. The new requirements should increase the incidence of monitoring in the public sector but whether or not the private sector will follow suit is open to debate. In the private sector, equalising opportunity is still largely dependent on initiatives undertaken voluntarily by organisations such as targeted recruitment, pre-recruitment training or participation in national initiatives such as the CRE’s Leadership Challenge for ethnic minorities. In order to encourage diversity, some organisations are adopting a more flexible approach to recruitment and selection. The CIPD Recruitment and Retention Survey (CIPD, 2002a) highlights a number of measures, including:
● ● ● ●

Advertise vacancies in media targeted towards under-represented groups. Ensure that images or words in advertisements do not discourage any groups from applying. Take account of a broader range of qualities when selecting (e.g. personal skills rather than formal qualifications). Appoint people who have the potential to grow but don’t currently have all that is required.

Other initiatives to increase the diversity of the workforce include building up relationships with community groups. The retailer Littlewoods did this and reported some positive results, including more applicants, lower recruitment costs and the generation of extra sales (Pickard, 1999: 42). Pre-employment training can also help to increase the number of employees from previously under-represented groups, but is used by only a small number of organisations (Dickens, 2000). These forms of positive action may be aimed at improving opportunities for previously disadvantaged groups by creating a ‘level playing field’. However, these types of initiatives can be seen as counter-productive because people who are perceived to have gained advantage through positive action may be viewed negatively by others. In addition, offering extra training and help to underrepresented groups implies ‘that they are deficient in some way and that consequently they are the problem . . . [when] invariably the problem lies not with the targeted group itself but elsewhere in an organisation’s own processes or culture’ (Kandola, 1995: 20).

● Disability discrimination
The Disability Discrimination Act (1995) came into force at the end of 1996. The Act defines disability as a physical or mental impairment that has a substantial and long-term adverse effect on a person’s ability to carry out normal day-to-day duties, and includes progressive conditions such as cancer and multiple sclerosis. The legislation makes it unlawful for companies with 15 or more employees to treat people with disabilities less favourably than they do others unless they can justify their actions. In addition, employers are required to make ‘reasonable adjustment’ to the workplace or to working arrangements where this would help to overcome the practical effects of a disability. The requirement for reasonable adjustment includes modifying the recruitment and selection procedure if required: for example, providing application forms in large print or accepting applications by audio tape. The use of testing during the selection process may present a potential problem for people with disabilities, and reasonable adjustments might include modifying test materials, allowing a disabled candidate assistance during a test, or flexibility in the scoring and interpretation of test results (IRS, 1999a). Discrimination against disabled people has been unlawful only since 1996. Before then, legislation relating to the treatment of disabled people at work was primarily to

The external context


‘secure for the disabled their full share, within their capacity, of such employment as is ordinarily available’ rather than preventing discrimination. It is therefore not surprising that disabled people still appear to be disadvantaged in the labour market. Labour Force Survey (ONS, 2002a) statistics show that:
● ● ●

1 in 5 people of working age in the UK has a long-term disability. 52% of disabled people are economically active compared with 79% for the whole working age population. Disabled people are more likely than non-disabled people to be unemployed (9% and 5% respectively) and are also more likely to have been unemployed for at least a year.

Despite these rather depressing statistics, it is possible to find examples of companies that have gone beyond compliance with the Disability Discrimination Act. In 2002 Lloyds TSB won a Business in the Community Award for its work on eliminating barriers for disabled employees and customers. The company is investing £26.2 million over six years and initiatives include targeted recruitment programmes; a thorough programme of ‘reasonable adjustments’ for employees; a career progression scheme for disabled employees; and the establishment of a national network of disabled employees, managers and advisers (IRS, 2002a).

● Age discrimination
There is no current legislation prohibiting discrimination on grounds of age, although this is likely to change in 2006 in order to comply with the EU Equal Treatment Directive. In 1999 the UK government introduced a code of practice designed to promote age diversity in employment, arguing that ‘to base employment decisions on preconceived ideas about age, rather than on skills and abilities, is to waste the talents of a large part of the population’ (DfEE, 1999). The code covers six aspects of the employment cycle: recruitment, selection, promotion, training, redundancy and retirement. Specifically in terms of recruitment the code recommends employers to recruit on the basis of skills and abilities necessary to do the job rather than imposing age requirements or making stereotypical judgements based on the age of the applicants. Similarly, for selection the code recommends that employers select on merit by focusing on application form information relating to skills and abilities and on interview performance. The government claims that the elimination of unfair age discrimination will enable businesses to reap a number of benefits, including a greater ability to create a more flexible, multi-skilled workforce.

● Employment of people with criminal records
People who have a criminal record are also likely to be disadvantaged in the workplace: current estimates suggest that it is at least eight times harder for a person with a criminal record to obtain employment than someone without (CIPD, 2002b). The Rehabilitation of Offenders Act (ROA) 1974 provides some protection for certain categories of exoffenders, as it enables offenders who have received sentences of 30 months or less to have their convictions ‘spent’. This means that, after a specified period, they can reply ‘no’ when asked if they have a criminal record. Although it is unlawful for an employer to discriminate on the grounds of a ‘spent’ conviction, the candidate who is discriminated against has no individual remedy (IDS, 1992). In addition, a wide range of jobs and professions are exempt from the provisions of this Act, including teachers, social workers, doctors, lawyers and accountants. The potential for discriminating against people with a criminal record has increased with the establishment of the Criminal Records Bureau, set up as part of the 1997 Police Act. Once fully operational, the bureau will undertake three different levels of criminal record checks (CIPD, 2002b):


Chapter 6 · Recruitment and selection
● ●

Basic disclosure: shows current, unspent convictions. Standard disclosure: contains details of spent and unspent convictions and is available for posts exempt from the ROA, e.g. those involved with children or vulnerable adults and for certain professions such as law and accountancy. Enhanced disclosure: standard disclosure plus relevant, non-conviction information held on police records. This level of disclosure is only for posts involving regular care for, training, supervising or being in sole charge of children or vulnerable adults.

Government research (cited in IRS, 2002b) concludes that the availability of these checks will make it more difficult for people with criminal records to get a job, or may increase their chances of dismissal through the discovery of previously undisclosed convictions. In the light of this, a number of public bodies, including the CIPD, CBI and TUC, are trying to raise awareness of the business case for recruiting ex-offenders. One of the main supporting arguments is that in the continuing battle to recruit the best talent, employers simply cannot afford to exclude such a large group of people. It is estimated that more than 5 million people in the UK have convictions for crimes that could have involved imprisonment (CIPD, 2002b). At the same time, a number of government initiatives have been introduced to develop the skills of ex-offenders to increase their chances of employment. For example, the New Deal for Unemployed People targets exoffenders and a partnership between the Department for Education and Skills and the Prison Service aims to raise prisoners’ qualifications (Manocha, 2002).

● Professional codes of practice
The Chartered Institute of Personnel and Development has over 110 000 members, and is perceived as the body representing a large number of those involved in the recruitment and selection activities carried out in the UK. Members are expected to follow Institute policy and can in fact lose their membership for major breaches. Guidelines on various aspects of recruitment and selection are available, thus demonstrating that ‘best practice’ is both prescribed and expected. Other bodies, including the Equal Opportunities Commission and the Commission for Racial Equality, also produce codes of practice relating to recruitment and selection.

The internal context
The discussions above relate to external factors influencing recruitment and selection activities and go some way to explaining why we see both similarities and differences in recruitment activity. While legislation and codes of conduct would suggest a certain approach in the UK, differences in job/occupation being recruited, labour markets and skills availability might cause this approach to be modified. However, factors within organisations also affect the way recruitment and selection is handled. In this section we explore the extent to which recruitment and selection activities are aligned with overall business strategy; the impact of an organisation’s approach to HRM, its financial position, the size of the organisation, its industrial sector, and its culture. This section also considers the approaches adopted by multinational corporations.

■ A strategic HRM approach?
The reasons for preferring certain approaches to the management of people received considerable attention in the 1980s as the influence of HRM grew. Within academic literature, normative models, based on a classical view of strategic decision-making, suggest that recruitment and selection policies should be aligned to a variety of organisa-

The internal context


Figure 6.2

Kochan and Barocci’s model of recruitment, selection and staffing functions at different organisational stages
Start-up Attract the best technical and professional talent (through meeting or exceeding labour market rates)


Recruit adequate numbers and mix of qualified workers Manage succession planning and rapid internal labour market movements through meeting external labour market rates but also with due consideration for internal equality effects


Less emphasis on recruitment. Encourage sufficient turnover to minimise lay-offs and provide new openings. Encourage mobility, through ‘controlled’ compensation


Little recruitment and selection, rather planning and implementing workforce reductions and reallocation with very tight pay control

Source: Adapted from Legge (1995: 105)

tional factors. Most illustrate the view that HR strategies and activities, including recruitment and selection, should be both vertically integrated with the organisation’s position or preferred business strategy and horizontally integrated with each other. Parallel strategies in recruitment, selection, pay and development, in particular, are suggested. For more detailed discussions of strategic HRM see Chapter 2. A discussion of the following models can be found in Legge (1995). The Kochan and Barocci model, outlined in Figure 6.2, argues that organisations have life cycles, and that recruitment, selection and staffing policies vary according to an organisation’s perceived stage in the cycle. Other models attempt to link recruitment and selection to product strategies (e.g. Fombrun et al., 1984) or overall business strategy (e.g. Miles and Snow, 1984). Goold and Campbell (1987) consider that human resource strategies, including recruitment and selection, depend on whether an organisation’s strategic management style can be classified as one of strategic planning (maximum competitive advantage through the pursuit of ambitious long-term goals, with subsequent investment in the long-term development of employees), financial control (with an emphasis on short-term utilisation of, and minimal investment in, employees), or strategic control (a balance of the two). The US writers Schuler and Jackson (1996) argue that the organisation’s competitive strategy (cost reduction, quality improvement and customer focus, innovation or speed of response) is crucial:
These different ways of competing are significant for managing human resources because they help determine needed employee behaviors. That is, for competitive strategies to be successfully implemented, employees have to behave in certain ways. And for employees to behave in certain ways, human resource practices need to be put in place that help ensure that those behaviors are explained, are possible, and are rewarded. (p. 64)


Chapter 6 · Recruitment and selection

The models serve to highlight possible reasons for variations in approach to recruitment and selection. However, there is considerable debate about the extent to which a classical and rational approach to decision-making in organisations is either sensible or even exists. The problems include:
● ● ●

the difficulties in agreeing what corporate strategy is, and the extent to which it is perceived as planned rather than emergent; a perception of critical time lag between ‘strategic decision-making’ and implementation of the policies deemed necessary to achieve corporate objectives; pressures to recruit and select in the short term via the external labour market to meet urgent needs, which may conflict with the chosen longer-term strategy of internal labour market development.

A further explanation of differences might therefore be the lack of adopting and pursuing a strategic approach to HRM within an organisation. Schuler and Jackson (1996) highlighted an international insurance company where successful development had been through key competences in marketing, rapid response to new business areas, and creation of new products. Working in a ‘highly decentralised manner through the creation of literally hundreds of new companies to attack new markets’, it poached experts with the skills needed in the industry, through offering much higher pay. When the market dried up or tough competition arrived, these employees were ‘let go’ to return to the labour market. Littlewoods, the UK stores and leisure group, aimed to become ‘the UK’s most admired consumer business’ with equal opportunities in recruitment and selection necessary for the aim to be achieved. By reaching out to minority groups, they appear to have recruited a more effective workforce through ‘fishing in the biggest possible pool’, and to have increased profitability through widening the customer base (Pickard, 1999). In an attempt to increase profitability and finance anticipated growth, the strategic objectives of many growing call centres in the UK at the turn of the century included reducing labour turnover (running at around 30 per cent per annum) and waste in recruitment and training costs (estimated at over £100 million) (Davis, 1999). Of several suggestions made, one approach that appeared to have considerable success was the introduction of more rigorous selection techniques (such as competence-based interviews, psychometric tests, work sample tests and simulations) to identify the ‘ideal person’ for call centre work (which industry research suggests is ‘rule conscious, dutiful, conscientious, perfectionist and introverted’) (Whitehead, 1999).

■ A soft or hard approach to HRM?
Whether or not an organisation is pursuing a strategic HRM approach to the management of people, organisations still have to choose whether to fill a vacancy through internal or external labour markets, or both. Some organisations prefer to fill as many vacancies as possible with existing employees. The opportunities for promotion and transfer can be perceived to be highly motivational and attractive in terms of personal development, with critical skills retained in-house. Such an approach is consistent with ‘soft’ HRM, and has implications for human resource activities:
Soft contracting implies an elaborate internal labour market, managed by a sophisticated HR function, with strong HR policies to govern relationships, pay, promotions, appraisal and development. (Storey and Sisson, 1993)

The internal context


This ‘soft’ approach implies long-term commitment to investment in training and development and probably a rigorous appraisal scheme with an emphasis on identifying potential and on engendering commitment from employees. The organisation’s expectations are of loyalty and retention from staff in return. Alternatively, organisations pursuing a ‘hard’ HRM approach search for new employees in external labour markets. This may suggest a short-term focus, or an unwillingess or inability to invest in the human resource (see also Chapter 1). Within the UK the unwillingness may be a fear of engaging in costly development activities with staff, which could make them attractive to competitors. Alternatively, the organisation may be aware that the future may pose problems in offering long-term employability or promotion and not wish to raise unrealistic expectations. Hard HRM may also be seen as an approach that brings new skills, ideas and experiences into an organisation as they are needed, rather than in expectation of need. In addition, rapidly changing competences may mean there is no time to develop the required competences in-house, which must be bought in from outside (Schuler and Jackson, 1996).

■ Financial position of organisation
The financial position of an organisation can impact significantly on recruitment and selection practices. ‘Cash rich’ organisations may find it easy to find agreement for the budgets required for a soft approach to recruitment and selection but a constrained financial situation can forestall the investment in training and development necessary to tap the potential of the internal labour market, with decision makers seeing training budgets as costly ‘extras’. Financial constraints can push an organisation towards a ‘hard’ approach to HRM, but can limit the number and quality of recruitment and selection methods available for use. Assessment centres may be deemed appropriate in terms of their purpose and suitability, but remain unused because cheaper selection tools exist. In addition, tight budgets may limit the amount of cash available to fund higher reward packages expected by highest-quality applicants.

■ Size of organisation
While large organisations with over 500 employees comprise only 3 per cent of total workplaces, they account for nearly a third of all employees in the UK (Cully et al., 1999) and ‘size matters, all other things being equal, because larger units increase the complexity of the management task … and the greater the need for rules and procedures to achieve consistency of behaviour on the part of individual managers’ (Sisson and Marginson, 1995). Within the largest organisations HR policy may be decided by a powerful central function, developed over time, with individual business or service units expected to maintain strict adherence to written policy and procedure. Small organisations (25–49 employees), on the other hand, account for over half of UK workplaces. Within them, well-developed personnel functions or recruitment and selection systems may not exist. Recruitment may be irregular, with a heavy reliance on informal methods of recruitment, especially if these have worked well previously. Responsibility for the recruitment activity, in particular, may be passed to enthusiastic ‘amateurs’ within the organisation, or outsourced to a third party. However ‘best practice’ models in recruitment and selection are available for small organisations via government agencies and publications (e.g. Jobcentre Plus and local Chambers of Commerce), for those that know of, and wish to use them.


Chapter 6 · Recruitment and selection

Small organisations are less likely to use certain recruitment methods (e.g. radio and television, national newspaper advertising, educational links or promotional events) because of the resources required … tend to favour informal and less structured selection practices, are less likely to get involved in assessment centres, check references, or carry out selection testing but are more likely to use CVs and letters of application.
(CIPD, 2002a)

■ Industrial sector
‘The output of a workplace, and the type of environment in which it operates, are likely to be significant determinants of how work is organised’ (Cully et al., 1999) and marked differences between public and private sector recruitment and selection practice is reported (CIPD, 2002a). WERS 4 data suggest that 72 per cent of all workplaces in the UK are in the private sector, with financial services, manufacturing, wholesale/retail, hotels and restaurants almost totally within private ownership (Cully et al., 1999). The probable usage of third parties in recruitment appears high within this group, and the financial services and manufacturing industries are key users of executive search and selection. Financial services, information technology, customer care, engineering and design organisations are also predicted to grow the extent to which they outsource their processes, including HR, in the next five years (Crabb, 2003). Conversely, public administration and education are firmly located in the public sector, where third-party recruitment has traditionally been very limited, with both recruitment and selection being maintained in-house by teams of professionals and specialists. The use of application forms is more prevalent, as is the checking of references and skills, literacy and numeracy tests. Similarly, assessment centres and competencybased selection are more common in this sector (CIPD, 2002a). The public sector organisations tend to have policies which require all posts to be advertised externally (as well as internally) in the pursuit of equal opportunities.

■ Cultural differences between organisations
Differences exist even within similar industries, sectors and sized organisations. Several factors need to be considered: perhaps those who hold power in organisations have a strong preference for one particular recruitment method or have a dislike of any selection method except one-to-one interviewing? Perhaps expectations of the processes are based on custom and practice built over many years, which may or may not include a well-established routine, backed by written policies, procedures and monitoring systems, and an insistence on formal training for individuals in recruitment and selection? Perhaps recruitment is seen as a marginal activity, undertaken as required in an ad hoc manner by some delegated employee or outsourced to a third party as and when need arises? The roles (and training) of those engaged in recruitment and selection may vary from one business unit to another, as may the extent to which divergence from organisational policy is permitted (Cully et al., 1999). Regional differences influence methodology. Head offices tend to be in London and the South East, and here the use of headhunters is far greater (with more than 50 per cent using them), the use of job centres is lower, as is the use of local press in advertising. In Northern Ireland strong anti-discrimination legislation leads to less use of informal recruitment methods or headhunters.

The internal context


■ Multinational perspectives on recruitment and selection
Earlier in the chapter we discussed differences that may occur in national labour markets because of levels of education and government support for training. Other international differences can include attitudes regarding the sourcing of recruits (see also Chapter 15). In many areas of the world the main sources of recruits are relatives, friends or acquaintances of existing employees:
in certain parts of Africa, where you studied is not as important as who you know, and the people you know may be more important than what you know. (Langtry, 1994)

This nepotistic approach may challenge our Western view of employee relations and equal opportunities, although even within the UK it is possible to find examples of organisations that recruit predominantly via word of mouth:
Much of the world still runs its organisations on a model of human relationships that is more akin to the traditional family than the functionally organised, formal, vision led type of organisation prevalent in the US and North West Europe. (Hall, 1995: 22)

In some countries (such as Australia and Spain) a large proportion of organisations are in foreign ownership. In these companies recruitment and selection practices often reflect organisational rather than national values, especially where organisation culture is strong and recruitment and selection activity is carried out by those who are not host country nationals (Hollingshead and Leat, 1995). An examination of the WERS 4 data (Cully et al., 1999) suggests that the growth of wholly foreign or partly foreign ownership in the UK is also on the increase. Private sector figures indicate that 6 per cent of workplaces were partly foreign owned and 13 per cent predominantly (that is, 51 per cent or more) or wholly foreign owned. The larger the workplace, the more likely it is to be foreign owned. The result of a growth in multinational presence may include different approaches to recruitment and selection, different competences required in the workforce, and alternative recruitment methods and selection techniques.
Variations in employment relations policies and practices within foreign-owned workplaces may reflect the cultures and management styles imported into, or adapted to fit in with, British industrial relations. (Cully et al., 1999: 19)

Four distinct approaches have been identified for recruitment in multinational companies. They imply different patterns of control over the ‘overseas’ activities’, and have varying impacts on career development for the employees concerned:

Ethnocentric, where all key positions are filled by nationals of the parent company. This is a typical strategy employed in the early days of the new subsidiary, and suggests that power, decision-making and control are maintained at parent headquarters. Polycentric, where host country nationals fill all key positions in the subsidiary. Each subsidiary is treated as a distinct national entity, though key financial targets and investment decisions are controlled by parent headquarters, where key positions remain with parent country nationals. Regiocentric, where decisions will be made on a regional basis (the new subsidiary will be based in one country of the region), with due regard to the key factor for suc-


Chapter 6 · Recruitment and selection

cess of the product or service. For example, if local knowledge is paramount, host country nationals will be recruited; if knowledge of established product is the key factor, parent country nationals are likely to be targets, though anyone from the geographical region would be considered. Geocentric, where the ‘best people’ are recruited regardless of nationality for all parent and subsidiary positions: for example, a national of a country in which neither the parent nor subsidiary is based could be considered. This results in a thoroughly international board and senior management, and is still relatively uncommon.

Increased internationalisation of business generates other issues of relevance when considering recruitment and selection. Hendry (1995) identifies an increasing number of managers and professionals affected by international assignments, leading to increased importance of managing international careers. PriceWaterhouseCoopers report growth of over 40 per cent in expatriate, especially short-term, assignments throughout the world between 1997 and 1999 (PriceWaterhouseCoopers, 1999). Competence in language and technical skills are deemed to be key requirements, and many organisations provide language training for potential recruits. International awareness has been found useful in successful placements, as has an individual’s ability to change his or her personal behaviour to fit with cultural requirements. Without international experience, opportunities for individuals to develop career paths appear increasingly limited in multinational organisations. Sparrow (1999) concludes, however, that there are ‘no simple recipes that can be followed when selecting for international assignments. Rather there are choices to be made and opportunities to be pursued’ (p. 40). He identifies three main resourcing philosophies. The first is a traditional, predictive approach, using psychometrics and competence frameworks to assess a person’s suitability; the second is a risk assessment approach, which concentrates on cultural adaptability. His third philosophy involves reversing the process, and designing the assignment to match the skills of the manager. Specific training and preparation become vitally important to ensure that such relocation is effective, and that high levels of expatriate failure are avoided. Likely interventions include pre-move visits to the proposed host country (often with family members), language and cross-cultural training for managers and families, and briefing by both host country and in-house representatives.

Developments in the systematic approach to recruitment and selection
The key stages of a systematic approach can be summarised as: defining the vacancy, attracting applicants, assessing candidates, and making the final decision. Another way of expressing this is as a series of questions:
● ● ● ●

Who do we want? How can we attract them? How can we identify them? How do we know we have got it right?

In addition, a supplementary question that is increasingly asked is:

Who should be involved in the process?

Here we describe the main components of each stage, and indicate ways in which recruitment and selection activities are changing to meet current and future demands.

Developments in the systematic approach to recruitment and selection


■ Who do we want?
● Authorisation
Securing authorisation ensures that the need to start the recruitment process is agreed by management as being compatible with the organisational/departmental objectives: that is, necessary, timely and cost-effective. At the same time, it provides an opportunity to consider options other than recruitment and selection, for example:
● ●

to debate the potential for restructuring workloads/departments and redeploying existing staff; to delay or eliminate expenditure on staffing and recruitment budgets.

Neither of these opportunities is risk-free: redeployment of surplus staff may mean that the incoming jobholder is not necessarily the ‘best person for the job’ and result in management resentment against the system; inadequately thought-through restructuring or short-term cost-saving measures may damage the department and organisation in the long term, as opportunities fail to be exploited for lack of suitable human resources. These decisions may be made on an operational or strategic basis. The latter emphasises the contribution of effective staffing levels to the achievement of organisational goals and may include long-term human resource development (HRD) objectives and succession planning alongside the immediate requirement to fill a post.

● Defining the job and the person
The traditional approach involves writing a comprehensive job description of the job to be filled. This enables the recruiter to know exactly what the purpose, duties and responsibilities of the vacant position will be and its location within the organisation structure. The next step involves drawing up a person specification that is based on the job description, and which identifies the personal characteristics required to perform the job adequately. Characteristics are usually described within a framework consisting of a number of broad headings. Two frequently cited frameworks are the seven-point plan (Rodger, 1952) and the five-fold grading system (Munro Fraser, 1954), illustrated in Table 6.5. Both frameworks are somewhat dated now, and some headings can appear to be potentially discriminatory (e.g. physical make-up and circumstances), but nevertheless they continue to form the basis of many person specifications in current use. It is

Table 6.5 Person specification frameworks
Rodger (1952) Physical make-up: health, appearance, bearing and speech Attainments: education, qualifications, experience General intelligence: intellectual capacity Special aptitudes: mechanical, manual dexterity, facility in use of words and figures Interests: intellectual, practical, constructional, physically active, social, artistic Disposition: acceptability, influence over others, steadiness, dependability, self-reliance Circumstances: any special demands of the job, such as ability to work unsocial hours, travel abroad
Source: ACAS (1983)

Munro Fraser (1954) Impact on others: physical make-up, appearance, speech and manner Acquired qualifications: education, vocational training, work experience Innate abilities: quickness of comprehension and aptitude for learning Motivation: individual goals, consistency and determination in following them up, success rate Adjustment: emotional stability, ability to stand up to stress and ability to get on with people


Chapter 6 · Recruitment and selection

common to differentiate between requirements that are essential to the job and those that are merely desirable. The person specification is a vital part of the recruitment and selection process as it can form the basis of the recruitment advertisement, it can help determine the most effective selection methods and, if applied correctly, can ensure that selection decisions are based on sound, justifiable criteria. However, the compilation of a person specification needs to be handled with care. Predetermined criteria can contribute to effective recruitment and selection only if full consideration has been given to the necessity and fairness of all the requirements. Preconceived or entrenched attitudes, prejudices and assumptions can lead, consciously or unconsciously, to requirements that are less jobrelated than aimed at meeting the assumed needs of customers, colleagues or the established culture of the organisation. Examples of this might include insistence on a British education, unnecessary age restrictions, or sex role stereotyping. The job-based approach to recruitment and selection can be inflexible in a number of ways. For example, the job description may fail to reflect potential changes in the key tasks or the list of duties and responsibilities may be too constraining, especially where teamworking is introduced. This concentration on a specific job and its place in a bureaucratic structure may be detrimental to the development of the skills and aptitudes needed for the long-term benefit of the organisation. In order to accommodate the need for greater flexibility and the desire to encourage working ‘beyond contract’, some organisations have replaced traditional job descriptions with more generic and concise job profiles, consisting of a list of ‘bullet points’ or accountability statements. The recognition that jobs can be subject to frequent change can also reduce the importance of the job description and increase the relative importance of getting the ‘right’ person. This approach has the potential for greater flexibility as it enables organisations to focus ‘more on the qualities of the jobholder and the person’s potential suitability for other duties as jobs change’ than on the job itself (IRS, 1999b). Findings from the Workplace Employee Relations Survey (Cully et al., 1999: 60–61) show that skills, experience and motivation were the most common selection criteria used by employers. Recent research into call centre recruitment and selection found that a positive attitude was more important in candidates than their ability to use a keyboard (Callaghan and Thompson, 2002). In many instances, a combination of the job-oriented and person-oriented approaches may be adopted, in order to recruit people who can not only do the job but also contribute to the wider business goals of the organisation. One way to achieve this is via the use of competencies. The term has many definitions but most refer to ‘the work-related personal attributes, knowledge, experience, skills and values that a person draws on to perform their work well’ (Roberts, 1997: 6). Competency-based recruitment and selection involves the identification of a set of competencies that are seen as important across the organisation, such as planning and organising, managing relationships, gathering and analysing information, and decision-making. Each competency can then be divided into a number of different levels, and these can be matched to the requirements of a particular job. Feltham (in Boam and Sparrow 1992) argues that a competency-based approach can contribute to the effectiveness of recruitment and selection in three main ways:

● ●

the process of competency analysis helps an organisation to identify what it needs from its human resources and to specify the part that selection and recruitment can play; the implementation of competency-based recruitment and selection systems results in a number of direct practical benefits; and where systems are linked to competencies, aspects of fairness, effectiveness and validity become amenable to evaluation. These competence frameworks can be used for more than just recruitment and selection.

Developments in the systematic approach to recruitment and selection


The application of the same competencey framework to all areas of HRM can ensure consistency and aid vertical and horizontal integration (for further details on competencies and competency frameworks, see Whiddett and Hollyforde, 1999). Occasionally competencies can be identified at national levels. For example, in answer to calls for increased effectiveness of non-executive directors in the wake of corporate scandals in the USA and UK, Derek Higgs, appointed to lead an independent review of the role and effectiveness of non-executive directors in the UK, identified a set of competencies to be assessed via assessment centres, psychological testing and competency-based interviews, to ensure that appropriate non-executive directors make up at least half of organisations’ boards (Dulewicz, 2003). What a competency-based approach may discover is that recruitment is not always the answer. There is usually a variety of strategies for achieving a particular competency mix and no ‘right’ solutions. For example, if specialist skills are scarce, an organisation may choose to replace the skills with new technology, train existing staff, or hire specialist consultants when needed in preference to employment of permanent staff (Feltham, 1992). Where recruitment and selection is deemed appropriate, a competency-based approach achieves a visible set of agreed standards which can form the basis of systematic, fair and consistent decision-making.

● Agree terms and conditions
Decisions on terms and conditions are made at various points in the process. Some of these are often not negotiated (e.g. hours, reward) until the final selection stages. There is a case for deciding the salary band (if not the specific amount) and other elements of the reward package before attracting candidates. This can take time (for example, if the position has to be processed through a job evaluation exercise), but potential candidates may fail to apply without some indication of the reward offered, as this often gives an indication of the level and status of the position. The alternative is to wait and see who applies and then negotiate terms and conditions with the favoured candidate. This is a less restrictive approach, and may provide a better chance of employing high-calibre people who match the long-term aims of the organisation. However, it can be problematic on a number of grounds: the organisation may project a poor image if it appears to be unsure of what is on offer or may damage its reputation by being perceived to pay only what it can get away with. Furthermore, this reactive approach could lead to breaches of equal pay legislation. In practice, the approach adopted is likely to be determined by the organisation’s reward strategy, including the relative importance of internal pay equity and external competitiveness and the emphasis on individual and collective pay-setting.

Stop and think

What experiences and skills do you possess? What are your expectations of salary? To what extent are you confident that there is harmony between your two answers when considered against factors currently influencing your labour market?

■ How do we attract them?
the actual channels or vehicles used to attract candidates . . . seem to influence whether the right kinds of applicants are encouraged to apply, and to persist in their application.
(Iles and Salaman, 1995: 211)


Chapter 6 · Recruitment and selection

● Recruitment methods
Organisations can choose from a wide variety of methods, including the use of:
● ● ● ● ●

informal personal contacts, such as existing employees, informal grapevine (word of mouth) and speculative applications; formal personal contacts, such as careers fairs, open days and leaflet drops; notice boards, accessible by current staff or the general public; advertising, including local and national press, specialist publications, radio and TV, and the Internet; external assistance, including job centres, careers service, employment agencies and ‘head-hunters’.

The relative popularity of these different methods are shown in Table 6.6.

Table 6.6 Percentage of organisations using particular recruitment methods
Local newspaper advertisements Electronic methods (any) Specialist journals/trade press Commercial employment agencies Job centres Word of mouth Speculative applications
Number of employers in survey = 747.
Source: CIPD (2002a : 12)

87 75 66 64 62 62 55

National newspaper advertisements Corporate website Links with education Headhunters Promotional events/fairs Job board Radio/TV

53 52 44 30 30 29 10

Decisions about the most appropriate method (or methods, as many organisations will use more than one) are likely to be influenced by the level of the vacancy and its importance within the organisation. The CIPD survey (2002a) found that recruitment for managerial and professional posts was most likely to be via advertisements in specialist journals and the national press, whereas the local press was more popular for clerical and manual vacancies. Other factors to be taken into account when choosing the most appropriate method include the resources available within the organisation (in terms of personnel and finance), the perceived target groups, and the organisation’s stance on internal versus external recruitment. Human resource management literature emphasises the need to have well-developed internal labour market arrangements for promotion, training and career development, which would suggest that many openings can and should be filled internally (Beaumont, 1993). However, a number of organisations, particularly those in the public sector, have policies that require the majority of posts to be advertised externally.

● Design of advertisements
The most popular formal recruitment method continues to be press advertising. Good communication from the employer to potential applicants requires thought and skill, and many organisations use the services of a recruitment agency for the design of the advertisement and advice on the most effective media. The aim of the advertisement is to attract only suitable applicants, and therefore it should discourage those who do not possess the necessary attributes while, at the same time, retaining and encouraging the interest of those with potential to be suitable. Taylor (2002) suggests a number of key decisions faced by recruiters in the style and wording of advertisements:

Wide trawls or wide nets – i.e. whether the advert aims to attract a wide range of candidates or only those with very specific qualities. For example, an advertisement for the Royal Marines currently showing in UK cinemas claims that 99 per cent of candidates won’t make it.

Developments in the systematic approach to recruitment and selection
● ●


Realistic or positive – in terms of the language used and information provided on the job and the organisation. Corporate image or specific job – the emphasis most likely to appeal to the target audience can depend on a number of factors, e.g. whether the organisation is a household name or has a good reputation in the area, or whether the type of job is well known or highly sought-after. Precise vs. vague information – variations are especially apparent in relation to salary information: some organisations (particularly in the public sector) provide very precise information, e.g. ‘salary up to £23 889 dependent on qualifications and experience (pay award pending)’, whereas others include little more than ‘competitive salary’.

● Electronic recruitment
Over recent years there has been a growth in the use of electronic methods by both recruiters and job hunters. Overall, 75 per cent of employers now use some form of electronic recruitment, especially e-mail response to enquiries and the acceptance of CVs sent by e-mail. Around half of employers post vacancies on their corporate website and about a third use the Internet to provide background information for candidates. A fifth of organisations accept completed application forms by e-mail (CIPD, 2002c). The impact of the growth of electronic recruitment methods is very variable depending on whether they are used to supplement or replace more traditional approaches. Corporate and external websites can be used to advertise vacancies in addition to press adverts, while the handling of enquiries and applications via e-mail can lead to a duplication of activity (electronic as well as paper-based systems) rather than a replacement of one system with another. Alternatively, the impact may be more substantial and can alter the process up to and including the shortlisting stage, as illustrated in Table 6.7.

Table 6.7 Traditional versus Internet-based recruitment
Step 1 2 Traditional A job vacancy is advertised in the press A job seeker writes or telephones for more details and/or an application form A job seeker returns the application form and/or CV by post Personnel review the written application forms or CVs Internet A job vacancy is advertised on the Internet All the company and job details are on the website together with an online application form A job seeker returns the completed application form electronically Specialised computer software reviews the application forms for an initial match with the organisation’s requirements

3 4

Source: CIPD (2002c)

Neither approach is exclusive and activities can be combined at almost any stage. For example, a press advertisement may direct readers to a website providing further information or a corporate website may require applicants to request an application form via e-mail or telephone that will then be processed manually (CIPD, 2002c).

Stop and think

What are the key advantages and disadvantages of using the Internet for recruitment?


Chapter 6 · Recruitment and selection

The key advantages of Internet-based recruitment (CIPD, 2002c) include:
● ● ● ● ●

a shorter recruitment cycle time; it can reduce costs if used instead of more expensive methods; it can reach a wider range of applicants; organisations can display a more up-to-date image; it provides global coverage 24/7.

The key disadvantages (CIPD, 2002c) are:
● ● ● ●

It is most effective when used as part of an integrated recruitment process and many organisations currently lack the resources and expertise to achieve this. It is not yet the first choice for most job seekers. Not all potential applicants have access to the Internet, so using it alongside press advertising might increase costs. It can lead to more unsuitable applications being received which have to be screened out, thus increasing costs.

● Recruitment documentation
The response to applicants should indicate the overall image that the organisation wishes to project. Some organisations prepare a package of documents, which may include the job description, the person specification, information about the organisation, the equal opportunities policy, the rewards package available, and possible future prospects. Some give candidates the opportunity to discuss the position with an organisational representative on an informal basis. This allows the candidate to withdraw from the process with the minimum activity and cost to the organisation. Much relevant information can now be supplied via the Internet: for example, BT uses a question and answer approach to supply information on a wide rage of issues, including salary and benefits, development opportunities and career prospects (IRS, 2002c). The design of application forms can vary considerably, but the traditional approach tends to concentrate on finding out about qualifications and work history, and usually includes a section in which candidates are encouraged to ‘sell’ their potential contribution to the organisation. A more recent development is the adoption of a competency-based focus, requiring candidates to answer a series of questions in which they describe how they have dealt with specific incidents such as solving a difficult problem, or demonstrating leadership skills. Some organisations, particularly in the retail sector, include a short questionnaire in which applicants are asked to indicate their preferred way of working. A variant on the traditional application form, ‘biodata’ (short for biographical data), may also be used. Forms usually consist of a series of multiple-choice questions that are partly factual (e.g. number of brothers and sisters, position in the family) and partly about attitudes, values and preferences (Sadler and Milmer, 1993). The results are then compared against an ‘ideal’ profile, which has been compiled by identifying the competencies that differentiate between effective and non-effective job performance in existing employees. Biodata questionnaires are costly to develop and need to be designed separately for each job (Taylor, 2002). There are also problems with potential discrimination and intrusion into privacy, depending on the information that is sought. For these reasons, biodata is used by only a small number of employers.

Stop and think

How much time does it take an individual to obtain details about a post, consider the details received and complete an application which attempts to match the requirements of the post against that individual’s experiences and qualifications? Why is it important for an organisation to be aware of the answers to the above question?

Developments in the systematic approach to recruitment and selection


■ How do we identify them?
The stages described above constitute recruitment, and are primarily concerned with generating a sufficient pool of applicants. The focus now shifts to selection, and the next stages concentrate on assessing the suitability of candidates.

● Shortlisting
It is extremely unlikely that all job applicants will meet the necessary criteria, and so the initial step in selection is categorising candidates as probable, possible or unsuitable. This should be done by comparing the information provided on the application form or CV with the predetermined selection criteria. The criteria may either be explicit (detailed on the person specification) or implicit (only in the mind of the person doing the shortlisting). However, this latter approach is potentially discriminatory, and would provide no defence if an organisation was challenged on the grounds of unlawful discrimination (see discussion on legislative requirements earlier in this chapter). Potentially suitable candidates will continue to the next stage of the selection process. CIPD guidelines state that unsuccessful candidates should be informed as soon as possible. In practice, written notification of rejection is increasingly less common, and many application forms warn candidates that if they have not had a response by a set date they can assume they have been unsuccessful. The increased emphasis on personal characteristics rather than job demands may result in some changes to the way shortlisting is undertaken. For example, the use of biodata can provide a clearer focus than more traditional methods, as ‘selectors can concentrate solely on those areas of the form found in the biodata validation exercise to be particularly relevant to the prediction of effective performance in the job concerned’ (IRS, 1994). Other developments chiefly reflect a desire to reduce the time and effort involved in shortlisting from large numbers of applicants. One option is to encourage unsuitable candidates to self-select themselves out of the process. Advances in technology allow for the provision of self-selection questionnaires and feedback on the answers on corporate websites. A variant on this is to use ‘killer’ questions; these are asked at certain stages of an online application process and the wrong answer will terminate the application at that point (IRS, 2003). Another option is to use a software package that compares CVs with the selection criteria and separates the applications that match the criteria from those that do not. This has the advantage of removing some of the subjectivity inherent in human shortlisting, but does rely on the selection criteria being correctly identified in the first instance. It can also reject good candidates who have not used the right keywords so needs to be handled with caution. A third option is to reduce large numbers of applicants via random selection. Although there is concern that this may operate against equal opportunities, it is also claimed that ‘randomised selection may produce a better shortlist than one based on human intervention where the wrong selection criteria are used consistently or where the correct selection criteria are applied inconsistently’ (IRS, 1994: 6).

● Selection techniques
Various selection techniques are available, and a selection procedure will frequently involve the use of more than one. The most popular techniques are outlined here, and their validity and effectiveness are discussed later in the chapter.

Interviewing is universally popular as a selection tool. Torrington et al. (2002: 242) describe an interview as ‘a controlled conversation with a purpose’, but this broad definition encompasses a wide diversity of practice. Differences can include both the


Chapter 6 · Recruitment and selection

number of interviewers and the number of interview stages. Over the years interviews have received a relatively bad press as being overly subjective, prone to interviewer bias, and therefore unreliable predictors of future performance. Such criticisms are levelled particularly at unstructured interviews, and in response to this, developments have focused on more formally structuring the interview or supplementing the interview with less subjective selection tools such as psychometric tests and work sampling. There are different types of structured interview, but they have a number of common features (Anderson and Shackleton, 1993: 72):
● ● ● ●

The interaction is standardised as much as possible. All candidates are asked the same series of questions. Replies are rated by the interviewer on preformatted rating scales. Dimensions for rating are derived from critical aspects of on-the-job behaviour.

The two most popular structured interview techniques are behavioural and situational interviews. Both use critical incident job analysis to determine aspects of job behaviour that distinguish between effective and ineffective performance (Anderson and Shackleton, 1993). The difference between them is that in behavioural interviews the questions focus on past behaviour (for example, ‘Can you give an example of when you have had to deal with a difficult person? What did you do?’), whereas situational interviews use hypothetical questions (‘What would you do if you had to deal with a team member who was uncooperative?’). Decisions about the number of interviewers, the type of interview and the number of interview stages are likely to take account of the seniority and nature of the post and the organisation’s attitude towards equal opportunities.


Imagine you are responsible for selecting operators to work in a call centre. Prepare a set of behavioural questions suitable for the interview. You are looking for evidence of strong social skills, e.g. good verbal communication, positive attitude, good sense of humour, energy and enthusiasm; and good technical skills, e.g. numeracy and keyboard skills. Test out these questions on friends and colleagues to assess their effectiveness. What do you see as the key strengths and weaknesses of this approach?

Telephone interviewing
Some organisations are now using telephone interviews as part of their selection procedure, particularly for jobs that involve a lot of telephone work, such as call centre operators. Telephone interviews are usually used as part of the shortlisting process rather than to replace the face-to-face selection interview. For example, a short, highly structured telephone interview can be used to identify and discount unsuitable applicants or a longer more in-depth approach can be used to shortlist candidates for a face-to-face interview, particularly for more senior posts (CIPD, 2001a). Advances in technology continue to facilitate other forms of ‘remote’ interviewing, for example by video link or via the Internet, but take-up is still relatively low.

Stop and think

What are the main benefits and drawbacks of telephone interviews?

CIPD (2001a) and IRS (2002d) report a number of benefits and drawbacks to telephone interviewing, including:
● ●

They can be quicker to arrange and conduct than more conventional methods. They can be cost-effective as an initial screen.

Developments in the systematic approach to recruitment and selection
● ● ● ● ● ●


They can maintain a degree of confidentiality about the post as these details will only be provided once initial screening is complete (particularly useful for senior posts). They provide an ideal way to assess a candidate’s telephone manner. There are fewer interpersonal distractions. They provide less opportunity to discriminate on grounds of race, disability, age or other non-job-related factors. The lack of non-verbal communication (which accounts for 60 per cent of total interpersonal communication). Interviewers may be biased against people with a particular accent or manner.

‘Testing is essentially an attempt to achieve objectivity, or, to put it more accurately, to reduce subjectivity in selection decision-making’ (Lewis, 1985: 157). The types of test used for selection are ability and aptitude tests, intelligence tests and personality questionnaires. Ability tests (such as typing tests) are concerned with skills and abilities already acquired by an individual, whereas aptitude tests (such as verbal reasoning tests or numerical aptitude) focus on an individual’s potential to undertake specific tasks. Intelligence tests can give an indication of overall mental capacity, and have been used for selection purposes for some considerable time. Personality questionnaires allow quantification of characteristics that are important to job performance and difficult to measure by other methods (Lewis, 1985). The debate about the value of personality tests is ongoing, and centres around lack of agreement on four key issues (Taylor, 2002):
● ● ● ●

the extent to which personality is measurable; the extent to which personality remains stable over time and across different situations; the extent to which certain personality characteristics can be identified as being necessary or desirable for a particular job; the extent to which completion of a questionnaire can provide sufficient information about an individual’s personality to make meaningful inferences about their suitability for a job.

The CIPD survey (2002a: 15) reports widespread use of psychometric testing: 54 per cent of employers use tests of specific skills and 37 per cent use tests of literacy and/or numeracy. More than a third use personality questionnaires. Tests have the benefit of providing objective measurement of individual characteristics, but they must be chosen with care. Armstrong (2001) lists four characteristics of a good test:
● ●

It is a sensitive measuring instrument which discriminates well between subjects. It has been standardised on a representative and sizeable sample of the population for which it is intended so that any individual’s score can be interpreted in relation to others. It is reliable in the sense that it always measures the same thing. A test aimed at measuring a particular characteristic should measure the same characteristic when applied to different people at the same time, or to the same person at different times. It is valid in the sense that it measures the characteristic which the test is intended to measure. Thus, an intelligence test should measure intelligence and not simply verbal facility. (Armstrong, 2001: 473)

One recent development has been the growth of interest in online testing. Currently, fewer than 2 per cent of organisations administer selection tests online (CIPD, 2002a) but an IRS survey (IRS, 2002e) reports that 8 per cent are planning to introduce online testing in the future. Online testing has the potential to reduce delivery costs, thus making testing more affordable for lower-paid jobs. However, there are also some potential disadvantages, including lack of control of the environment in which the test takes place, problems verifying candidates’ identity and the need for candidates (under


Chapter 6 · Recruitment and selection

data protection legislation) to have access to any personal information stored about them (IRS, 2002e).

Assessment centres
An assessment centre is not a place but rather a process that ‘consists of a small group of participants who undertake a series of tests and exercises under observation, with a view to the assessment of their skills and competencies, their suitability for particular roles and their potential for development’ (Fowler, 1992). There are a number of defining characteristics of an assessment centre:
● ● ● ●

A variety of individual and group assessment techniques are used, at least one of which is a work simulation. Multiple assessors are used (frequently the ratio is one assessor per two candidates). These assessors should have received training prior to participating in the centre. Selection decisions are based on pooled information from assessors and techniques. Job analysis is used to identify the behaviours and characteristics to be measured by the assessment centre.

Assessment centres are used by just over a quarter of organisations (CIPD, 2002a). The assessment centre process allows organisations to observe candidate behaviour in a work-related setting; and the combination of techniques used helps to improve the consistency and objectivity of the selection process. The use of such a sophisticated technique, if handled well, can also help the organisation to display a positive image to potential candidates. The drawbacks primarily relate to the costs and resources required. For this reason, assessment centres are most likely to be used in public sector organisations and by larger private sector employers. A number of recent trends have been identified in the design and delivery of assessment centres (IRS, 2002f), including: more emphasis on the integration of exercises (i.e. using the same business context and same characters in different exercises); a clearer link between exercises and work content; more candidate friendly (i.e. better briefing on how people will be assessed, more comprehensive feedback); and a focus on core values to identify candidates who will contribute most in rapidly changing circumstances.

Job simulation/work sampling
A key component of an assessment centre is the job simulation exercise, which is designed to be an accurate representation of performance in the job itself. Candidates are placed in situations that they are likely to face if selected: examples include in-tray exercises and role-play interviews. An extension of job simulation is work sampling: that is, giving the candidate the opportunity to perform in the role for a specified length of time. An example of this is given in the Pret à Manger box on page 220.

These are used to obtain additional information about candidates from third parties such as previous employers, academic tutors, colleagues or acquaintances. The accuracy of the information is variable; Armstrong (2001) suggests that factual information (e.g. nature of previous job, time in employment, reason for leaving, salary, academic achievement) is essential, but opinions about character and suitability are less reliable. He goes on to say that ‘personal referees are, of course, entirely useless. All they prove is that the applicant has at least one or two friends’ (p. 408). References can be used at different stages in the selection process: some organisations use them only to confirm details of the chosen candidate after the position has been offered, whereas others will request references for all shortlisted candidates prior to

Developments in the systematic approach to recruitment and selection


interview. The format may also vary, with some organisations requesting verbal references by telephone and others requiring written references. In either case, organisations may require referees to answer specific structured questions or provide some general comments on the candidate’s performance and suitability. The most popular types of information requested by employers include absence record, opinion of candidate’s personality and suitability for the vacancy, work history, punctuality and disciplinary record (IRS, 2002a: 752). Many employers consider references to be ‘only marginally effective’ (Industrial Society, 1994), yet there is little doubt that they remain a popular component of the selection process, with approximately three-quarters of respondents to the CIPD (2002a) survey using them.

Other methods
Two of the more unconventional and controversial selection tools include graphology and astrology. Graphology is based on the idea that handwriting analysis can reveal personal traits and characteristics. Although it is not widely used in the UK, its effectiveness as a selection tool continues to be the subject of considerable debate. Having reviewed the available data on graphology, the CIPD concludes that ‘the evidence in favour is inconclusive, anecdotal and therefore prone to bias and misinterpretation’ (CIPD, 2001b). If anything, astrology is even more controversial, and few organisations appear to use it in selection decisions.

● Factors influencing choice of selection techniques
What determines the choice of different techniques? One could reasonably assume that a key factor in determining the type of method would be its ability to predict who is suitable and unsuitable for the position. In other words, whatever technique is used, people who do well should be capable of doing the job and people who do badly should not.

‘None of the techniques, irrespective of how well they are designed and administered, is capable of producing perfect selection decisions that predict with certainty who is or who is not bound to be a good performer in a particular role’ (Marchington and Wilkinson, 1996: 119). Figure 6.3 shows the accuracy of selection methods measured on the correlation coefficient between predicted and actual job performance, with zero for chance prediction and 1.0 for perfect prediction. The increased use of more accurate methods such as assessment centres and selection testing can help to improve the effectiveness of the selection process. However, findings from the CIPD survey (2002a) show that assessment centres are considered to be the most influential selection method in fewer than 5 per cent of organisations. In contrast, 33 per cent of organisations consider interviews to be the most important selection method. Nevertheless, doubts about accuracy appear to have encouraged employers to adopt more structured interview formats or supplement the interview with other selection methods such as tests or work simulation. Statistics on the accuracy of different types of selection techniques mask wide variations within each technique. Two key criteria to be considered are reliability and validity. Reliability generally relates to the ability of a selection technique to produce consistent results over time or among different people, whereas validity relates to the extent to which the technique is able to measure what it is intended to measure. These have already been discussed in relation to selection testing, but can be applied to other techniques too. For example, the reliability of interviews can vary if interviewers have differing levels of interviewing skills or different perceptions of the selection criteria. Reliability can also vary when just one person is involved in interviewing, as the conduct


Chapter 6 · Recruitment and selection

Figure 6.3

The predictive accuracy of selection methods
1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 References (0.13) 0.1 0 Astrology (0.0) Graphology (0.0) Perfect prediction (1.0)

Assessment centres – promotion (0.68) Structured interviews (0.62) Work samples (0.55) Ability tests (0.54) Assessment centres – performance (0.41) Biodata (0.40) Personality tests (0.38) Unstructured interviews (0.31)

Source: Adapted from Anderson and Shackleton (1993)

of the interview can be affected by the timing of the interview and by how many interviews have been conducted already. In assessment centres, the effectiveness of the exercises in predicting job performance is dependent on the extent to which they represent the performance content and competency requirements of the job they are designed to sample. In practice, the standard of assessment centres can vary from organisation to organisation:
Because properly designed and applied ACs work well, it does not mean that anything set up and run with the same name is equally good. A lot of so-called ACs in the UK use badly thought-out exercises and inadequately trained assessors; they probably achieve little other than to alienate candidates, who are usually quick to spot their shortcomings.
(Fletcher, 1993: 46)

The same can be said of tests that are relevant only if the behaviours and attitudes they measure are those necessary for effective job performance. Additional problems are also associated with the use of tests. Both the British Psychological Society (BPS) and the CIPD have issued codes of practice on the use of tests, which stress that everyone responsible for the application of tests, which includes evaluation, interpretation and feedback, should be trained to at least the level of competence recommended by the BPS (CIPD, 2001c). The guidelines also make it clear that ‘the results of a single test should

Developments in the systematic approach to recruitment and selection


not be used as the sole basis for decision-making’ (IPD, 1997). However, a survey conducted by Newell and Shackleton (1993) found that, although companies used trained personnel to administer tests, the majority did not always give feedback of results to candidates, and some were using the tests to make definitive judgements about people.

Level of vacancy
IRS (1997: 16) argues that the type of job is ‘the most significant influence on the choice of selection methods for any one vacancy’. Assessment centres, in particular, are more likely to be used for managerial and graduate posts. This may indicate an organisation’s willingness to invest more heavily in future managers than in other parts of the workforce, but may also be due to candidate expectations and the organisation’s need to attract the highest-quality applicants. A growing number of organisations have started to use assessment centre techniques for non-managerial appointments but the process tends to be shorter and therefore cheaper. For example, easyJet holds half-day assessment centres for cabin crew (IDS, 2002).

Cost of selection techniques
There is no doubt that recruitment and selection can be costly activities, and the costs incurred by some selection techniques can make them prohibitive for all but a few ‘key’ vacancies in an organisation. For example, assessment centres require considerable investment of resources and are particularly demanding in terms of the time commitment required from assessors (IDS, 2002). However, in deciding on the most cost-effective methods, the ‘up-front’ costs need to be balanced against the costs of wrong decisions, which may include costs associated with labour turnover owing to lack of ability. Jaffee and Cohen (cited in Appelbaum et al., 1989: 60) suggest that consideration should include some or all of the following:
● ● ● ● ● ●

the start-up time required by a replacement for the jobholder; the downtime associated with the jobholder changing jobs internally or externally; training and/or retraining for the replacement and the jobholder; relocation expenses; the shortfall in productivity between an effective and ineffective jobholder; the psychological impact on the ‘failed’ jobholder and the morale of others in the department.

Custom and practice
A possible explanation for the continued use of interviews is the simple fact that people are familiar with them. Although, at an academic level, the general consensus is that interviews are unreliable, invalid and provide ample opportunity for personal prejudice (Herriot, 1989), at a practical level many interviewers feel that they are good judges of people and can make effective selection decisions, and most of us would probably feel unhappy in starting a job without undergoing some form of face-to-face meeting with our prospective employer.


The CIPD (2003) suggests that key aims of assessment centres are to select, recruit and impress candidates. Evaluate the impact of the following ‘real’ experiences during the recruitment and selection process for impression:
● Professionally handled recruitment and selection process for specialist position.

Feedback after unsuccessful interview was in relation to lack of experience which hadn’t been explicit on the person specification.
● Applicant received notification that application form was not being considered for short

listing … it had taken nine days from posting to reach the administrator concerned.


Chapter 6 · Recruitment and selection

● Applicant participates in full day of assessment testing for one of ten national irregular

and part-time posts.
● Applicant travels 100+ miles for half-hour-long interview. No expenses or refreshments

are offered.
● Applicant unable to establish whether e-mail application to national organisation has

actually been received. Closing date passes and no communication several months later.
● Applicant informed of safe receipt of application and subsequently informed in writing

that ‘had not been successful’.
● Applicant offered two, 2-day familiarisation visits, a 2-day pre-selection visit, a 3-day

assessment centre and a 2-day pre-employment induction (expenses are paid throughout).
● Applicant (making initial enquiry as to whether any positions for which he might be con-

sidered) offered specialist work abroad, followed up by e-mail confirmation and a 2-day induction, which included completing application form.
● Applicant has initial discussion followed by formal application, interview, offer and

acceptance. Subsequent role fails to meet applicant’s expectations because of economic slowdown.

■ Making the decision
The aim of the overall recruitment and selection process is to provide enough information to enable recruiters to differentiate between those who can do the job and those who can’t. The prescriptive approach stresses that the final decision should involve measuring each candidate against the selection criteria defined in the person specification and not against each other (Torrington et al., 2002). The combination of a number of different selection methods can enhance the quantity and quality of information about each candidate, although Anderson and Shackleton (1993) warn of the dangers of information overload in selection. Even the decision-making process might be affected by the contemporary situation and employers’ increased desire for flexibility. Sparrow and Hiltrop (1994) suggest that the combination of technological change, low economic growth, low voluntary turnover rates and an increasingly legislated environment may lead to new employees having to perform a series of jobs over time with changes not necessarily linked to promotion, which may lead to a different approach to selection:
Traditional ‘go/no go’ decisions, based on information and data relating to a specific job, will be replaced by decisions to manage a gradual entry of people into the organisation (via probationary periods, fixed term contracts, part time work and so forth). (p. 316)

■ How do we know if we’ve got it right?
The final stage of the recruitment and selection process concerns measurement of its success, both qualitatively and quantitatively. ACAS guidelines suggest that any recruitment and selection system should be based on three fundamental principles: effectiveness, efficiency and fairness (ACAS, 1983). Effectiveness is concerned with distinguishing accurately between suitable and unsuitable candidates: Mayo (1995) suggests a number

Developments in the systematic approach to recruitment and selection


of ways in which this can be measured for recruits, including retention rates, promotion rates, and percentage of recruits perceived as having high potential after three to five years. However, these factors can also be influenced by working conditions and the emphasis on employee development within the organisation. Efficiency is concerned more with the costs of the exercise, and measures here may include average cost per recruit, average time lapsed between various stages, percentage of offers made, and offer-acceptance rate (Mayo, 1995). Fairness is concerned with dealing with all applicants fairly and honestly, but has often been taken to refer to equal opportunity monitoring, and has been limited to record keeping on the gender, ethnic origin and disability of successful and unsuccessful candidates. In theory, the integration of recruitment and selection activity with other HR initiatives and business objectives should lead to more extensive evaluation. In practice there is little to indicate that this is happening:
The ripple effects of recruitment practices on other HRM areas, such as . . . the effects of salary incentives offered to one group of recruits having a knock-on effect on salary claims of existing staff, or the effects of going outside to recruit staff on the aspirations and commitment of existing staff, are . . . often not considered.
(Iles and Salaman, 1995: 214)

BOX 6.1

Monitoring the effectiveness of recruitment
Between 2000 and 2002 the Government spent £50 million on recruitment advertising for essential services such as the police, the NHS and teachers. The police recruitment campaign, which featured celebrities such as Lennox Lewis, Bob Geldorf and Patsy Palmer saying that they could not cope with everyday situations faced by the police, cost £12 million. A BBC survey found that only 13 forces could verify the number of officers attracted by the campaign – a paltry 120. Extrapolating this figure across all of the UK’s 43 regional forces would mean that the campaign led to the recruitment of only 400 officers, i.e. £30 000 per recruit. The advertising agency, M & C Saatchi, argued against these findings, stating that the number of recruits between September 2000 and 2001 was 70% up on the previous year, thus making it one of the most successful police recruitment campaigns ever. However, the Home Office admits that it is unable to find out whether or not recruits were inspired by the adverts or were joining for other reasons. Recruitment is conducted regionally and it is up to regional forces to check why recruits have joined. There are some suggestions that regional forces are reluctant to acknowledge the success of the campaign, since this would detract from their role in recruitment and could jeopardise the jobs of local recruitment officers
Source: Benady, 2002: 24–27

1 What methods could have been used to monitor the effectiveness of the recruitment campaign? 2 What could be done to integrate national and regional recruitment?

■ Who is involved in the process?
Recruitment and selection have long been seen as two of the key activities of the HR function. However, increasingly organisations are choosing to involve other parties such as line managers or specialist agencies, or to outsource the activity altogether.


Chapter 6 · Recruitment and selection

● Line managers
A key feature of HRM is the extent to which activities once seen as the remit of HR specialists are devolved to others, particularly line managers and supervisors. Findings from WERS (Cully et al., 1999) show that around 80 per cent of managers considered they had responsibility for employment relations matters, with 94 per cent of these including ‘recruitment and selection of employees’. In workplaces (with supervisors and over 25 employees), 30 per cent of private sector and 17 per cent of public sector supervisors had the final say in decisions about taking on the people who worked for them, though relevant training was not given in the majority of cases. It appears therefore that devolved responsibility for recruitment and selection to managers and supervisors is a reality in many UK organisations.

● Peers
Employees can be involved at various stages in the recruitment and selection process. The most popular level of involvement is to encourage existing employees to introduce candidates to the organisation; almost half of respondents to the CIPD (2002a) survey have either introduced or improved bounty payments to staff for introducing successful candidates. A less common approach is to involve peers or team members in the selection of candidates, as illustrated in the example below.

BOX 6.2

Selection at Pret à Manger
Pret à Manger, the sandwich chain, employs 2400 staff in its 118 shops. In 2001 the company received 55 000 applications for fewer than 1500 vacancies. The first stage of selection consists of a competency-based interview. To be successful at this stage candidates have to demonstrate an outgoing personality, a positive attitude to life, some knowledge of the company and enthusiasm to work there. Those who successfully complete this interview are then invited to undertake a day’s on-the-job experience at the shop with the vacancy. Candidates are required to start at 6.30 a.m., the same time as their future colleagues. An existing team member will be assigned to act as a guide and mentor for the day but candidates will work with as many other team members and do as many different jobs as possible. Team members will assess each candidate on a number of competencies, including enthusiasm and ability to follow instructions, and then vote on whether or not they want to offer them a job. Candidates will also be interviewed by the shop manager who doesn’t get a vote but can lobby for or against someone. Towards the end of the day, the manager gathers team members’ votes and lets the candidate know the outcome. Feedback is provided for both successful and unsuccessful candidates.
Source: Carrington, 2002

1 What are the benefits and drawbacks of including peer assessment as part of the selection

2 What factors need to be considered before introducing peer assessment?

● Specialist employment agencies
The specialist skills of the external recruitment advertiser have been used for many years by HR departments looking outside the organisation for design skills and a contemporary knowledge of successful media. Employment agencies have also traditionally been

Developments in the systematic approach to recruitment and selection


used for the temporary recruitment of staff cover for periods when permanent staff have been absent on holiday or through unexpected illness. Recently the reasons for using third parties in recruitment have intensified. The increasing use of non-permanent contracts increases the need for recruitment to temporary or fixed-term contracts. Cully et al. (1999) indicate that temporary workers are used in 28 per cent of workplaces and that fixed-term contracts are now found in 44 per cent of workplaces sampled. ‘Executive search and selection’ are two different methods used for the recruitment of executives. Search (or head-hunting) refers to the recruitment of executives through direct or personal contact by a specialist consultancy acting as an intermediary between the employer and prospective candidate(s). Selection is the identification and shortlisting of a small number of potential candidates, by an intermediary, via recruitment advertising. The individuals targeted by executive search consultants work at senior levels, and have responsibility at regional, national or international level. Income generated from executive search in 2000 was estimated to exceed $10 billion, of which a third is generated in Europe. The top 15 multinational consultancies are judged to have at least 25 per cent of the market between them (Garrison-Jenn, 1998). Key reasons for using executive search and selection consultants include the need for confidentiality, a lack of in-house recruitment knowledge and skills at this level, and simply a lack of senior management time to devote to the activity.

● Outsourcing
‘Outsourcing’ is the term used to describe the transfer of a distinct business function from inside the business to an external third party. Outsourcing of parts of the HR function has become more common. Lonsdale and Cox (1998) argue that outsourcing decisions can be classified under the following three headings:
● ● ●

outsourcing for short-term cost and headcount reductions; core-competence-based outsourcing, where peripheral activities are passed to third parties and core activities are retained in-house; iterative and entrepreneurial outsourcing, where periodic reviews of critical market activities are undertaken, with subsequent decisions to retain or outsource.

A recent CIPD report shows significant growth in this area, with 15 per cent of organisations outsourcing HR activities for the first time and a further 14 per cent improving their outsourcing activities (CIPD, 2002a). Examples include Cable and Wireless, who transferred 93 people to the outsorucing company, e-peopleserve, in 2001 (IRS, 2002h), BPAmoco (Pickard, 2000) and local authorities in Lincolnshire and Westminster (McLuhan, 2000). If one considers that much initial recruitment is routinely administrative, outsourcing this activity becomes attractive because it can release time for the HR function to spend on more ‘strategic’ matters. In addition, the anticipated switch of operations to the developing world, discussed earlier in this chapter, has potential implications for HR as well as for general operations. HR ‘offshoring’ activity is estimated to grow at an annual compound rate of 77 per cent over the next five years, with recruitment seen as one of the most promising areas, along with pensions and payroll (Crabb, 2003).

■ Ethical issues in recruitment and selection
Up to now we have focused on recruitment and selection from an organisational perspective. We should not forget that recruitment and selection is a two-way process, and so our final topic for discussion concerns the extent to which any approach respects the rights of individuals participating in the process. Ethical issues arise concerning the


Chapter 6 · Recruitment and selection

treatment of people during recruitment and selection. To a large extent, whether certain activities are perceived as ethical or unethical reflects the prevailing attitudes within the society or societies in which an organisation operates. However, differences in attitudes also reflect the judgement and positioning chosen by major stakeholders, and can be determined by traditional values inherent within the organisation itself.

● Recruitment
Providing equality of opportunity for a diverse number of groups is considered important by certain organisations. However, opportunity to apply for positions can be restricted through the (sometimes unnecessary) insistence on previous experience, or prior development of skills and competences. ‘Glass ceilings’ exist in internal labour markets for women and minority groups. In the case of third-party recruitment, particularly executive search, opportunities to widen the net can be forestalled, with organisations frequently relying on the knowledge and networking of one consultant to deliver the chosen recruit, often to a specification that ensures that the status quo is maintained. The continued existence of such practices suggests a society in which those in power tolerate them as rational and sound, and where there is insufficient groundswell of opinion from society at large to insist on change. As Goss (1994) remarks:
If HRM is to be serious in its commitment to the development of all human resources, it may need to face the challenge of wider patterns of social inequality. This means looking not only at disadvantage, but also addressing the issue of who benefits from the status quo.
(p. 173)

In a similar vein, multinational and other organisations that have overseas supplier links have to consider their ethical position in relation to both employment conditions and more particularly targeted recruits. To some extent a similar discussion can be held concerning UK organisations where work is subcontracted to UK agencies and suppliers, on relatively poor conditions of employment, or where schoolchildren (already ‘fully employed’) are recruited in lieu of those already available in the external labour market. The business decision may be difficult and involve weighing up important economic, financial, marketing and public relations considerations. While component costs may fall dramatically through the use of overseas subsidiaries and suppliers, bad publicity and loss of sales can ensue through dealing with an organisation where, for example, child labour is found to be extensively used, employment conditions are unsafe, or recruits are paid less than a living wage. Model codes of practice have been drawn up, but for many organisations the ethical issues in ‘make or buy’ decisions will continue to be debated.

● Selection
Issues in selection revolve around areas of individual rights, the potential for abuse of power, issues of control and social engineering, use of certain assessment techniques, and the issues of equality of opportunity implied in the above. The ownership of information about an individual passes in the recruitment and selection process from the individual to the organisation. While some protection is afforded by data protection legislation, the organisation is perceived to increase its power over the individual by holding such information and by accumulating more through the use of various selection techniques, the findings of which are not always made known to the candidate.

Developments in the systematic approach to recruitment and selection


An individual’s right to privacy is further challenged by the impact of scientific developments assisting the prediction of future employment scenarios. For example, tests now exist to enable organisations to conduct pre-employment medicals that predict the future health of candidates. In the USA, where most health costs are met by the employer, discrimination against apparently healthy people who have, or may have, a genetic defect is common, and health insurance has been found to be refused to one in five of this group (Thatcher, 1996). With genetic tests becoming increasingly available, will UK employers use them to screen out anyone whom they see as potentially expensive to employ? As certain genes occur more frequently in particular ethnic groups, the issues become even more complex. Apart from questions about the technical effectiveness of various selection techniques, ethical questions remain about their use at all:
There are questions of a more ethical nature surrounding personality tests. It has been suggested that organisations have no right to seek to control access to jobs on the grounds of individual personality. (Goss, 1994: 47)

Professional guidance in the area of occupation testing exists, both in specific codes of practice (CIPD and BPS) and as part of ethical codes of practice within large organisations in particular. However, research has shown that, while selectors claim to recognise the rights of those being tested (for example, to be fairly treated, to expect counselling where needed, to confidentiality of data, to know the tests used are valid), these rights are not always upheld in practice (Baker and Cooper, 2002). In addition, questions remain to be asked as to whether:

the selection of one personality type leads to a weakened ‘inbred’ profile of employees in organisations, incapable of thinking or acting in original ways when the situation demands; an organisation has the right to enforce a unitarist perspective on employees – some selection tests, for example, are designed to filter out those who are ‘prone to unionise’ (Flood et al., 1996), others to ensure that potential employees’ values are in line with the organisation’s thinking:
At the heart of these concerns seems to be a fear about the totalitarian possibilities of work organisations and the role of personality profiling as a form of ‘social engineering’ for corporate conformity. (Goss, 1994: 47)

The use of interviews as a selection method has long been open to criticism on the grounds of subjectivity and stereotyping. Using biodata as a basis of selection has potential for misuse, discriminating against individuals and groups on factors that are beyond their control (education, social class and gender, for example). Graphology attracts criticism for similar reasons of social stereotyping and superficial judgements. In conclusion, the use of both external and internal labour markets and associated selection techniques can raise ethical issues. Poaching experienced people from the external labour market implies an approach that only ‘takes’ from society, in terms of the costs of education and previous training and development, and the higher wages needed to attract applicants can be perceived as inflationary. Alternatively, one can view the use of the internal labour market through in-house development around organisation-based objectives as somewhat menacing, tying the individual closely to the organisation from which escape is perceived as increasingly difficult and from which the measurement of individual freedom, and the quality of the conditions of employment enjoyed, become more difficult to judge.


Chapter 6 · Recruitment and selection

The focus of this chapter has been to outline contemporary approaches to recruitment and selection, and to consider the influence of external and internal factors on the process. We conclude that the systematic approach to recruitment and selection still provides a useful framework for analysing activity. The key stages – defining the vacancy, attracting applicants, assessing candidates, and making the final decision – are applicable most of the time, but the way in which each stage is tackled can vary considerably. Key developments within the process itself include the increased use of technology. The Internet has emerged as a new recruitment medium, and its use is likely to continue to grow. At the same time, the availability of software to aid the selection process is increasing. Developments in selection techniques appear to reflect growing awareness of the limitations of interviews, and so there is evidence of a growth in the use of more structured formats as well as greater use of supplementary tools such as tests and job simulations. For some organisations, however, it is business as usual and little has changed. The current state of recruitment and selection is complex because a variety of internal and external factors continue to influence the process. The underlying philosophy regarding the management of human resources and the degree of adoption of technological advances affects the way work is organised and the resultant skills needed by employees. Externally, labour market conditions, legislation and government policy in training and education dictate who is available to fill contemporary jobs. Further complexity is added by the growth of multinational enterprises. These factors are constantly changing, and the environment in which the recruitment and selection process operates is uncertain and increasingly ambiguous. What is certain, however, is that there is no universal solution to this complexity – no ‘one size that fits all’ – and this is how one can account for the coexistence of both new and traditional approaches to the recruitment and selection of employees. Organisations tend to adopt a pragmatic approach to the attraction and selection of employees based on their assessment of current and future conditions and their response to the critical questions outlined in this chapter. Thus, one will find differences in approaches not only between organisations but also within organisations, depending on the level of vacancies and organisational requirements. Although this chapter has concentrated on recruitment and selection from an organisational perspective, readers should not forget that recruitment and selection is a two-way process. Not all the developments can be endorsed wholeheartedly. On the positive side, the use of more sophisticated techniques can be seen as an attempt to improve the quality of the selection decision, through increasing objectivity and reducing the scope for bias and prejudice. On the negative side, the emphasis on personality and behavioural characteristics can be used to create and manipulate a workforce that is more amenable to management initiatives. Ethical considerations continue to be important, and care must be taken in the use of these techniques, particularly in handling the increasingly large amount of information that can be gained about prospective workers. The most appropriate recruitment and selection techniques will continue to be those that balance the requirements of organisations with those of current and prospective employees, and the approach adopted is likely to be determined, at least in part, by external circumstances. If predictions about the demise of ‘jobs for life’ and the growth of ‘portfolio careers’ are true, then the experience of recruitment and selection may become an increasing feature in all our lives, regardless of the techniques involved.



The chapter began with three key objectives. Here we revisit those objectives and outline our key responses: ● The external factors most likely to affect recruitment and selection practices are conditions in external labour markets, national approaches to education and training, technological developments, and legislation and professional codes of practice. The combination of these factors can be contradictory: on the one hand, legislative requirements can suggest a common ‘best’ practice, whereas on the other hand variations in labour supply and market conditions can indicate the need for a more diverse, pragmatic approach. ● A range of internal organisational factors can influence approaches to recruitment and selection. We have identified the key influences as the way in which the employment relationship is managed (soft or hard HRM) and the extent to which recruitment and selection are perceived as strategic activities. Additional factors include industrial, sectoral and size variation and the growth in multinational corporations. The combination of organisational diversity and pressures from the external environment can account for variations in recruitment and selection practice. ● The key stages of a systematic approach to recruitment and selection can be summarised as defining the vacancy, attracting applicants, assessing candidates, making appropriate decisions, and evaluating the effectiveness of the process. Recent developments within this framework include greater use of the Internet for recruitment, greater emphasis on competencies and the increased use of more sophisticated selection techniques such as psychometric tests and assessment centres. At the same time, more traditional methods such as press advertising, interviews and references continue to be very popular. In addition, recruitment and selection activities are increasingly devolved to other parties both inside and outside the organisation. ● There is considerable variation in the effectiveness of recruitment and selection techniques. Although the use of selection methods with higher predictive validity is increasing, the most widely used methods are not necessarily the most accurate at differentiating between people who can and cannot do the job. Effectiveness can also be considered in relation to equal opportunity and ethical issues, such as the extent to which employment of people from previously under-represented groups is encouraged, and the existence of checks that selection methods are ‘fair’ – that is, discriminate only on job ability. In measuring effectiveness, organisations need to balance the costs involved in the actual process against the costs of selecting the wrong person.


Competency-based recruitment and selection at DHL Aviation
DHL is the world’s largest international air express company, delivering packages, documents and parcels worldwide and employing over 63 500 staff in total and more than 5000 in the UK. DHL Aviation was founded in 1988 to deal with import and export consignments generated in Europe. DHL Aviation (UK) reports to the European Air and Hub operations in Brussels and its primary responsibility is to provide a fast distribution base for the delivery of products and packages by air to UK and other European airports and by road to customers in the UK. DHL Aviation (UK) employs over 800 staff at two main bases – East Midlands Airport and London Heathrow. There are also small numbers of staff at other UK airports.


Chapter 6 · Recruitment and selection

Until recently, recruitment and selection was conducted on a fairly traditional basis. Shortlisting was based on selection criteria detailed on a person specification and successful applicants were invited for interview. The interview was conducted by two interviewers using a semi-structured format. Questions were not standardised. An investigation into the selection process found that, although the format provided flexibility and the ability to probe candidates’ answers, the interviews were inconsistent, largely subjective and heavily dependent on the interviewer’s personal style. DHL Aviation (UK) therefore decided to improve consistency by adopting a competency-based interview, using a selection of predetermined, behavioural questions and a more systematic approach to scoring the answers. The organisation identified four core competencies, which all potential and existing staff are expected to display, and rolespecific competencies, which apply only to certain jobs. The competencies are as follows: Core competencies ● Passion for customer service ● Teamwork ● Achievement drive ● Initiative Role-specific competencies ● Influencing business – Impact and influence – Planning and organising – Communication
● Interpersonal communication

– – – –

Interpersonal understanding Building and leading teams Developing people Holding people accountable

● Personal

– Adaptability and change – Attention to detail – Self-belief
● Problem-solving

– – – –

Analytical thinking Decision-making Information seeking Understanding the key issues

● Technical and professional

– Job knowledge and skills Interviewers are provided with a selection of questions for each competency, dependent on the level of the job. Each set of questions also has different indicators divided into three sections: negative, expected and outstanding. The marking criteria for each answer is as follows: 1 2 3 4 5 an answer displaying mostly negative indicators; an answer displaying equal negative and positive indicators; an answer displaying mostly positive indicators; an answer displaying equal expected and outstanding indicators; an answer displaying mainly outstanding indicators.

After the interview, each interviewer must add up the candidate’s scores to give a total rating. The candidate with the highest score has displayed the most examples of the desired competencies for the position.

References and further reading


1 What are the key advantages and disadvantages to DHL Aviation (UK) of adopting this competency-based approach?

2 What other issues need attention to ensure that the competency-based approach is effective?

1 To what extent is the use of the Internet challenging more traditional methods of recruitment and selection? 2 Why have interviews remained so popular and what steps can be taken to improve their effectiveness? 3 What can an organisation do to minimise potential indirect discrimination during the recruitment and selection process?

References and further reading
Those texts marked with an asterisk are particularly recommended for further reading. ACAS (1983) Recruitment and Selection, Advisory Booklet No. 6. London: Advisory, Conciliation & Arbitration Service. Anderson, A.H. (1994) Effective Personnel Management: A Skills and Activity-Based Approach. Oxford: Blackwell Business. *Anderson, N. and Shackleton, V. (1993) Successful Selection Interviewing. Oxford: Blackwell. Appelbaum, S., Kay, F. and Shapiro, B. (1989) ‘The assessment centre is not dead! How to keep it alive and well’, Journal of Management Development, Vol. 8, No. 5, pp. 51–65. Armstrong, M. (2001) A Handbook of Human Resource Management Practice, 8th edn. London: Kogan Page. Baker, B. and Cooper, J.N. (2002) ‘Occupational testing and psychometric instruments: an ethical perspective’, in Winstanley, D. and Woodall, J. (eds) Ethical Issues in Contemporary Human Resource Management. Houndmills: Palgrave. Beaumont, P. (1993) Human Resource Management: Key Concepts and Skills. London: Sage. Benady, D. (2002) ‘Money for nothing?’, Marketing Week, 22 August, pp. 24–27. Boam, R. and Sparrow, P. (eds) (1992) Designing and Achieving Competency: A Competency-based Approach to Developing People and Organisations. Maidenhead: McGraw-Hill. Bradshaw, D (1999) Next Generation Call Centres: CTI, Voice and the Web. Step-London ovum. Callaghan, G. and Thompson, P. (2002) ‘We recruit attitude: the selection and shaping of routine call centre labour’, Journal of Management Studies, Vol. 39, No. 2, pp. 233–254. Carrington, L. (2002) ‘At the cutting edge’, People Management, Vol. 8, No. 10, pp. 30–31. CIPD (2001a) Telephone interviewing, Quick Facts. London: CIPD. CIPD (2001b) Graphology, Quick Facts. London: CIPD. CIPD (2001c) Psychological testing, Quick Facts. London: CIPD. CIPD (2002a) Recruitment and Retention, Survey Report. London: CIPD. CIPD (2002b) Employment of people with criminal records, Quick Facts. London: CIPD. CIPD (2002c) Recruitment on the Internet, Quick Facts. London: CIPD. CIPD (2003) Assessment Centres for recruitment and selection, Quick Facts. London: CIPD. Crabb, S. (2003) ‘East India companies’, People Management, Vol. 8, No. 4, pp. 28–32. *Cully, M., Woodland, S., O’Reilly, A. and Dix, G. (1999) Britain at Work: As Depicted by the 1998 Workplace Employee Relations Survey. London: Routledge. Davis, R. (1999) ‘Smoother operators’, People Management, 6 May, pp 56–57. Department for Education and Employment (1999) Age Diversity in Employment. Nottingham: DfEE Publications. Department for Education and Skills (2003) National Statistics First release: the level of highest qualification held by young people and adults: England 2002. www.dfes.gov.uk/statistics/DB/SFR Dickens, L. (2000) ‘Still wasting resources? Equality in employment’, in Bach, S. and Sisson, K. (eds) Personnel Management: A Comprehensive Guide to Theory and Practice, 3rd edn. Oxford: Blackwell, pp. 137–169.


Chapter 6 · Recruitment and selection
Dowling, P.J. and Schuler, R.S. (1990) International Dimensions of HRM. Boston, Mass: PWS-Kent. Dulewicz, V. (2003) ‘How to prepare for the board’, People Management, 6 March, p. 54. Euromonitor (2002a) European Marketing Data and Statistics 2002. London: Euromonitor. Euromonitor (2002b) International Marketing Data and Statistics 2002, Marketing Handbooks Series. London: Euromonitor. Feltham, R. (1992) ‘Using competencies in selection and recruitment’, in Boam, R. and Sparrow, P. (eds) Designing and Achieving Competency: a Competency-based Approach to Developing People and Organisations. Maidenhead: McGraw-Hill. Fletcher, C. (1993) ‘Testing times for the world of psychometrics’, People Management, December, pp. 46–50. Flood, P.C., Gannon, M.J. and Paauwe, J. (1996) Managing Without Traditional Methods: International Innovations in Human Resource Management. Wokingham: AddisonWesley. Fombrun, C., Tichy, N. and Devanna, M. (1984) Strategic Human Resource Management. New York: Wiley. Fowler, A. (1992) ‘How to plan an assessment centre’, PM Plus, December, pp. 21–23. Garrison-Jenn, N. (1998) The Global 200 Executive Recruiters. San Francisco, Calif.: Jossey-Bass. Goold, M. and Campbell, A. (1987) Strategies and Styles: The Role of the Centre in Managing Diversified Organisations. Oxford: Blackwell. Goss, D. (1994) Principles of Human Resource Management. London: Routledge. Hackett, P. (1991) Personnel: The Department at Work. London: IPM. Hall, K. (1995) ‘Worldwide vision in the workplace’, People Management, May, pp. 20–25. Hendry, C. (1995) Human Resource Management: A Strategic Approach to Employment. Oxford: Butterworth-Heinemann. Herriot, P. (1989) Recruitment in the 1990s. London: IPM. Hollingshead, G. and Leat, M. (1995) Human Resource Management: An International and Comparative Perspective on the Employment Relationship. London: Pitman Publishing. IDS (1992) Employment Law Supplement: Recruitment, IDS Brief 64, April. IDS (2002) Assessment Centres, Study 569, January. Iles, P. and Salaman, G. (1995) ‘Recruitment, selection and assessment’, in Storey, J. (ed.) Human Resource Management: A Critical Text. London: Routledge, pp. 203–233. Industrial Society (1994) Recruitment and Selection, Managing Best Practice No. 4. London: The Industrial Society. IPD (1997) Psychological Testing, key facts. London: IPD, August. IRS (1994) ‘Ensuring effective recruitment’ and ‘Random selection’, Employee Development Bulletin 51, March, pp. 2–8. IRS (1997) ‘The state of selection: an IRS survey’, Employee Development Bulletin 85, January, pp. 8–18. IRS (1999a) ‘Testing time for people with disabilities’, Employee Development Bulletin 113, May, pp. 5–9. IRS (1999b) ‘The business of selection: an IRS survey’, Employee Development Bulletin 117, September, pp. 5–16. IRS (2002a) ‘Going beyond the DDA’, IRS Employment Review 758, 19 August. IRS (2002b) ‘The uses and abuses of the new Criminal Records Bureau’, IRS Employment Review 753, 10 June, pp. 37–40. IRS (2002c) ‘Internet recruiting the FTSE-100 way’, IRS Employment Review 746, 25 February, pp. 35–40. IRS (2002d) ‘I’ve got your number: telephone interviewing’, IRS Employment Review 756, 22 July, pp. 34–36. IRS (2002e) ‘Psychometrics: the next generation’, IRS Employment Review 744, 28 January, pp. 36–40. IRS (2002f) ‘Focus of attention’, IRS Employment Review 749, 15 April, pp. 36–42. IRS (2002g) ‘The check’s in the post’, IRS Employment Review 752, May, pp. 34–42. IRS (2002h) ‘A pay-as-you-go personnel function’, IRS Employment Review 748, 25 March, pp. 39–40. IRS (2003) ‘Spinning the recruitment web’, IRS Employment Review 767, 10 January, pp. 34–40. Kandola, B. (1995) ‘Firms must rework race bias policies’, Personnel Today, 25 October, p. 20. Langtry, R. (1994) ‘Selection’, in Beardwell, I. and Holden, L. (eds) Human Resource Management: A Contemporary Perspective. London: Pitman Publishing, pp. 230–263. Leat, M., (1998) Human Resource Issues of the European Union. London: Financial Times Management. *Legge, K. (1995) Human Resource Management: Rhetorics and Realities. Basingstoke: Macmillan Business. Lewis, C. (1985) Employee Selection. London: Hutchinson. Lonsdale, C. and Cox, A. (1998) ‘Falling in with the out crowd’, People Management, 15 October, pp. 52–55. McLuhan, R. (2000) ‘Change management’, Personnel Today 18 April, pp. 25–26. Manocha, R (2002) ‘Unlocking potential’, People Management, Vol. 8, No. 19, pp. 28–34. Marchington, M. and Wilkinson, A. (1996) Core Personnel and Development. London: IPD. Mayo, A. (1995) ‘Economic indicators of HRM’, in Tyson, S. (ed.) Strategic Prospects for HRM. London: IPD, p. 34. Miles, R.E and Snow, C.C. (1984) ‘Designing strategic human resource systems’, Organisational Dynamics, Summer, pp. 36–52. Munro Fraser, J. (1954) A Handbook of Employment Interviewing. London: Macdonald & Evans. Newell, S. and Shackleton, V. (1993) ‘The use and abuse of psychometric tests in British industry and commerce’, Human Resource Management Journal, Vol. 4, No. 1, pp. 14–23. Office for National Statistics (2002a) Labour Force Survey, London. Office for National Statistics (2002b) New Earnings Survey, London. Patterson, M., West, M., Lawthorn, R. and Nickell, S. (1997) Impact of People Management Practices on Business Performance, Issues in People Management No. 22. London: IPD. Pfeffer, J (1998) The Human Equation: Building Profits by Putting People First. Boston, Mass: Harvard Business School Press.

References and further reading
Pickard, J. (1999) ‘Equality counts’, People Management, 11 November, pp. 38–43. Pickard, J. (2000) ‘A sell-out strategy’, People Management, 23 November, pp. 32–36. PriceWaterhourseCoopers (1999) International Assignments: European Policy and Practice 1999/2000. London: PriceWaterhouseCoopers. *Roberts, G. (1997) Recruitment and Selection: A Competency Approach. London: IPD. Rodger, A. (1952) The Seven Point Plan. London: National Institute of Industrial Psychology. Sadler, P. and Milmer, K. (1993) The Talent-Intensive Organisation: Optimising your Company’s Human Resource Strategies, Special Report No. P659. London: The Economist Intelligence Unit. Schuler, R.S. and Jackson, S.E. (1996) Human Resource Management: Positioning for the 21st Century, 6th edn. St Paul, Minn.: West Publishing Company. Sisson, K. and Marginson, P. (1995) ‘Management: systems, structures and strategy’ in Edwards, P. (ed) Industrial Relations: Theory and Practice in Britain. Oxford: Blackwell. Social Trends (2000) London: HMSO. Social Trends (2002) London: HMSO. Sparrow, P. (1999) ‘Abroad minded’, People Management, 20 May, pp. 40–44. Sparrow, P. and Hiltrop, J.–M. (1994) European Human Resource Management in Transition. Englewood Cliffs, New Jersey: Prentice Hall. Storey, J. and Sisson, K. (1993) Managing Human Resources and Industrial Relations. Buckingham: Open University Press. *Taylor, S. (2002) People Resourcing. London: CIPD. Thatcher, M. (1996) ‘Contending with a genetic time bomb’, People Management, 7 March, pp. 30–33. Torrington, D., Hall, L. and Taylor, S (2002) Human Resource Management, 5th edn. Harlow: Prentice Hall. Whiddett, S. and Hollyforde, S. (1999) The Competencies Handbook. London: IPD. Whitehead, M. (1999) ‘Churning questions’, People Management, 30 September, pp. 46–48. Whitehill, A.M. (1991) Japanese Management: Tradition and Transition. London: Routledge.


For multiple choice questions, exercises and annotated weblinks specific to this chapter visit this book’s website at www.booksites.net/beardwell



Managing equality and diversity
Mike Noon
Define discrimination and describe its potential impact on different groups. Describe and compare the social justice and business case arguments for pursuing policies of equality and diversity. Explain the purpose of equal opportunity policies and assess their limitations. Explain the concepts of ‘sameness’ and ‘difference’, and evaluate their importance in guiding policy within organisations. Describe and critically evaluate the concept of institutional discrimination. Assess the process of discrimination in an organisation and outline its possible consequences.

There is a short story by H.G. Wells called ‘The Country of the Blind’ in which a mountaineer falls into a hidden valley in South America where all the inhabitants have been blind for fifteen generations. His initial reaction is that among such a disadvantaged group of people he can easily establish himself as superior because of his sight; indeed, as the saying expresses it, ‘in the country of the blind the one-eyed man is king’. However, he soon learns that the whole of this society is constructed around the norm of blindness, so his sightedness provides no advantages and in many ways disadvantages him from becoming integrated and accepted into the community. For instance, all work is undertaken in the dark at night (when it is cool); there are no lights and the buildings have no windows; his descriptions and explanations based on sight, colour and so forth have no meaning to the inhabitants; and his under-developed alternative senses mean he cannot participate fully in the culture of the community. In the end, in order to fit in, he has to choose either to conform to the dominate norms and have his eyes removed or else leave the community. The relevance of this story is that it illustrates how being different to the dominant social group can produce disadvantages for an individual irrespective of his or her qualities and abilities. In this example the disadvantage suffered by the main character is due to his sight in a society in which sight is undervalued. In the real world, of course, key characteristics such as gender, race/ethnicity, disability, age, religion and sexuality are typically the bases for disadvantage. People can suffer rejection, non-acceptance and unfair treatment within a particular setting (especially the workplace) because they differ from the dominant social

The nature of discrimination


group across one of more of these characteristics. They can feel excluded and marginalised, or in extreme cases become the victims of abuse and harassment. This disadvantage can manifest itself in many of the key processes within organisations that are explained in other chapters: recruitment and selection, training and development; appraisals; promotion; career development; remuneration; and work organisation. The purpose of this chapter is to explore how managers can take action to minimise the disadvantages and provide a working environment that supports equality and diversity. To investigate these issues the chapter is divided into six main sections. First, there is an examination of the meaning of discrimination; section two addresses the question of why managers should be concerned about equality and diversity; section three explains the role of equal opportunity policies; section four analyses the different approaches to devising such policies; section five evaluates the concept of institutional discrimination; and section six explains the process of discrimination within organisations.

The nature of discrimination
One of the assumptions sometimes made is that discrimination is experienced in the same way by different groups of people. In other words, discrimination based on sex, race/ethnicity, disability and age is often assumed to be the same. While it is certainly the case that the effects of discrimination (the disadvantage suffered) are the same or very similar for the victims, the nature of the discrimination often differs and the response and attitudes of the social groups can also differ. It is important to elaborate these statements to show how there might be differences between social groups and within social groups. One starting point for this is to consider the characteristics that identify a person as different: sex, age, ethnicity, etc. In particular, these characteristics differ in terms of whether they can be considered stable and visible:

Stable characteristics are features such as race and sex – with the exception of the tiny minority of people that undergo gender reassignment. In contrast, a person’s age differs throughout their life, thus everyone is susceptible to being a victim of ageism, and the type of ageism will change at different life stages. Visible characteristics are features that a person cannot hide – such as sex, race/ethnicity and some forms of disability. Others, such as sexual orientation, can be hidden and so although discrimination occurs, some potential victims can dodge it through behaviour that disguises their true identities.

A further consideration concerns the differences between the perpetrators and the victims. Whereas discrimination is perpetrated typically by one group against a different group (men over women, able-bodied over less able, ethnic majority over minority), this is not true of age discrimination. For instance, research by Oswick and Rosenthal (2001) reveals that older workers are frequently discriminated against by managers of similar ages; it is not simply the case that the ‘old’ are discriminated against by the ‘young’ (or vice versa). As the authors vividly express it, ‘the purveyors of ageism are also in other circumstances its recipients’. Thus there is ‘same-group’ discrimination, rather than ‘different-group’ discrimination. Turning to the victims of discrimination, it is important to recognise differences within social groups, rather than consider each group to be homogeneous. For instance, Reynolds et al. (2001) point out how disability can be a diverse and wide-ranging categorisation. People may move into a state of disability from ill-health, work accidents or ageing, and so while some people are ‘born disabled’, there is an increasing proportion of employees who ‘become disabled’. Moreover, the needs of those with different ‘disabilities’ are so wide-ranging that it might be suggested there is very little meaning in such a broad category as ‘disability’. The same conclusion might be reached for race/ethnicity. Increasingly,


Chapter 7 · Managing equality and diversity

commentators (for example, Modood et al., 1997; Pilkington, 2001) are arguing that research evidence suggests there is so much ethnic diversity that to describe discrimination as being the same across different ethnic groups fails to take into account its differential impact. This means it is essential to recognise the differences between ethnic groups not only in terms of their experiences of discrimination, but also in their varied requirements for redressing the discrimination. Furthermore, it is possible to challenge the assumptions that a person’s ethnic group can be clearly defined and remains stable (note the discussion above). First, there are increasingly people with multiple cultural identities who simply do not ‘fit’ the ethnic categories, and second, exposure to varied cultural influences means that ethnic identity might change across one’s lifetime. It is equally important to recognise differences between social groups. Indeed, if people within the same social group experience discrimination in different ways and in different circumstances, there is little reason to suppose that people from different social groups will have similar experiences. They may be victims of discrimination but there is little reason to suppose that the experience of being discriminated against because you are a woman is the same as that of being discriminated against on the grounds of sexual orientation; or that the discrimination experienced by disabled employees is the same as that endured by ethnic minority employees. Box 7.1, ‘The Royal Mail’, illustrates these sometimes competing interests, see also Liff, 2002.

BOX 7.1

The Royal Mail
The UK’s postal service, The Royal Mail, has traditionally operated a system of seniority for employees who sort and deliver the mail. This means that the greater the length of service the postal workers have behind them, then the more privileges they get. In particular, this means that they get first choice of holidays, overtime and shifts. The system was designed to reward loyalty and experience, but as demands on the form of postal work changed, in particular with the introduction of new technology and different ways of working, the managers required far greater flexibility from employees and so they proposed changes to working practices that would lead to the abolition of the seniority system. Interestingly, this led both sides (the trade unions and the management) to claim that they were working in the interest of equal opportunities. The trade unions argued that seniority protected equal opportunities because it produced a rational, transparent and equitable means of allocating duties. In particular, they said that it protected employees against favouritism and prejudice by managers in the allocation of duties – an issue of importance to ethnic minority members of the trade unions. The management argued that it was not fair on part-time employees who were at the back of the queue because their length of service was less and who nevertheless made an important contribution to the business. In particular, they suggested that it had a discriminatory effect on women because the majority of part-timers were women. These two viewpoints illustrate how both parties were able to make a claim that their position was in defence of equal opportunities. Indeed, the logic of both cases can be seen. It provides a vivid illustration of how different groups might require different (and in this case competing) policies and action in order to ensure fairness. Part-time employees, particularly those who were women, might have felt betrayed by the trade unions. Similarly, ethnic minority employees might have felt that management were attempting to remove a system that had protected against discrimination.

A final issue that further underlines the diversity of the nature of discrimination is that some people experience multi-discrimination. For example, an employee may be discriminated against because she is both a woman and Asian, and might therefore not identify with or share the same concerns as her white women colleagues or black male colleagues. Similarly, consider the following comment:

Why be concerned with equality and diversity?
I’m a 54-year-old fitter who’d been made redundant, and I’ve been trying for months to get back into work. I’ve even done all these special courses at the Job Centre to make myself more employable and to practise interviews and things. The problem is that when an employer sees 54 on the application form the majority of them don’t want to know – but of course I can’t prove that. Then, after weeks of trying I got an interview, and I was really excited because it was a chance to get back to doing something useful and earning again. I can remember I was full of enthusiasm and hope when I walked into the interview room, but then I saw the look on the faces of the panel as I walked through the door and they realised I’m black.


The picture is of diversity in the nature of discrimination and difference in the needs of the various groups and individuals that experience discrimination. These are important issues because it means:
● ●

Managers should not assume that discrimination means the same thing irrespective of group concerned. Managers should not assume that a policy solution for one social group (for example, women) will be appropriate or welcomed by a different social group (for example, disabled people). Managers should expect that attitudes will differ within social groups (for example, Asian employees and black employees).

The recognition of this diversity has led some commentators to argue that rather than defining people by their similarities to others, managers should see all employees as individuals with unique skills and needs. This is an issue that we will return to later in the chapter.

Stop and think

On the basis of the preceding discussion, summarise for yourself the diverse patterns of discrimination and disadvantage that can exist.

Why be concerned with equality and diversity?
A key question that needs to be addressed is why managers should care whether some people are disadvantaged and suffer unfair treatment. In answering this question, it is useful to distinguish between two different sets of arguments, which can be labelled ‘the social justice case’ and ‘the business case’.

■ The social justice case
The social justice case is that managers have a moral obligation to treat employees with fairness and dignity. Part of this involves ensuring that decisions are made without resorting to prejudice and stereotypes. You may already be familiar with these concepts, but in case not, they can be defined as follows.
Prejudice In the context of discrimination at work, prejudice means holding negative attitudes towards a particular group, and viewing all members of that group in a negative light, irrespective of their individual qualities and attributes. Typically we think of prejudice as being against a particular group based on gender, race/ethnicity, religion, disability, age and sexual orientation. However, prejudice extends much further and is frequently directed at other groups based on features such as accent, height, weight, hair colour, beards, body piercings, tattoos and clothes. It is extremely rare to find a person who is not prejudiced against any group – although most of us are reluctant to admit to our prejudices.
(Heery and Noon, 2001: 279)


Chapter 7 · Managing equality and diversity

Stereotyping Stereotyping is the act of judging people according to our assumptions about the group to which they belong. It is based on the belief that people from a specific group share similar traits and behave in a similar manner. Rather than looking at a person’s individual qualities, stereotyping leads us to jump to conclusions about what someone is like. This might act against the person concerned (negative stereotype) or in their favour (positive stereotype). For example, the negative stereotype of an accountant is someone who is dull, uninteresting and shy – which, of course, is a slur on all the exciting, adventurous accountants in the world. A positive stereotype is that accountants are intelligent, conscientious and trustworthy – which is an equally inaccurate description of some of the accountants you are likely to encounter. The problem with stereotypes is that they are generalisations (so there are always exceptions) and can be based on ignorance and prejudice (so are often inaccurate). It is vital for managers to resist resorting to stereotyping when managing people, otherwise they run the risk of treating employees unfairly and making poor-quality decisions that are detrimental to the organisation.
(Heery and Noon, 2001: 347)

If decisions are made free from prejudice and stereotyping then there is a lower risk of any particular group being disadvantaged and therefore less chance of an individual feeling that he or she has been discriminated against. Discrimination is very much a core concept for the social justice case so its meaning needs to be considered. ‘Discrimination’ is the process of judging people according to particular criteria. For example, in the selection process for a teaching post, the appointment panel might discriminate in favour of a candidate who answers their questions clearly and concisely, and discriminate against a candidate who mutters and digresses from the point. However, when most people use the term discrimination they tend to mean unfair discrimination. The word is mainly used to denote that the criteria on which the discrimination has occurred are unjust. It is likely that most people would not describe the example above as ‘discrimination’ because they would not consider the criteria the panel used (clarity, conciseness) as unfair. However, if the criterion the appointment panel used to choose between candidates was gender or race, then most people would recognise it as discrimination. Essentially it is the problem of deciding upon the ‘fairness’ of the process which makes it a concern for social justice. There is a further complication to the social justice case. This concerns the question of whether the focus should be on justice in terms of procedures (‘a level playing field’) or outcomes (‘a fair share of the cake’). For example, in a recruitment process, this would mean either a person is selected according to merit (procedural justice) or he or she is selected in order to fill a quota (to ensure representativeness of different social groups). Selection on merit alone will not produce representativeness unless such merit is evenly distributed throughout all groups. Of course, such even distribution is highly unlikely due to structural disadvantages and inequalities (schooling, economic support, connections, social stereotypes, and so forth) which limit a person’s potential to acquire meritorious characteristics (Noon and Ogbonna, 2001: 4). As shall be seen later in the chapter, this dilemma leads to different policy suggestions as to how organisations should address the problem of ensuring fairness. Those who favour procedural intervention tend to advocate a ‘light touch’ in terms of legal regulation and best practice guidelines, while those who focus on outcomes advocate stronger legislation and/or more radical changes to organisational processes and practices.

Why be concerned with equality and diversity?


● Limitations of the social justice argument
Critics of the social justice case tend to argue that while the pursuit of fairness is laudable, it is not the prime concern of organisations. The goals of managers in organisations are profit and efficiency, rather than morality. If social justice were to guide their decision-making it might have a detrimental effect on the operation of the business and ultimately the bottom line. This line of argument has led to an additional rationale for equality and diversity: the business case.

■ The business case
The second set of arguments that can be used to justify why managers should be concerned with eliminating disadvantage is based on making a business case. The point is that, aside from any concerns with social justice, fair treatment simply makes good business sense for four main reasons: 1 It is a better use of human resources. By discriminating on the basis of sex, race/ethnicity, disability, and so on, managers run the risk of neglecting or overlooking talented employees. The consequence is that the organisation fails to maximise its full human resource potential and valuable resources are wasted through under-utilising the competences of existing employees or losing disgruntled, talented staff to other organisations. 2 It leads to a wider customer base. By broadening the diversity of the workforce, managers might help the organisation to appeal to a greater range of customers. This might be particularly important where face-to-face service delivery is a central part of the business and requires an understanding of the diverse needs of customers. 3 It creates a wider pool of labour for recruitment. By being more open-minded about the people they could employ for various jobs, managers will have a wider pool of talent from which to recruit. This is particularly important when an organisation is attempting to secure scarce resources, such as employees with specific skills or experience. 4 It leads to a positive company image. By having a clear statement of the organisation’s commitment to equal opportunities, backed by meaningful practices that result in a diverse workforce, managers will be able to project a positive image of the organisation to customers, suppliers and potential employees. In terms of employees, the organisation will be perceived as good to work for because it values ability and talent, and so is more likely to attract and retain high-calibre people.

● Limitations of the business case argument
Although these arguments are quite persuasive, there might be some circumstances when ‘good business sense’ provides the justification for not acting in the interest of particular groups. For example, Cunningham and James (2001) find that line managers often justify the decision not to employ disabled people on the grounds that the necessary workplace adjustments would eat into their operating budgets. Indeed, equality and diversity initiatives often have a cost associated with them, the recovery of which cannot always be easily measured and might only be realised in the long term. The danger (highlighted by commentators such as Dickens, 1994, 2000 and Webb, 1997) is that such initiatives can only be justified as long as they contribute to profit. For example, in Webb’s (1997) case study of an international computing systems manufacturer, the corporate philosophy was to encourage employee diversity to bring in new ideas, meet customer needs and achieve success in the global marketplace. However, at divisional level in the UK, the requests from women for childcare provision and flexible hours were rejected on the basis that these would adversely affect profitability. Furthermore,


Chapter 7 · Managing equality and diversity

although managerial opportunities were open to women, this was clearly on men’s terms, as Webb (1997: 165) explains.
Women graduate engineers are aware that they have to fit in as ‘one of the boys’ and however supportive the line manager, these are all men: ‘I think the difficulty is still being able to sit down, map out your career and possibly say that at a certain time you many well wish to have a family ... (graduate sales rep.). ... Even for those willing to adopt male work norms, the corporate orientation to innovation and change mean that the uncertainties experienced by managers are likely to result in the continuing exclusion of women, who continue to be regarded as a riskier bet than men.

This type of problem is common and is expressed vividly by Liff and Wajcman (1996: 89) in the following quote.
Managers’ perceptions of job requirements and procedures for assessing merit have been shown to be saturated with gendered assumptions ... Feminists can argue (as they have for years) that not all women get pregnant, but it seems unlikely that this will stop managers thinking ‘yes, but no men will’.

For an alternative example of how the business case argument can work against a particular group of employees, see the activity below.


The department store
The following quote is from a research interview with a personnel manager of a large departmental store in a city in the UK. She had been asked why there were no ethnic minority employees on the sales floor, even though the city had an ethnic minority population of over 5 per cent. ‘Our customers are mainly white, middle-class women. They would be uncomfortable being served by ethnic minorities and they would probably shop elsewhere. That is why we don’t have black sales assistants and only have men in certain areas such as the electrical department. We have some Asian employees in the stockroom and doing other vital jobs behind the scenes.’ What are the potential problems for the organisation in taking this approach?

A further problem is the issue of measuring the effects of extending opportunities. The underlying assumption is that any initiatives will have a positive effect on business (hence they make good business sense). But this logic requires that they are subsequently measured and evaluated to assess their effects. This poses two difficulties: 1 Finding a meaningful measure. In some instances this is feasible. For example, it would be possible to recruit more Asian salespeople in order to increase sales to Asian customers, and in this case appropriate measures would be the number and value of sales and the number of Asian customers (identified by their family name). However, in other instances measurement is very difficult. For example, how would you measure the impact of ethnic-awareness training? Or the effects of flexible working arrangements? In both these cases it might be possible to measure the effects in terms of attitudes or changes in performance, but it would be more difficult to attribute these solely to the specific initiatives.

Why be concerned with equality and diversity?


2 Measuring in the short term. In many instances the full effects of an equality or diversity initiative would only be realised in the long term. For many managers within organisations this would be a disincentive to invest in such initiatives, particularly if the performance of their department was measured in the short term. Moreover, it would be an even greater disincentive to invest if the manager’s salary or bonus was affected by the short-term performance of his or her department. Overall, the business case argument can make an impact – for example in circumstances of skills shortages, needs for particular types of employees, or local labour market conditions – but this is likely to be variable and patchy. As Dickens (1999: 10) states:

The contingent and variable nature of the business case can be seen in the fact that business case arguments have greater salience for some organisations than others. … The appeal of a particular business case argument can also vary over time as labour or product markets change, giving rise to ‘fair weather’ equality action.

Stop and think

Should the absence or weakness of a ‘business case’ for eliminating unfair discrimination and disadvantage absolve managers from trying to do so?

■ Justice and business sense
As you might have noticed, the two sets of arguments are not necessarily mutually exclusive. Indeed, it is feasible and practical for managers to use both sets to justify equality or diversity initiatives in their organisations. Increasingly, groups such as the UK’s Commission for Racial Equality (www.cre.gov.uk) and Equal Opportunity Commission (www.eoc.org.uk) are stressing both sides. It is, in part, a pragmatic realisation that by stressing both arguments there is more chance of gaining commitment to equality and diversity from a wider group of people. Whether a manager is committed to equality because of justice or business sense reasons does not really matter – it is the fact he or she is committed that counts. Of course, this is not quite as simple in practice because once commitment has been gained, there is then the question of what to do about it – and that is when equal opportunities policies have a role to play. Before proceeding with a discussion of policy choices, there is an important point to note that underpins much of the following discussion. Efforts to tackle unfair discrimination have not been able to develop through a simple reliance on voluntary commitment to social justice by managers or their rational acceptance of the business case. In most countries legislation has been introduced which sets limits to lawful managerial action and places obligations on managers to act in accordance with principles of fairness. Bearing this general point in mind, you should also note the following:
● ●

The type and extent of this legislation varies from country to country, so it is important to read about the specific legislation in your own national context. Opinion varies as to whether state regulation is necessary or the extent to which it is legitimate or practical to legislate to prevent discrimination and promote equality of opportunity. Even when legislation is in place there is no guarantee that this will ensure that equality of opportunity prevails. This might be because the legislation is flouted (unlawfully) or because it is ineffective (too weak, too many loopholes, easily ignored, difficult to enforce, and so on).


Chapter 7 · Managing equality and diversity

In summary, as has been noted in other chapters (and which is specifically addressed in terms of the UK in Chapter 10), the external context is an important feature in guiding all managerial action and policy.

Equal opportunity policies
In order for an organisation to address the issue of disadvantage in a systemic and consistent way, it needs to be guided by a policy. Increasingly, organisations are creating equal opportunity policies in order to guide managers in decision-making. The rationale for such policies can be based on a mix of justice and business sense arguments, as was noted above. The form of these policies varies from organisation to organisation, and the next section will explain why this is the case. Before this, it is necessary to make some general points about the purpose and forms of equal opportunity policies and to note some of the criticisms made of them. The ten points that follow are from the website of the UK’s Commission for Racial Equality (www.cre.gov.uk) and are typical of the recommended good practice that employers are encouraged to adopt. The initiatives from 3 to 10 are often described as ‘positive action’ and organisations are encouraged to adopt some, if not all, of these. 1 Develop an equal opportunities policy, covering recruitment, promotion and training. 2 Set an action plan, with targets, so that you and your staff have a clear idea of what can be achieved and by when. 3 Provide training for all people, including managers, throughout your organisation, to ensure they understand the importance of equal opportunities. Provide additional training for staff who recruit, select and train your employees. 4 Assess the present position to establish your starting point, and monitor progress in achieving your objectives. 5 Review recruitment, selection, promotion and training procedures regularly, to ensure that you are delivering on your policy. 6 Draw up clear and justifiable job criteria, which are demonstrably objective and jobrelated. 7 Offer pre-employment training, where appropriate, to prepare potential job applicants for selection tests and interviews; consider positive action training to help ethnic minority employees to apply for jobs in areas where they are under-represented. 8 Consider your organisation’s image: do you encourage applications from underrepresented groups and feature women, ethnic minority staff and people with disabilities in recruitment literature, or could you be seen as an employer who is indifferent to these groups? 9 Consider flexible working, career breaks, providing childcare facilities, and so on, to help women in particular meet domestic responsibilities and pursue their occupations; and consider providing special equipment and assistance to help people with disabilities. 10 Develop links with local community groups, organisations and schools, in order to reach a wider pool of potential applicants. The willingness of organisations to adopt such guidelines varies considerably. Moreover, there is also considerable variation in the extent to which all the points are adopted. You might think of this as a sliding scale: at one extreme are those organisations that adopt a policy that meets very few of the points, and at the other extreme those organisations that have addressed all ten points. Another way of looking at this is to think of different categories into which an organisation might be placed according to its approach to equal opportunities. Table 7.1 is an example of this type of categorisation.

Equal opportunity policies


Table 7.1 Types of equal opportunity organisation
The negative organisation Has no equal opportunity policy Makes no claims of being an equal opportunity employer Might not be complying with the law The minimalist organisation Claims to be an equal opportunity employer Has no written equal opportunity policy Has no procedure or initiatives, but will react to claims of discrimination as they arise The compliant organisation Has a written equal opportunity policy Has procedures and initiatives in place to comply with some aspects of good practice recommendations The proactive organisation Has a written policy backed up with procedures and initiatives Monitors the outcomes of initiatives to assess their impact Promotes equality using full set of good practice guidelines, and might even go beyond these
Source: based on Healy (1993) and Kirton and Greene (2000)


Good practice guidelines
1 For each of the ten points, assess whether your own organisation (or an organisation you are familiar with) has adopted these good practice guidelines. 2 Where would you place your organisation on the sliding scales described above? 3 In which category in Table 7.1 would you place your organisation?

■ Two key components: positive action and monitoring
To ensure the effectiveness of equal opportunity policies, the organisation needs to adopt positive action initiatives and ensure that equal opportunity monitoring takes place. These two components are a feature of those organisations categorised as ‘proactive’, so they need some elaboration.

● Positive action
Equal opportunity policies are based on the notion of positive action (sometimes called affirmative action). These are specific initiatives designed to encourage underrepresented groups to apply for jobs or promotion within the organisation. They also might be concerned with making changes to working arrangements to encourage the retention of employees by making the environment more suited to the needs they have that differ from the majority of employees. There are examples of such initiatives throughout this chapter, but to show the variety of positive action initiatives that might occur within a single organisation, consider the UK police force. There had been a government report on the police force, branding it as racist and criticising it for failing to have enough ethnic minority police officers. As a consequence, a range of initiatives was


Chapter 7 · Managing equality and diversity

launched in various police forces throughout the UK, which included the following specific actions designed to improve the recruitment and retention of ethnic minorities:
● ● ● ● ● ● ● ● ● ● ● ●

running pre-joining courses for ethnic minority groups, giving prospective candidates a chance to experience the reality of life in the force, and dispelling any myths; introducing a national recruitment campaign featuring black role models; placing advertisements in Bollywood cinemas, ethnic minority press and radio stations that carried the message, ‘It’s not where you’re from, it’s where we’re going’; creating Positive Action Teams to run roadshows; setting up recruitment stalls at high-profile minority events and in locations where there is a large ethnic minority population; encouraging senior officers to visit religious venues; allowing Muslim female officers to wear the hijab (a scarf that covers the head and shoulders worn by some Muslim women) on duty; allowing officers wishing to observe Ramadan (when it is forbidden to drink or consume food from sunrise to dusk) to take later breaks rather than the set one; introducing prayer rooms to allow Muslim officers to pray during working hours; providing halal food in staff canteens; introducing mentors to provide career guidance; introducing a High Potential Development Scheme (HPDS) to seek out those with the potential to be future leaders.

Initiatives such as these are considered a central component in encouraging a more diverse workforce. However, it is not sufficient simply to put such actions into place; they have to be regularly audited to ensure they are working. In addition, it is often necessary for the organisation to collect data on the problem prior to the introduction of a particular initiative in order to be able to establish a benchmark and then assess the effect it is having. This is why equal opportunities monitoring is the second key component.

● Monitoring
One of the key ways of helping to ensure the effectiveness of policies is through the use of equality monitoring. This is a process of systematically collecting and analysing data on the composition of the workforce, particularly with regard to recruitment and promotion. The rationale behind monitoring is that it is impossible for managers to make an assessment of what action to take (if any) unless they are aware of the current situation. Of course, the supposition behind this is that managers want to take action – but if this is not the case then logically managers might not see the value in collecting the data in the first place. Therefore, equal opportunity monitoring has both advocates and detractors who will marshal different arguments to justify their position. These are summarised in Table 7.2.

Stop and think

Does monitoring take place in the university or college where you are studying? If so, how is the data collected and what happens to it?

■ Criticism of equal opportunity policies
Naturally, there are some criticisms of equal opportunity policies. The first of these is that they are not worth the paper they are written on. Just because an organisation has a policy, it does not mean that the policy is effective. Indeed, it might be argued that in some organi-

Equal opportunity policies


Table 7.2 The arguments for and against monitoring
The case in favour of equal opportunities monitoring • It allows an organisation to demonstrate what they are doing and identify particular problem areas so that they can take action. • It encourages managers to think creatively about positive action initiatives. It removes the need for stronger legislation such as quotas (positive discrimination). • The data can be kept confidential, just like any other information. • It provides useful information to help management decision-making. • Organisations conducting their activities in line with the legal requirements have nothing to fear. • The costs are modest. • It is good business practice. The case against equal opportunities monitoring • It stirs up trouble and discontent, and can create problems that would otherwise not arise. • It puts undue pressure on managers, and might encourage them to lower standards or appoint for the wrong reasons. It is positive discrimination by the back door. • It is an invasion of privacy and open to abuse. • It creates the requirement to collect information that is unnecessary. • Organisations with no problems regarding equal opportunities do not need this burdensome bureaucratic mechanism. • It is an unnecessary expenditure. • The business needs to focus on its commercial activities.

sations managers want to present the positive image of being aware of equal opportunities, but do not wish to introduce procedures or initiatives that might (in their opinion) constrain or limit their decisions about who to appoint, train, promote and so on. A second criticism is that although equal opportunity policies result in formalised procedures with some organisations, this is no guarantee of fairness. Studies have shown that managers can find ways of evading or distorting the procedures. For example, in their case study of a local government authority in the UK, Liff and Dale (1994) interviewed a black woman on a clerical grade who had been told that she needed to get a professional qualification if she wanted promotion. ‘After obtaining the qualification she was turned down again, this time in favour of a white woman without qualification: a decision justified [by the managers] on the grounds of “positive action”’ (Liff and Dale, 1994: 187). In another study (Collinson et al., 1990), even the personnel/HR managers, who are supposedly the guardians and promoters of good practice, were colluding with line managers to avoid equal opportunity guidelines. A third criticism is that even where managers are working within the procedures, there is a huge amount of informal practice and discretion that means unfair treatment can persist. In the quote below, Liff (2002: 434) gives examples from two studies that show how this might occur during selection interviewing.
Collinson et al. (1990) during detailed observation of interviews, found that managers used different (gender-based) criteria to assess whether applicants were able to meet the job requirements. For example, a form of behaviour described as ‘showing initiative’ and assessed as desirable when demonstrated by a male applicant, in a woman applicant was seen as ‘pushy’ and undesirable. Similarly Curran (1988: 344) showed that managers often found it hard to separate the assessment of a characteristic such as leadership from the concept of masculinity, or a ‘requirement for a pleasant personality and one for a pretty girl with a smile’. What is important about these findings is that they show that for some managers at least gender becomes part of their assessment of suitability criteria. ... Such findings also reduce the force of the prescriptive advice to excluded groups that they can succeed simply by gaining the necessary skills and demonstrating their ability at job-related tasks.


Chapter 7 · Managing equality and diversity

It will be noted that these three types of criticism are concerned with the ineffectiveness of equal opportunity policies. However, there are other critics who simply reject the whole idea of equal opportunities. They tend to suggest that policies are unnecessary and positive action initiatives are providing special privileges for particular groups. It is a viewpoint that is common among those of an extreme right-wing political persuasion and sometimes stems from a belief in the inferiority of some groups over others. Within organisations it can manifest itself in the form of verbal abuse and harassment – in these extreme circumstances the issue is not simply an organisational concern, but might also be a criminal matter. A dramatic example of the way that such extreme views can cause misery for employees is the case of a Ford UK employee:

Mr Parma suffered years of routine abuse by his foreman and his team leader. Once, he opened his sealed pay packet to find the word ‘Paki’ scrawled inside. In another incident, he saw graffiti threatening to throw him to his death.[...] On one occasion he was ordered into the ‘punishment cell’, a small booth in which oil is sprayed over engines, but he was not allowed to wear protective clothing. He became ill and needed medical attention. On another occasion Mr Parma had his lunch kicked out of his hands and was told: ‘We’re not having any of that Indian shit in here.’ He was also warned that he would have his legs broken if he ever named any of his tormentors. The police were called in at one stage, but the Crown Prosecution Service decided to drop charges.
(The Independent, 24 September 1999)

Incidents such as this may be extreme but their existence makes the case for all organisations both to have an equal opportunity policy and to ensure that it is enforced through positive action initiatives and monitoring.

Devising equality and diversity policies
It has been noted above that equal opportunity policies are seen as desirable and that recommendations are often made to organisations about how to frame such policies. Ultimately, however, it is up to the decision makers within organisations to choose the form and content of their policies – although there might be certain legal requirements within which they are expected to operate. When formulating policy, managers are faced with addressing the key question of how to treat people at work in order to ensure fairness. To express this more specifically: to ensure fairness, should managers ignore the differences between people and treat them the same, or should managers acknowledge differences and treat people differently? In many respects this is a key question that lies at the heart of any discussion about equality of opportunity. The reason why people often vehemently disagree about equal opportunities is because they are approaching the issue from very different perspectives. In other words, if you believe that, for example, men and women, or different ethnic groups, are fundamentally (as human beings) the same, then you are approaching the issues from an alternative perspective to someone who sees people as fundamentally different. These differing perspectives also lead to different ways of dealing with the issue of ensuring fairness at work. It is therefore important to understand the two perspectives and look at the organisational initiatives that each might lead towards.

Devising equality and diversity policies


■ The sameness perspective
A word of warning is needed here. This concept of ‘sameness’ acknowledges genuine differences between people, but means that the variations of attributes such as intelligence, potential to develop skills, values, emotions, and so forth are distributed across different social groups. Consequently, it is argued that any differences between people on these attributes are not determined by their gender, ethnicity, age, sexual orientation and so forth, but arise from their upbringing, experiences, socialisation and other contextual factors. Therefore, the important guiding principle for managers is that people should be treated equally regardless of their sex, ethnic group, age and so forth. Below are a few examples of the kinds of practices that this perspective might lead organisations to adopt:
● ● ● ● ●

Ensure that age is not used as a criterion to decide whether an employee is suitable for retraining. Ensure that the same questions are asked of men and women during selection interviews. Ensure that gender-specific language does not appear in job adverts, job descriptions and other organisation documents. Ensure that part-time working opportunities are available to men and women. Ensure that any company benefits (for example, pensions, insurance rights, health scheme subsidies) are available to partners of non-married couples and samesex partners. Ensure the same pay for the same job.

The guiding policy behind these types of initiative is equal treatment. Obviously, any such organisational initiatives are influenced by the legal context in which the organisation is based. There is likely to be legislation that requires organisations to undertake some actions. For instance, in the UK the legislation sets some of the parameters in the recruitment process (see Chapter 6) in terms and conditions of employment (Chapter 12) and in reward systems (Chapter 13).


Equal opportunities initiatives
1 Draw up a list of the equal opportunities initiatives in your organisation (if you work fulltime or part-time) or an organisation with which you are familiar (if you are a full-time student). Your list does not need to be exhaustive, but try to include initiatives additional to the examples already given. 2 Which of the initiatives have arisen because of legal requirements and which have been introduced out of choice (i.e. voluntarily)? 3 Select one or two of those initiatives that have been introduced voluntarily and assess the influences that led to the initiatives being adopted. These could be internal or external pressures.

● Limitation of the sameness approach
There is a substantial problem with this sameness approach. It assumes that disadvantage arises because people are not treated the same. While this is sometimes the case, disadvantage can also arise due to treating people the same when their differences ought to be considered. This is eloquently summed up by Liff and Wajcman (1996: 81) in relation to gender:


Chapter 7 · Managing equality and diversity

All policies based on same/equal treatment require women to deny, or attempt to minimize, differences between themselves and men as the price of equality. This, it is suggested, is neither feasible nor desirable. Such an approach can never adequately take account of problems arising from, say, women’s domestic responsibilities or their educational disadvantage. Nor does it take account of those who want to spend time with their children without this costing them advancement at work. Sameness is being judged against a norm of male characteristics and behaviour. ... [The sameness approach to equal opportunities takes] an over-simplistic view both of the problem of inequality (seeing it as a managerial failure to treat like as like) and its solution (‘equality’ can be achieved by treating women the same as men).

■ The difference perspective
The ‘difference’ perspective assumes that key differences exist between people and that these should be taken into account when managers are making decisions. In other words, it can be argued that ignoring differences can lead to disadvantage. Again there is a word of warning. There tend to be two strands to this perspective and this must be taken into account: (1) the collectivist strand; (2) the individualist strand.

● 1. The collectivist strand
This approach argues that the differences are associated with the social groups to which a person belongs. For example, as the quote above from Liff and Wajcman (1996) underlines, women’s domestic responsibilities are different in general from those of men – most notably in the time spent on childcare – so, to ignore this difference will disadvantage women. For instance, imagine a job had the following statement as part of the essential requirements: ‘Applicants must have at least five years’ previous experience of international sales and be aged between 28 and 35.’ These requirements would have a disadvantageous effect for women because (based on the uneven division of childcare responsibilities) a lower proportion of women would be able to meet the condition of being under 35 and having 5 years of relevant experience. This is due to the fact that more women than men would have taken career breaks to have children and rear children. Therefore, by ignoring the differences between men and women the requirements are disadvantaging women. In the UK this could be construed as ‘indirect discrimination’, which means instances where there might be no intention to discriminate against a particular group but where the effect is discriminatory because certain conditions have been set down that advantage or disadvantage some groups over others (see Chapter 6). The collectivist strand therefore argues that differences between social groups exist and should be considered in relation to ensuring fairness at work. This means that it might be relevant to introduce practices that are based on recognising differences between social groups, rather than ignoring differences. Below are some examples of the types of initiatives that might arise from taking this collectivist difference perspective:
● ● ● ● ●

single-sex training schemes (developing skills to allow access to a wide range of jobs); payment for jobs based on principles of equal value (see also Chapter 13); job advertisements aimed at encouraging applications from under-represented groups; reassessment of job requirements to open opportunities up to a wider range of people; choice of food in the workplace cafeteria that reflects different cultural needs.

The guiding policy behind these types of initiative is special treatment according to social group membership. Such initiatives are usually described as ‘positive action’ or ‘affirmative action’. There is a wide range of such initiatives, the most extreme sort

Devising equality and diversity policies


being quotas that set a requirement for organisations to recruit and promote a specific percentage of people from disadvantaged groups. Setting quotas is the most extreme form of positive action initiative, and in the UK, as in other European countries, it is unlawful. The other forms of positive action – such as those listed above – are permissible in many countries. Again the legal context is important because some principles, such as equal value, might be a legal requirement for all organisations, while others are left entirely to the discretion of managers within organisations. One of the notable problems with this perspective is that it leads some people to argue that special treatment constitutes an unfair advantage. There is a tendency among critics to emphasise the extreme examples, and there has been considerable backlash to some affirmative action programmes in the United States where quotas are set for organisations to recruit and promote ethnic minorities. Some of this criticism is politically driven, but it also comes from some of the supposed benefactors of positive discrimination, particular ethnic minorities. These critics argue that it demeans their achievements because it leads others to suspect that they only got the job or promotion to meet the required ‘quota’, rather than because they were the best candidate. Furthermore, some commentators argue that it is simply wrong in principle to redress the disadvantage suffered by one group of people because of favouritism and privilege with measures that are specifically designed to favour and privilege an alternative group of people. Indeed, this is the perspective of the UK’s Chartered Institute of Personnel and Development, who use the term ‘reverse discrimination’ to describe extreme measures such as quota systems. Although the policy of special treatment presents some problems, it also offers a persuasive approach for some people because it recognises that disadvantage is often an intrinsic part of existing organisational structures, practices and culture. Simply adopting a policy of equal treatment would not remove this existing disadvantage; instead, something more radical has to be done to get to the root of the problem and redress the existing imbalance. One of the best expressions of this comes from former US President Lyndon Johnson at the time of the introduction of race legislation in 1965:
Imagine a hundred yard dash in which one of the two runners has his legs shackled together. He has progressed 10 yards, while the unshackled runner has gone 50 yards. At that point the judges decide that the race is unfair. How do they rectify the situation? Do they merely remove the shackles and allow the race to proceed? Then they could say that ‘equal opportunity’ now prevailed. But one of the runners would still be forty yards ahead of the other. Would it not be the better part of justice to allow the previously shackled runner to make up the forty yard gap; or to start the race all over again?
(Quoted in Noon and Blyton, 2002: 278)

Stop and think

Look again at the questions raised in President Johnson’s analogy. What would you do and how would you justify it?

Before reading about the second strand of this difference approach, you might want to see a further illustration of how sameness and difference can lead to alternative interpretations of workplace issues. If so, look at Box 7.2, ‘Sameness and difference’.


Chapter 7 · Managing equality and diversity

BOX 7.2

Sameness and difference
Billing and Alvesson (1989) were interested in the question of why there are relatively few women at senior levels in organisations and they conclude that different explanations arise depending on whether men and women are judged to be fundamentally the same or fundamentally different from each other. The discussion below draws on their analysis and brings in some of the other issues explored so far in the chapter. If you think men and women are basically the same, any dissimilarity in terms of getting into senior positions has to be explained in terms of discriminatory practices in organisations. And if you think something should be done about this it might be because you believe it is ethical to do so, or else because it is organisationally inefficient not to do anything (or perhaps both). These should be familiar arguments because they are reflective of the discussion of social justice and the business case earlier in the chapter. If you believe men and women have different qualities, strengths and values, any dissimilarity might be explained by these differences. This could suggest that the appointment of women to senior posts would only be possible if the fundamental maledominated values of the organisation changed. Simply changing policies and practices would not be adequate – a more radical overhaul would be necessary. Of course, you might think that such an overhaul would be unnecessary, in which case you are arguing for keeping the status quo. However, some observers suggest that changes in the business environment mean that contemporary businesses increasingly require more managers with skills traditionally associated with women: communication, teamworking, cooperation, nurturing, transforming and so forth. According to this line of argument, women are able to make a special contribution to the organisation and, based on business efficiency arguments, are more likely to be promoted to senior levels.

● 2. The individualist strand
The second way of looking from a difference perspective can be called the individualist strand because the main focus is the individual rather than the social group. This approach emphasises the individuality of all employees. People have unique strengths and weaknesses, abilities and needs. Therefore it is not important to focus on characteristics that associate people with a particular group – for instance, their sex or whether they have a disability – rather it is their individuality that becomes the central pertinent issue. A label that is often associated with this approach is ‘managing diversity’. It is increasingly being used by organisations as a term to describe their approach to ensure fairness and opportunities for all. However, a particular problem is that the term ‘managing diversity’ can have various meanings. It has become one of those widely used management phrases, so can mean different things in different organisations. At one extreme it is simply a synonym for ‘equal opportunities’ – used because the latter is seen as old-fashioned or backward looking – and therefore has no distinct or special meaning of its own. At the other extreme, managing diversity represents a new approach to dealing with disadvantage at work. A notable example of the new approach based on recognising individual differences is Kandola and Fullerton (1994). They argue that managing diversity is superior to previous approaches to equality at work for five reasons: 1 It ensures that all employees maximise their potential and their contribution to the organisation. 2 It covers a broad range of people – no one is excluded. 3 It focuses on issues of movement within an organisation, the culture of the organisation, and the meeting of business objectives.

Devising equality and diversity policies


4 It becomes the concern of all employees and especially all managers. 5 It does not rely on positive action/affirmative action. Below are some examples of the types of initiatives that might arise from taking this individualist difference perspective.
● ● ● ●

Offer employees a choice of benefits from a ‘menu’ so they can tailor a package to suit their individual needs. Devise training and development plans for each employee. Provide training to ensure that managers are aware of, and can combat, their prejudices based on stereotypes. Explore and publicise ways that diversity within the organisation improves the organisation – for example, public perceptions, sensitivity to customer needs, wider range of views and ideas. Re-evaluate the criteria for promotion and development and widen them by recognising a greater range of competences, experiences and career paths.

The guiding policy behind these types of initiative is special treatment according to individual needs. Of course, this approach has its critics, and in particular three objections can by raised. 1 The approach tends to understate the extent to which people share common experiences. It has a tendency to reject the idea of social groups which is somewhat counter to people’s everyday experiences. For example, while several disabled people might differ considerably across a whole range of attributes and attitudes, their common experience of disability (even different forms of disability) might be sufficient to create a feeling of cohesion and solidarity. In particular, some people might actively look for social group identity if they feel isolated or vulnerable. 2 The approach ignores material similarities between social groups. For example, Kirton and Greene (2000: 115) note that ‘women of all ethnic groups typically take on the responsibility for children and are less able to compete for jobs with men, not withstanding qualitative ethnic differences in how women may “juggle” their multiple roles’. 3 The approach has a tendency to emphasise the value of diversity in terms of the business sense arguments outlined earlier in the chapter. As was noted, such arguments have their limitations because they focus only on those initiatives that can be shown to contribute to the profitability or other performance indicators of the organisation. In practice, this extends opportunities only to a selective number of individuals whose competencies are in short supply or have been identified as being of particular value. So far, two perspectives (sameness and difference) have been identified and compared. To help you conceptualise this, Figure 7.1 puts it in diagrammatic form.

■ Sameness and difference
As has been shown in the discussion above, disadvantage can arise by treating people the same or by treating people differently, so any policy that emphasises one perspective more than the other runs the risk of leaving some disadvantages unchecked. What is called for is a mixed policy that recognises that to eliminate disadvantage it is necessary in some circumstances to treat people the same, and in other circumstances to treat people differently. Of course, this is a challenge in itself because in what circumstances do you apply one criterion and not the other? For example, imagine the following situation. A woman applies for a job as an adviser selling financial products in a company that is dominated by men. Scenario 1: she has the same qualifications and experience as male applicants, but the all-male selection panel might reject her because they consider that she would not ‘fit in’ with the competitive, aggressive culture of the organisation.


Chapter 7 · Managing equality and diversity

Figure 7.1

The perspectives of ‘sameness’ and ‘difference’
Treatment of people based on...

Sameness Guiding principle: Equal treatment


Collectivist strand Guiding principle: Special treatment according to social group membership

Individualist strand Guiding principle: Special treatment according to individual needs

Scenario 2: she has the same qualifications as male applicants but has taken a career break for childcare purposes. The selection panel reject her because compared with men of the same age she has less work experience. In the first scenario the panel are rejecting her by using the criterion of difference (recognising gender); in the second by using the criterion of sameness (ignoring gender). But if the panel were to reverse their logic of difference and sameness, it might lead them to different conclusions. In the first scenario, if the panel ignored gender, they would arrive at the conclusion that she was appointable. In the second scenario, if they recognised that, because of her gender, she has had extra domestic commitments so cannot be compared with men of the same age, then again they might conclude she is appointable. This illustrates that managers have a key role in dealing with disadvantage because they determine the criteria and define the circumstances in which sameness and difference are either recognised or ignored.

Institutional discrimination
One of the key issues that managers must face is whether their organisation operates in ways that are fundamentally discriminatory. This is sometimes referred to as institutional racism, institutional sexism, institutional homophobia and so on. The term means that rather than discrimination being seen simply as the actions of individuals, it is deeprooted in the processes and culture of the organisation. Examples of processes that are sometimes described as evidence of institutional discrimination are:
● ● ● ● ● ●

word-of-mouth methods for recruitment; dress codes that prevent people practising their religious beliefs; promotions based on informal recommendations, rather than open competition; informal assessments rather than formal appraisals; assumptions about training capabilities; assumptions about language difficulties and attitudes.

Institutional discrimination


Often these types of processes are not recognised as being discriminatory and have been in operation for many years. It is only when a company is faced with a legal challenge that such practices are seen to be having a discriminatory impact. Managers should regularly scrutinise organisational procedures, and the use of data collected through equal opportunity monitoring can be particularly effective in highlighting areas where the processes might be disadvantaging particular groups.


Recruitment at SewCo
Consider the following case: SewCo is a family-run business that makes garments. Most of its employees are sewing machine operators (all women) who assemble the garments. It has a stable core workforce, but there is fluctuation in demand for its products, so extra employees are brought in when the order books are full and ‘let go’ at slack periods. When managers need to recruit extra employees, or when they need to replace someone, they rely on word-of-mouth methods. This means that the women on the shopfloor ask around their friends and family. When likely candidates are identified their names are given to the factory manager. He calls them in for a chat and assesses their suitability. If he approves them he asks the supervisor to check if the candidate has the required sewing skills. 1 Identify the problems with this approach to the recruitment process in terms of equal opportunities. 2 Suggest an alternative approach that might address the problems you have identified.

Just as pernicious are workplace cultures that have the effect of excluding people from particular social groups by making them feel unwelcome or uncomfortable. This is a key issue for managers because organisations might have cultures that are long established and deeply embedded. An interesting review of the way organisational cultures can marginalise social groups is provided by Kirton and Greene (2000: 76–93). Most notable among their conclusions are the following points:

Organisational cultures are infused with gendered meanings, which are often unarticulated and thus rendered invisible. The gendered hierarchy is an example, as are various unwritten codes, rules, customs and habits which guide gendered behaviour and underpin expectations of organisational members. Sexual harassment and the use of sexual humour are pervasive and the outcome of workplace gendered social relations, which are powerful mechanisms for the control and subordination of women. Stereotypes (based on gender, race, disability, sexual orientation and age) are reinforced through jokes and humour, leading to negative organisational experiences for some people. Non-disabled people’s lack of contact with disability reinforces their fear and ignorance surrounding the issue.
Consider whether your own employing organisation, university or college operates practices that might support institutionalised discrimination.

Stop and think


Chapter 7 · Managing equality and diversity