HUMAN RESOURCE MANAGEMENT PRACT ICE
PRACTICE
A Handbook of
HUMAN RESOURCE MANAGEMENT
PRACTICE 10TH EDITION
Michael Armstrong
First published by Kogan Page Limited as A Handbook of Personnel Management Practice in 1977 Second edition 1984 Third edition 1988 Fourth edition 1991 Fifth edition 1995 Sixth edition 1996 Seventh edition published by Kogan Page Limited as A Handbook of Human Resource Management Practice
in 1999 Eighth edition 2001 Ninth edition 2003 Tenth edition 2006
Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses:
120 Pentonville Road
525 South 4th Street, #241
London N1 9JN
Philadelphia, PA 19147
United Kingdom
USA
www.kogan-page.co.uk © Michael Armstrong, 1977, 1984, 1988, 1991, 1995, 1996, 1999, 2001, 2003, 2006 The right of Michael Armstrong to be identified as the author of this work has been asserted by him in
accordance with the Copyright, Designs and Patents Act 1988.
British Library Cataloguing in Publication Data
A CIP record for this book is available from the British Library. ISBN 0 7494 4631 5
Library of Congress Cataloging-in-Publication Data
Armstrong, Michael, 1928- A handbook of human resource management practice/Michael Armstrong.–10th ed. p.cm. Includes bibliographical references and index. ISBN 0-7494-4631-5
1. Personnel management–Handbooks, manuals, etc. I. Title. HF5549.17.A76 2006 658.3–dc22
Typeset by Jean Cussons Typesetting, Diss, Norfolk Printed and bound in Great Britain by Cambridge University Press
Contents
List of figures xvii List of tables
xxi About the author
xxiii Preface
xxv
PART I MANAGING PEOPLE
1 Human resource management
Human resource management defined 3; Human resource system 4; Models of HRM 5; Aims of HRM 8; Policy goals of HRM 10; Characteristics of HRM 11; Reservations about HRM 15; HRM and personnel management 18; How HR impacts on organizational performance 20; HRM in context 24
2 Human capital management
Human capital management defined 29; Human capital management and human resource management 30; The concept of human capital 33; Human capital management: practice and strategy 36; Human capital measurement 37; Human capital reporting 47 Human capital management defined 29; Human capital management and human resource management 30; The concept of human capital 33; Human capital management: practice and strategy 36; Human capital measurement 37; Human capital reporting 47
3 Role of the HR function
The overall role of the HR function 54; The role of HR in facilitating and managing change 54; Variations in the practice of HR 56; Organizing the HR function 57; Marketing the HR function 59; Preparing, justifying and protecting the HR budget 60; Outsourcing HR work 61; Shared HR services 63; Using management consultants 64; Evaluating the HR function 66
4 The role of the HR practitioner
The basic roles 71; Models of the practitioners of HR 76; Gaining support and commitment 81; Ethical considerations 84; Professionalism in HRM 85; Ambiguities in the role of HR practitioners 87; Conflict in the HR contribution 88; The competencies required by HR professionals 89
5 Role of the front-line manager
The basic role 93; The line manager and people management 94; The respective roles of HR and line management 95; The line manager’s role in implementing HR policies 97; How to improve front-line managers as people managers 98
6 International HRM
International HRM defined 99; Issues in international HRM 99; International organizational models 100; Convergence and divergence 101; Cultural diversity 102; Think globally and act locally 104; International HR policies 104; Managing expatriates 104
PART II HUMAN RESOURCE MANAGEMENT PROCESSES
7 Strategic HRM 113
The concept of strategy 113; Strategic HRM defined 115; Aims of strategic HRM 116; Approaches to strategic HRM 117; Implementing strategic HRM 121
8 HR strategies 123
HR strategies defined 123; Purpose 124; The distinction between strategic HRM and HR strategies 124; Types of HR strategies 124; Criteria for an effective HR strategy 129
Contents ❚ vii
9 Developing and implementing HR strategies 131
Propositions about the development process 132; Levels of strategic decision-making 132; Strategic options and choices 133; Approaches to HR strategy development 134; Methodology for strategy development 140; Conducting a strategic review 141; Setting out the strategy 143; Implementing HR strategies 143
10 HRM policies 147
What human resource policies are 147; Why have HR policies 147; Do policies need to be formalized? 148; HR policy areas 148; Formulating HR policies 156; Implementing HR policies 157
11 Competency-based HRM 159
Types of competencies 160; Competency frameworks 161; Reasons for using competencies 163; Coverage of competencies 164; Use of competencies 165; Developing a competency framework 167; Defining technical competencies 169; Keys to success in using competencies 169; Emotional intelligence 170
12 Knowledge management 173
Knowledge management defined 174; The concept of knowledge 175; The purpose and significance of knowledge management 176; Approaches to knowledge management 176; Knowledge management systems 178; Knowledge management issues 178; The contribution of HR to knowledge management 180
13 Analysing roles, competencies and skills 181
Role analysis 187; Competency analysis 193; Skills analysis 198
PART III WORK AND EMPLOYMENT
14 The nature of work 205
What is work? 205; Theories about work 206; Organizational factors affecting work 208; Changing patterns of work 210; Unemployment 212; Attitudes to work 212; Job-related well-being 212 What is work? 205; Theories about work 206; Organizational factors affecting work 208; Changing patterns of work 210; Unemployment 212; Attitudes to work 212; Job-related well-being 212
15 The employment relationship 215
The employment relationship defined 215; Nature of the employment relationship 215; Basis of the employment relationship 217; Defining the employment relationship 217; Significance of the employment relationship concept 218; Changes in the employment relationship 218; Managing the employment relationship 218; Trust and the employment relationship 220
16 The psychological contract 225
The psychological contract defined 225; The significance of the psychological contract 227; The nature of the psychological contract 228; How psychological contracts develop 229; The changing nature of the psychological contract 231; The state of the psychological contract 233; Developing and maintaining a positive psychological contract 234; The state of the psychological contract 2004 235
PART IV ORGANIZATIONAL BEHAVIOUR
17 Characteristics of people 239
Individual differences 239; Attitudes 244; Influences on behaviour at work 244; Attribution theory – how we make judgements about people 245; Orientation to work 246; Roles 247; Implications for HR specialists 248
18 Motivation 251
The process of motivation 252; Types of motivation 253; Motivation theory 254; Instrumentality theory 254; Content (needs) theory 255; Process theory 258; Herzberg’s two-factor model 262; The relationship between motivation, job satisfaction and money 263; Job satisfaction 264; Motivation and money 267; Motivation strategies 268
19 Organizational commitment and engagement 271
The concepts of commitment and engagement 271; Organizational commitment 273; Influences on commitment and employee satisfaction 279; Engagement 281
Contents ❚ ix
20 How organizations function 283
Basic considerations 283; Organization theories 283; Organization structure 288; Types of organization 289; Organizational processes 292
21 Organizational culture 303
Definitions 303; The significance of culture 305; How organizational culture develops 306; The diversity of culture 306; The components of culture 307; Classifying organizational culture 309; Assessing organizational culture 311; Measuring organizational climate 312; Appropriate cultures 313; Supporting and changing cultures 314
PART V ORGANIZATION, DESIGN AND DEVELOPMENT
22 Organization design 319
The process of organizing 319; Aim 320; Conducting organization reviews 321; Organization analysis 321; Organization diagnosis 322; Organization planning 324; Responsibility for organization design 325
23 Job design and role development 327
Jobs and roles 327; Factors affecting job design 328; Job design 330; Job enrichment 332; Self-managing teams 333; High-performance work design 334; Role development 334
24 Organizational development, change and transformation 337
What is organizational development? 337; Organization development 338; Change management 343; Organizational transformation 352; Development and change processes 355
PART VI PEOPLE RESOURCING
People resourcing defined 359; People resourcing and HRM 359; Plan 361
25 Human resource planning 363
The role of human resource planning 363; Aims of human resource planning 368; The process of human resource planning 368; Resourcing strategy 371; Scenario planning 372; Estimating future human resource requirements 373; Labour turnover 375; Action planning 382; The contribution of HR to human resource planning 388 The role of human resource planning 363; Aims of human resource planning 368; The process of human resource planning 368; Resourcing strategy 371; Scenario planning 372; Estimating future human resource requirements 373; Labour turnover 375; Action planning 382; The contribution of HR to human resource planning 388
26 Talent management 389
Talent management defined 390; The elements of talent management 390; Creating a great place to work 394; Attraction strategies 395; Retention strategies 397; Career management 399; Talent management for knowledge workers 407; Talent management in practice 407
27 Recruitment and selection 409
The recruitment and selection process 409; Defining requirements 409; Attracting candidates 414; Advertising 416; E-recruitment 420; Outsourcing recruitment 423; Educational and training establishments 424; Application forms 425; Sifting applications 425; Selection methods 429; Types of interviews 430; Assessment centres 430; Graphology 431; Choice of selection methods 432; Improving the effectiveness of recruitment and selection 432; References, qualifications and offers 434; Final stages 436
28 Selection interviewing 439
Purpose 439; Advantages and disadvantages of interviews 440; The nature of an interview 441; Interviewing arrangements 442; Preparation 443; Timing 444; Planning and structuring interviews 444; Interviewing approaches 445; Interview techniques – starting and finishing 450; Interviewing techniques – asking questions 450; Selection interviewing skills 457; Coming to a conclusion 458; Dos and don’ts of selection interviewing 459
29 Selection tests 461
Psychological tests: definition 461; Purpose of psychological tests 461; Characteristics of a good test 462; Types of test 463; Interpreting test results 467; Choosing tests 468; The use of tests in a selection procedure 468
30 Introduction to the organization 471
Induction defined 471; Why taking care about induction is important 472; Reception 473; Documentation 474; Company induction – initial briefing 475; Introduction to the workplace 475; Formal induction courses 476; On-the-job induction training 477
Contents ❚ xi
31 Release from the organization 479
General considerations 479; Redundancy 482; Outplacement 485; Dismissal 487; Voluntary leavers 490; Retirement 490
PART VII PERFORMANCE MANAGEMENT
32 The basis of performance management 495
Performance management defined 495; Aims of performance management 496; Characteristics of performance management 496; Understanding performance management 497; Guiding principles of performance management 499; Performance appraisal and performance management 500; Views on performance management 500
33 The process of performance management 503
Performance management as a process 503; Performance management as
a cycle 503; Performance agreements 504; Managing performance throughout the year 508; Reviewing performance 509; Rating performance 512; Dealing with under-performers 515; Introducing performance management 517
34 360-degree feedback 521
360-degree feedback defined 521; Use of 360-degree feedback 522; Rationale for 360-degree feedback 523; 360-degree feedback – methodology 524; Development and implementation 526; 360-degree feedback – advantages and disadvantages 527; 360-degree feedback – criteria for success 528
PART VIII HUMAN RESOURCE DEVELOPMENT
35 Strategic human resource development 533
Strategic HRD defined 533; Strategic HRD aims 534; Components of HRD 534; HRD and HRM 535; The process of learning and development 535; Strategies for HRD 536; Human resource development philosophy 537
36 Organizational learning and the learning organization 539
Organizational learning 540; The learning organization 543 Organizational learning 540; The learning organization 543
37 How people learn 549
Learning defined 549; The learning process 550; Learning theory 550; Learning styles 552; Learning to learn 554; The learning curve 554; The motivation to learn 555; The implications of learning theory and concepts 556
38 Learning and development 559
Learning 559; Development 570; Training 575
39 E-learning 583
What is e-learning? 583; Aim of e-learning 584; The technology of e-learning 584; The e-learning process 585; The business case for e-learning 586; Developing e-learning processes 588
40 Management development 591
Aims of management development 592; Management development: needs and priorities 592; The requirements, nature and elements of management development 593; Management development activities 594; Approaches to management development 596; Emotional intelligence and leadership qualities 602; Responsibility for management development 603
41 Formulating and implementing learning and development strategies 607
Making the business case 607; Developing a learning culture 609; Identifying learning needs 610; Planning and implementing learning and development programmes 612; Evaluation of learning 615
PART IX REWARDING PEOPLE
42 Reward management 623
Reward management defined 623; The aims of reward management 624; The philosophy of reward management 624; The elements of reward management 625; Total reward 629; Reward management for directors and executives 634; Reward management for sales staff 636; Paying manual workers 636
Contents ❚ xiii
43 Strategic reward 643
Reward strategy defined 643; Why have a reward strategy? 644; The structure of reward strategy 644; The content of reward strategy 645; Guiding principles 649; Developing reward strategy 649; Components of an effective reward strategy 651; Reward strategy priorities 652; Examples of reward strategies 653; Implementing reward strategy 656; Reward strategy and line management capability 657
44 Job evaluation 659
Job evaluation defined 660; Analytical job evaluation 660; Non-analytical job evaluation 664; The incidence of job evaluation 666; Computer- assisted job evaluation 667; Criteria for choice 668; The case for and against job evaluation 671; Designing a point-factor job evaluation scheme 672; Conclusions 679
45 Market rate analysis 681
Purpose 681; The concept of the market rate 681; The information required 682; Job matching 682; Presentation of data 683; Sources of information 683
46 Grade and pay structures 689
Grade structure defined 689; Pay structure defined 690; Guiding principles for grade and pay structures 690; Types of grade and pay structure 691; Designing grade and pay structures 698
47 Contingent pay 707
Contingent pay defined 708; The incidence of contingent pay 708; The nature of individual contingent pay 709; Individual contingent pay as a motivator 709; Arguments for and against individual contingent pay 710; Alternatives to individual contingent pay 712; Criteria for success 713; Performance-related pay 713; Competence-related pay 714; Contribution-related pay 716; Skill-based pay 718; Service-related pay 720; Choice of approach 721; Readiness for individual contingent pay 721; Developing and implementing individual contingent pay 724; Team-based pay 724; Organization-wide schemes 725 Contingent pay defined 708; The incidence of contingent pay 708; The nature of individual contingent pay 709; Individual contingent pay as a motivator 709; Arguments for and against individual contingent pay 710; Alternatives to individual contingent pay 712; Criteria for success 713; Performance-related pay 713; Competence-related pay 714; Contribution-related pay 716; Skill-based pay 718; Service-related pay 720; Choice of approach 721; Readiness for individual contingent pay 721; Developing and implementing individual contingent pay 724; Team-based pay 724; Organization-wide schemes 725
48 Employee benefits, pensions and allowances 729
Employee benefits 729; Occupational pension schemes 731; Allowances and other payments to employees 734
49 Managing reward systems 737
Reward budgets and forecasts 737; Evaluating the reward system 739; Conducting pay reviews 740; Control 744; Reward procedures 745; Responsibility for reward 746; Communicating to employees 748
PART X EMPLOYEE RELATIONS
Employee relations defined 751; Plan 752
50 The framework of employee relations 753
The elements of employee relations 754; Industrial relations as
a system of rules 754; Types of regulations and rules 755; Collective bargaining 756; The unitary and pluralist views 758; The reconciliation of interests 759; Individualism and collectivism 759; Voluntarism and its decline 759; The HRM approach to employee relations 761; The context of industrial relations 762; Developments in industrial relations 763; The parties to industrial relations 766; Role of the HR function in employee relations 771
51 Employee relations processes 773
Employee relations policies 774; Employee relations strategies 778; Employee relations climate 779; Union recognition and de-recognition 781; Collective bargaining arrangements 783; Informal employee relations processes 788; Other features of the industrial relations scene 789; Managing with trade unions 791; Managing without trade unions 792
52 Negotiating and bargaining 795
The nature of negotiating and bargaining 795; Negotiating 796; Negotiating and bargaining skills 803
Contents ❚ xv
53 Employee voice 807
The concept of employee voice 807; Involvement and participation 808; Purposes of employee voice 808; The framework for employee voice 808; Expression of employee voice 809; Factors affecting choice 810; Forms of employee voice 810; Joint consultation 811; Attitude surveys 812; Suggestion schemes 814; Planning for voice 815
54 Communications 817
Communication areas and objectives 819; Communications strategy 819; Communication systems 821
PART XI HEALTH, SAFETY AND WELFARE
55 Health and safety 829
Managing health and safety at work 830; The importance of health and safety in the workplace 830; Benefits of workplace health and safety 831; Health and safety policies 832; Conducting risk assessments 833; Health and safety audits 836; Safety inspections 838; Occupational health programmes 838; Managing stress 839; Accident prevention 841; Measuring health and safety performance 841; Communicating the need for better health and safety practices 842; Health and safety training 843; Organizing health and safety 843
56 Welfare services 845
Why provide welfare services? 845; What sort of welfare services? 847; Individual services 848; Group welfare services 851; Provision of employee welfare services 851; Internal counselling services 852; Employee assistance programmes 852
PART XII EMPLOYMENT AND HRM SERVICES
57 Employment practices 857
Terms and conditions and contracts of employment 858; Mobility clauses 860; Transfer practices 860; Promotion practices 861; Flexible working 862; Attendance management 863; Equal opportunity 866; Ethnic monitoring 867; Managing diversity 868; The Data Protection Act 869; Sexual harassment 870; Smoking 872; Substance abuse at work 873; Bullying 873; AIDS 874; E-mails 874; Work-life balance 875 Terms and conditions and contracts of employment 858; Mobility clauses 860; Transfer practices 860; Promotion practices 861; Flexible working 862; Attendance management 863; Equal opportunity 866; Ethnic monitoring 867; Managing diversity 868; The Data Protection Act 869; Sexual harassment 870; Smoking 872; Substance abuse at work 873; Bullying 873; AIDS 874; E-mails 874; Work-life balance 875
58 HRM procedures 879
Grievance procedure 880; Disciplinary procedure 881; Capability procedure 883; Redundancy procedure 885
59 Computerized human resource information systems 889
Benefits of a computerized human resource information system 890; HR information strategy 890; The functions of a computerized HR system 891; The technical infrastructure 892; Rating of system features 892; An effective system 893; Problems and how to deal with them 894; Developing a computerized HR information system 895; Applications 899; Auditing the system 906
Appendix: Example of an attitude survey 907 References
911 Subject index
953 Author index
List of figures
0.1 Route map xxvi
0.2 Relationship between aspects of people management
1.1 HRM activities
1.2 The Human Resource Cycle
1.3 The Harvard Framework for Human Resource Management
1.4 Model of the link between HRM and performance
2.1 The Sears Roebuck Model: Employee-Customer-Profit chain
2.2 The balanced scorecard
2.3 The EFQM model
2.4 Human capital external reporting framework
2.5 Human capital reporting dashboard for area managers: Nationwide
4.1 Types of personnel management
4.2 The changing role of the HR practitioner
9.1 Strategic review sequence 142
13.1 Example of a role profile 192
15.1 Dimensions of the employment relationship 216
16.1 A model of the psychological contract 230
18.1 The process of motivation 253
18.2 Motivation model 260
20.1 Channels of communication within groups 294
25.1 The process of human resource planning 370 25.1 The process of human resource planning 370
25.2 A survival curve 378
26.1 The elements of talent management 391
26.2 Career progression curves 401
26.3 The process of career management 401
26.4 Management succession schedule 404
26.5 Competence band career progression system 405
26.6 Career paths in a career family structure 406
26.7 Talent acquisition and development at Centrica 408
27.1 Person specification for an HR officer 412
27.2 Example of an application form (compressed) 426
27.3 Accuracy of some methods of selection 433
28.1 Part of a critical-incident interview for sales people 448
28.2 Behavioural-based interview set 449
29.1 A normal curve 467
33.1 The performance management cycle 504
34.1 360-degree feedback model 522
34.2 360-degree feedback profile 525
35.1 Components of human resource development 534
36.1 Single- and double-loop learning 541
36.2 Managing learning to add value; the learning cycle 542
37.1 The Kolb learning cycle 552
37.2 A standard learning curve 555
37.3 Different rates of learning 555
37.4 A stepped learning curve 556
38.1 Stages in preparing and implementing a personal development plan
38.2 Impact of development 575
38.3 Systematic training model 577
39.1 A blended learning programme 587
41.1 Learning needs analysis – areas and methods 611
41.2 A learning specification 613
42.1 Reward management: elements and interrelationships 630
42.2 The components of total reward 631
42.3 Model of total reward 633
43.1 A reward gap analysis 646
43.2 Reward philosophy and guiding principles at B&Q 650
43.3 A model of the reward strategy development process 651
43.4 Reward strategy priorities 652
43.5 The Norwich Union Insurance Progression, Performance & Pay 654 framework
List of figures ❚ xix
43.6 Integrated reward model – Kwik-fit 655
44.1 A paired comparison 665
44.2 A typical job evaluation programme 675
44.3 Design sequence 676
46.1 A narrow, multi-graded structure 692
46.2 A broad-graded structure 693
46.3 Narrow and broad-banded structures 694
46.4 A broad-banded structure with zones 694
46.5 A job family structure 694
46.6 A career family structure 696
46.7 A pay spine 697
46.8 Type of grade and pay structure 701
46.9 Flow chart: design of a new grade and pay structure 705
47.1 Incidence of contingent pay schemes 708
47.2 Line of sight model 713
47.3 Performance-related pay 713
47.4 Competence-related pay 714
47.5 Contribution pay model (1) 716
47.6 Contribution pay model (2) 716
47.7 Contribution-related pay 717
47.8 Contribution-related pay model (Shaw Trust) 718
50.1 Employee relations: reconciliation of interests 760
52.1 Negotiating range within a settlement range 799
52.2 Negotiating range with a negotiating gap 800
52.3 Stages of a negotiation 801
53.1 A framework for employee voice 809
List of tables
1.1 Similarities and differences between HRM and personnel management
1.2 Outcomes of research on the link between HR and organizational performance
4.1 Competency framework for HR professionals
4.2 Key competency areas
9.1 Linking HR and competitive strategies 136
9.2 HRM best practices 137
11.1 Incidence of different competency headings 162
14.1 Feelings at work 213
16.1 Job satisfaction 235
18.1 Summary of motivation theories 256
18.2 Motivation strategies 269
19.1 The Hay Group model of engaged performance 282
25.1 Survival rate analysis 378
25.2 Leavers by length of service 380
32.1 Performance appraisal compared with performance management 501
37.1 The implications of learning theory and concepts 557
38.1 Characteristics of formal and informal learning 565
41.1 Use of learning activities 615
41.2 Use of evaluation tools 619 41.2 Use of evaluation tools 619
42.1 Economic theories explaining pay levels 626
42.2 Summary of payment and incentive arrangements for sales staff 637
42.3 Comparison of shopfloor payment-by-result schemes 639
43.1 Examples of reward strategies and their derivation 656
44.1 Comparison of approaches to job evaluation 669
45.1 Summary of sources of market data 686
46.1 Summary analysis of different grade and pay structures 699
47.1 Comparison of individual contingent pay schemes 722
50.1 Contrasting dimensions of industrial relations and HRM 761
54.1 Communication areas and objectives 820
59.1 Computer system problems and solutions 894
About the author
Michael Armstrong is an honours graduate in economics from the London School of Economics, a Companion of the Chartered Institute of Personnel and Development and a Fellow of the Institute of Management Consultancy.
This book is largely based on Michael Armstrong’s hands-on experience as a personnel practitioner, initially in the engineering industry, specializing in industrial relations, and then in the engineering and food industries as an employee develop- ment specialist.
For 12 years he was an executive director with responsibility for HR in a large publishing firm and for three years of that period also acted as general manager for an operating division. For a further 10 years he headed up the HR consultancy divi- sion of Coopers & Lybrand. He is Managing Partner of e-reward.uk and also practises as an independent consultant. This experience has been supplemented recently by a number of research projects carried out on behalf of the Chartered Institute of Personnel and Development. These covered the personnel function’s contribution to the bottom line, strategic HRM, incentive pay, job evaluation, team rewards, broad- banded pay structures, and performance management. He was Chief Examiner Employee Reward for the CIPD from 1997–2001.
His publications for Kogan Page include Reward Management, Performance Manage- ment, How to Be an Even Better Manager, A Handbook of Management Techniques and A Handbook of Employee Reward, Management and Leadership.
Preface
This tenth edition of A Handbook of Human Resource Management Practice contains many additions and revisions. It refers to major developments in HR practice in the last two to three years such as the development of the theory and practice of human capital management, talent management and approaches to learning and develop- ment, all covered in new or substantially revised chapters. Reference is also made to a number of significant research projects including those conducted by the CIPD, IES and e-reward. Chapters on the following subjects have been either wholly replaced or extensively revised in the light of new concepts of good practice, the experience of the author as a practitioner and the outcomes of research:
human resource management;
role of the HR function;
role of the HR practitioner;
strategic human resource management;
competency-based HRM;
the delivery of learning and training;
performance management;
reward management fundamentals;
grade and pay structures. The plan of the handbook is illustrated in the ‘route map’ shown in Figure 0.1.
xxvi ❚ Preface
3 Role of HR function
6 International HRM 4 Role of HR practitioner
I People management
1 Human resource management
5 Role of line manager
2 Human capital management
II HRM processes Factors affecting HRM strategy policy and practice
7 Strategic HRM 8 HR strategies
III Work and employment 9 Developing HR strategies
14 The nature of work 10 HRM policies
15 The employment relationship 11 Competency-based HRM
HRM strategy,
16 The psychological contract 12 Knowledge management
policy and
IV Organizational behaviour 13 Analysing roles,
practice
17 Characteristics of people competencies and skills
18 Motivation 19 Commitment and engagement 20 How organizations function 21 Organizational culture
V Organization
VI People resourcing
VII Performance
VIII Human resource
25 Human resource
design
35 Strategic HRD 23 Job and role
planning
32 Basis of
36 Organizational design
26 Talent
performance
learning 24 Organization
management
management
37 How people learn development
27 Recruitment and
38 Learning and
28 Selection tests
processes
development
29 Introduction to the
30 Release from the
development
organization
41 Learning and development strategies
XII Employment and people
IX Rewarding
X Employee
XI Health, safety
relations
and welfare
HRM services
57 Employment management
42 Reward
50 Framework of
55 Health and safety
practices 43 Strategic reward
employee relations
56 Welfare services
58 HRM procedures 44 Job evaluation
51 Employee relations
59 Computerised 45 Market rate
processes
HR information analysis
52 Negotiating and
systems 46 Grade and pay
bargaining
53 Employee voice
structures
54 Communications
47 Contingent pay 48 Employee benefits 49 Managing reward
systems
Figure 0.1 Route map
Part I
Managing people
This part underpins the rest of the Handbook. It deals with the approaches and philosophies that affect how people are managed in organizations, the roles of the HR function and its members, and the special considerations that affect international people management. The term ‘people management’ embraces the two related concepts of human resource management (HRM) and human capital management (HCM), which are defined and explained in the first two chapters. These have virtually replaced the term ‘personnel management’, although the philosophies and practices of personnel management still provide the foundations for the philosophy and practices of HRM and HCM. The relationships between these aspects of people management are modelled in Figure 0.2.
2 ❚ Managing people
People management
The policies and practices which govern how people are managed and developed in organizations.
Human resource management Human capital management
‘A strategic and coherent approach to the ‘An approach to obtaining, analysing and management of an organization’s most
reporting on data which informs the direc- valued assets – the people working there
tion of value-adding people management who individually and collectively contribute
strategic investment and operational deci- to the achievement of its objectives.’
sions at corporate level and at the level of front line management.’
Personnel management
‘Personnel management is concerned with obtaining, organizing and motivating the human resources required by the enter- prise.’
(Armstrong, 1977)
Figure 0.2 Relationship between aspects of people management
Human resource management
The terms ‘human resource management’ (HRM) and ‘human resources’ (HR) have largely replaced the term ‘personnel management’ as a description of the processes involved in managing people in organizations. The concept of HRM underpins all the activities described in this book, and the aim of this chapter is to provide a framework for what follows by defining the concepts of HRM and an HR system, describing the various models of HRM and discussing its aims and characteristics. The chapter continues with a review of reservations about HRM and the relationship between HRM and personnel management and concludes with a discussion of the impact HRM can make on organizational performance.
HUMAN RESOURCE MANAGEMENT DEFINED
Human resource management is defined as a strategic and coherent approach to the management of an organization’s most valued assets – the people working there who individually and collectively contribute to the achievement of its objectives.
Storey (1989) believes that HRM can be regarded as a ‘set of interrelated policies with an ideological and philosophical underpinning’. He suggests four aspects that constitute the meaningful version of HRM:
4 ❚ Managing people
1. a particular constellation of beliefs and assumptions;
2. a strategic thrust informing decisions about people management;
3. the central involvement of line managers; and
4. reliance upon a set of ‘levers’ to shape the employment relationship.
HUMAN RESOURCE SYSTEM
Human resource management operates through human resource systems that bring together in a coherent way:
HR philosophies describing the overarching values and guiding principles adopted in managing people.
HR strategies defining the direction in which HRM intends to go.
HR policies, which are the guidelines defining how these values, principles and the strategies should be applied and implemented in specific areas of HRM.
HR processes consisting of the formal procedures and methods used to put HR strategic plans and policies into effect.
HR practices comprising the informal approaches used in managing people.
HR programmes, which enable HR strategies, policies and practices to be imple- mented according to plan.
Becker and Gerhart (1996) have classified these components into three levels: the system architecture (guiding principles), policy alternatives and processes and prac- tices.
See Figure 1.1.
MODELS OF HRM
The matching model of HRM
One of the first explicit statements of the HRM concept was made by the Michigan School (Fombrun et al, 1984). They held that HR systems and the organization struc- ture should be managed in a way that is congruent with organizational strategy (hence the name ‘matching model’). They further explained that there is a human resource cycle (an adaptation of which is illustrated in Figure 1.2), which consists of four generic processes or functions that are performed in all organizations. These are:
1. selection – matching available human resources to jobs;
Human resource management ❚ 5
HUMAN RESOURCE
Human capital
MANAGEMENT
management
Organization Resourcing
management relations
Design Human resource
Job evaluation/ Industrial planning
Organizational
learning
Market surveys relations
Development Recruitment and
Grade and pay selection
Employee voice
Job/role Talent
Management
design management
development
Contingent pay Communications
Health/safety and welfare
HR services
Knowledge management
Figure 1.1 HRM activities
2. appraisal – performance management;
3. rewards – ‘the reward system is one of the most under-utilized and mishandled managerial tools for driving organizational performance’; it must reward short as well as long-term achievements, bearing in mind that ‘business must perform in the present to succeed in the future’;
4. development – developing high quality employees.
6 ❚ Managing people
Figure 1.2 The Human Resource Cycle (adapted from Fombrun et al, 1984)
The Harvard framework
The other founding fathers of HRM were the Harvard School of Beer et al (1984) who developed what Boxall (1992) calls the ‘Harvard framework’. This framework is based on the belief that the problems of historical personnel management can only be solved:
when general managers develop a viewpoint of how they wish to see employees involved in and developed by the enterprise, and of what HRM policies and practices may achieve those goals. Without either a central philosophy or a strategic vision – which can be provided only by general managers – HRM is likely to remain a set of independent activities, each guided by its own practice tradition.
Beer and his colleagues believed that ‘Today, many pressures are demanding a broader, more comprehensive and more strategic perspective with regard to the orga- nization’s human resources.’ These pressures have created a need for: ‘A longer-term perspective in managing people and consideration of people as potential assets rather than merely a variable cost.’ They were the first to underline the HRM tenet that it belongs to line managers. They also stated that: ‘Human resource management involves all management decisions and action that affect the nature of the relation- ship between the organization and its employees – its human resources.’
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The Harvard school suggested that HRM had two characteristic features: 1) line managers accept more responsibility for ensuring the alignment of competitive strategy and personnel policies; 2) personnel has the mission of setting policies that govern how personnel activities are developed and implemented in ways that make them more mutually reinforcing. The Harvard framework as modelled by Beer et al is shown in Figure 1.3.
Stakeholder interests:
HRM policy
HR outcomes:
Long-term
government ● commitment
choices:
consequences
unions ● individual well-
human resource
reward systems
societal well-
Situational
work systems
being
factors:
work force characteristics
business strategy and conditions
management philosophy
labour market
unions
task technology
laws and social values
Figure 1.3 The Harvard Framework for Human Resource Management (Source: Beer et al, 1984)
According to Boxall (1992) the advantages of this model are that it:
incorporates recognition of a range of stakeholder interests;
recognizes the importance of ‘trade-offs’, either explicitly or implicitly, between the interests of owners and those of employees as well as between various interest groups;
widens the context of HRM to include ‘employee influence’, the organization of work and the associated question of supervisory style;
8 ❚ Managing people
acknowledges a broad range of contextual influences on management’s choice of strategy, suggesting a meshing of both product-market and socio-cultural logics;
emphasizes strategic choice – it is not driven by situational or environmental determinism.
The Harvard model has exerted considerable influence over the theory and practice of HRM, particularly in its emphasis on the fact that HRM is the concern of manage- ment in general rather than the personnel function in particular.
AIMS OF HRM
The overall purpose of human resource management is to ensure that the organiza- tion is able to achieve success through people. As Ulrich and Lake (1990) remark: ‘HRM systems can be the source of organizational capabilities that allow firms to learn and capitalize on new opportunities.’ Specifically, HRM is concerned with achieving objectives in the areas summarized below.
Organizational effectiveness
‘Distinctive human resource practices shape the core competencies that determine how firms compete’ (Cappelli and Crocker-Hefter, 1996). Extensive research has shown that such practices can make a significant impact on firm performance. HRM strategies aim to support programmes for improving organizational effectiveness by developing policies in such areas as knowledge management, talent management and generally creating ‘a great place to work’. This is the ‘big idea’ as described by Purcell et al (2003), which consists of a ‘clear vision and a set of integrated values’. More specifically, HR strategies can be concerned with the development of contin- uous improvement and customer relations policies.
Human capital management
The human capital of an organization consists of the people who work there and on whom the success of the business depends. Human capital has been defined by Bontis et al (1999) as follows:
Human capital represents the human factor in the organization; the combined intelli- gence, skills and expertise that give the organization its distinctive character. The human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization.
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Human capital can be regarded as the prime asset of an organization and businesses need to invest in that asset to ensure their survival and growth. HRM aims to ensure that the organization obtains and retains the skilled, committed and well-motivated workforce it needs. This means taking steps to assess and satisfy future people needs and to enhance and develop the inherent capacities of people – their contributions, potential and employability – by providing learning and continuous development opportunities. It involves the operation of ‘rigorous recruitment and selection proce- dures, performance-contingent incentive compensation systems, and management development and training activities linked to the needs of the business’ (Becker et al, 1997). It also means engaging in talent management – the process of acquiring and nurturing talent, wherever it is and wherever it is needed, by using a number of inter- dependent HRM policies and practices in the fields of resourcing, learning and devel- opment, performance management and succession planning.
The process of human capital management (HCM) as described in the next chapter is closely associated with human resource management. However, the focus of HCM is more on the use of metrics (measurements of HR and people perfor- mance) as a means of providing guidance on people management strategy and practice.
Knowledge management
Knowledge management is ‘any process or practice of creating, acquiring, capturing, sharing and using knowledge, wherever it resides, to enhance learning and perfor- mance in organizations’ (Scarborough et al, 1999). HRM aims to support the develop- ment of firm-specific knowledge and skills that are the result of organizational learning processes.
Reward management
HRM aims to enhance motivation, job engagement and commitment by introducing policies and processes that ensure that people are valued and rewarded for what they do and achieve and for the levels of skill and competence they reach.
Employee relations
The aim is to create a climate in which productive and harmonious relationships can
be maintained through partnerships between management and employees and their trade unions.
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Meeting diverse needs
HRM aims to develop and implement policies that balance and adapt to the needs of its stakeholders and provide for the management of a diverse workforce, taking into account individual and group differences in employment, personal needs, work style and aspirations and the provision of equal opportunities for all.
Bridging the gap between rhetoric and reality
The research conducted by Gratton et al (1999) found that there was generally a wide gap between the sort of rhetoric expressed above and reality. Managements may start with good intentions to do some or all of these things but the realization of them – ‘theory in use’ – is often very difficult. This arises because of contextual and process problems: other business priorities, short-termism, limited support from line managers, an inadequate infrastructure of supporting processes, lack of resources, resistance to change and lack of trust. An overarching aim of HRM is to bridge this gap by making every attempt to ensure that aspirations are translated into sustained and effective action. To do this, members of the HR function have to remember that it is relatively easy to come up with new and innovatory policies and practice. The challenge is to get them to work. They must appreciate, in the phrase used by Purcell et al (2003) that it is the front line managers who bring HR policies to life, and act accordingly.
POLICY GOALS OF HRM
The models of HRM, the aims set out above and other definitions of HRM have been distilled by Caldwell (2004) into 12 policy goals:
1. Managing people as assets that are fundamental to the competitive advantage of the organization.
2. Aligning HRM policies with business policies and corporate strategy.
3. Developing a close fit of HR policies, procedures and systems with one another.
4. Creating a flatter and more flexible organization capable of responding more quickly to change.
5. Encouraging team working and co-operation across internal organizational boundaries.
6. Creating a strong customer-first philosophy throughout the organization.
7. Empowering employees to manage their own self-development and learning.
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8. Developing reward strategies designed to support a performance-driven culture.
9. Improving employee involvement through better internal communication.
10. Building greater employee commitment to the organization.
11. Increasing line management responsibility for HR policies.
12. Developing the facilitating role of managers as enablers.
CHARACTERISTICS OF HRM
The characteristics of the HRM concept as they emerged from the writings of the pioneers and later commentators are that it is:
diverse;
strategic with an emphasis on integration;
commitment-oriented;
based on the belief that people should be treated as assets (human capital);
unitarist rather than pluralist, individualistic rather than collective in its approach to employee relations;
a management-driven activity – the delivery of HRM is a line management responsibility;
focused on business values.
The diversity of HRM
But these characteristics of HRM are by no means universal. There are many models, and practices within different organizations are diverse, often only corresponding to the conceptual version of HRM in a few respects.
Hendry and Pettigrew (1990) play down the prescriptive element of the HRM model and extend the analytical elements. As pointed out by Boxall (1992), such an approach rightly avoids labelling HRM as a single form and advances more slowly by proceeding more analytically. It is argued by Hendry and Pettigrew that ‘better descriptions of structures and strategy-making in complex organizations, and of frameworks for understanding them, are an essential underpinning for HRM’.
A distinction was made by Storey (1989) between the ‘hard’ and ‘soft’ versions of HRM. The hard version of HRM emphasizes that people are important resources through which organizations achieve competitive advantage. These resources have therefore to be acquired, developed and deployed in ways that will benefit the orga- nization. The focus is on the quantitative, calculative and business-strategic aspects of
12 ❚ Managing people
managing human resources in as ‘rational’ a way as for any other economic factor. As Guest (1999a) comments:
The drive to adopt HRM is... based on the business case of a need to respond to an external threat from increasing competition. It is a philosophy that appeals to manage- ments who are striving to increase competitive advantage and appreciate that to do this they must invest in human resources as well as new technology.
He also commented that HRM ‘reflects a long-standing capitalist tradition in which the worker is regarded as a commodity’. The emphasis is therefore on the interests of management, integration with business strategy, obtaining added value from people by the processes of human resource development and performance management and the need for a strong corporate culture expressed in mission and value statements and reinforced by communications, training and performance management processes.