IT HAS BEEN 14 YEARS since Richard Thaler and Cass Sunstein co-authored their landmark book, Nudge: Improving Decisions About Health, Wealth and Happiness. The book made the eloquent argument that marketplaces are a collection of humans, and therefore a thorough understanding of human behaviour is critical to succeeding in them.
Nudge made the important distinction between two kinds of entities: ‘Econs’ and Humans. Econs are those hypothetical creatures that live on the pages of Economics textbooks. These mythical creatures are forward-looking, unemotional, can store and process copious amounts of information and are always looking to maximize outcomes. Humans, on the other hand, are very different: We get overwhelmed by too much information or too many choices; we get emotional and stressed when trying to make complex decisions; and we often choose to act in order to maximize our short-term happiness rather than longer-term outcomes.
Within organizations, the field of human resource management has evolved to embrace the idea that people are our most important resource. The field itself refers to the creation and implementation of practices, policies and processes to effectively organize and manage human capital resources in the workplace, in the service of the ultimate goal of enhancing business outcomes. Obviously, this involves a series of many discrete-yet-interconnected activities.
Broadly speaking, human resource management performs two kinds of activities. The first relates to the application of judgment and therefore decisions relating to human resources — for example, who to recruit, who to promote, and whom to provide training and additional responsibilities to. The second set of activities revolves around the construction of processes to ensure that employees receive the support they need to effectively create value for the organization. These processes include the delivery of salary and benefits, annual assessments and mentorship.
Human resource management (hereafter, HRM) therefore involves
