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.’

Human resource management ❚ 7

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.

Human resource management ❚ 9

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.

10 ❚ Managing people

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.

Human resource management ❚ 11

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.

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