Denmark MBA

Module 3 – Human
Resource Management
Contents
Learning Topics Pages Book
Outcomes
The Concept of Human Resource Management 5 to 15 Armstrong SHRM
1.1+2.1+2.3
Action
1.2 Employment Law 537 to 538 Armstrong
Handbook
1.2 Managing Equality and Diversity 232 to 234 HRM by
Beardwell
2.3 Models of HRM 9 to 12 Armstrong
Handbook
3 The Nature of Labor Markets 123 to 125 HRM by
3 Labor Demand 133 to 137 Beardwell
158 to 165 +
3 Human Resource Planning
170
53 to 66 + Armstrong SHRM
4 HR Strategies
71 Action
753 to 761 Torrington and
5 Measuring HR: Effectiveness and Efficiency
Hall HRM
220 to 229 Strategic
5.1 Managing Structure with Strategy Management
(Fred R David)
 5

The concept of human

resource management

In the first section of this chapter human resource management (HRM) is

defined in general and as a system. Its aims and characteristics are described
in later sections of the chapter.

HRM 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.
Boxall et al (2007) describe HRM as ‘the management of work and people
towards desired ends’. John Storey (1989) believes that HRM can be
regarded as a ‘set of interrelated policies with an ideological and philo-
sophical underpinning’. He suggests four aspects that constitute the mean-
ingful version of HRM: 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. HRM is further
defined by the two models of HRM developed by what might be described
as its founding fathers.
6 l The conceptual framework of strategic HRM

The matching model of HRM

One of the first explicit statements of the HRM concept was made by the
Michigan School (Fombrun, Tichy and Devanna, 1984). They held that HR
systems and the organization structure 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 1.1), which consists of four generic processes or
functions that are performed in all organizations. These are:

l selection – matching available human resources to jobs;

l appraisal – performance management;
l 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’;
l development – developing high-quality employees.

The Harvard framework

The other pioneers 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 their 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

Rewards

Performance
Selection Performance
appraisal

Development

Figure 1.1 The human resource cycle

Source: Fombrun, Tichy and Devanna, 1984
 The concept of human resource management l 7

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 organization’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 relationship
between the organization and its employees – its human resources.’
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 1.2.

Stakeholder
interests:
• shareholders
• management
• employees
• government
• unions HRM policy HR outcomes: Long-term
choices: consequences:
• employee • commitment • individual
influence • congruence well-being
• human resource • cost- • organizational
Situational flow effectiveness effectiveness
factors: • reward systems • societal well-
• work systems being
• workforce
characteristics
• business
strategy and
conditions
• management
philosophy
• labour market
• unions
• task technology
• laws and social
values

Figure 1.2 The Harvard framework for human resource management

Source: Beer et al, 1984
8 l The conceptual framework of strategic HRM

According to Boxall (1992) the advantages of this model are that it:

l incorporates recognition of a range of stakeholder interests;

l 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;
l widens the context of HRM to include ‘employee influence’, the organi-
zation of work and the associated question of supervisory style;
l acknowledges a broad range of contextual influences on management’s
choice of strategy, suggesting a meshing of both product-market and
socio-cultural logics;
l emphasizes strategic choice – it is not driven by situational or environ-
mental determinism.

HRM is seen in the UK ‘as a substantially different model built on unitarism,

individualism, high commitment and strategic alignment’ (Guest, 1987).
However, 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 management in general rather than the HR function in
particular. As Boxall, Purcell and Wright (2007) point out, ‘HRM is not just
what HR departments do.’

HUMAN RESOURCE SYSTEMS

Human resource management operates through human resource systems as
illustrated in Figure 1.3. These bring together in a coherent way:

l HR philosophies, describing the overarching values and guiding principles

adopted in managing people;
l HR strategies, defining the direction in which HRM intends to go;
l HR policies, which are the guidelines defining how these values, prin-
ciples and strategies should be applied and implemented in specific areas
of HRM;
l HR processes, consisting of the formal procedures and methods used to
put HR strategic plans and policies into effect;
l HR practices, consisting of the informal approaches used in managing
people;
l HR programmes, which enable HR strategies, policies and practices to be
implemented according to plan.
 The concept of human resource management l 9

HUMAN RESOURCE
MANAGEMENT

HR philosophies

Human capital HR strategies, policies, processes, Corporate social

management practices and programmes responsibility

Learning and Reward Employee

Organization Resourcing development management relations

Workforce Organizational Job evaluation/ Industrial

Design planning learning market surveys relations

Recruitment Individual Grade and pay Employee

Development and selection learning structures voice

Talent Management Contingent

Job/role design Communications
management development pay

Health and Performance Employee

safety management benefits

Employee Knowledge
well-being management

HR services

Figure 1.3 HRM activities

AIMS OF HRM
The overall purpose of human resource management is to ensure that the
organization 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.’
Dyer and Holder (1988) analyse management’s HR goals under the
dimensions of contribution (what kind of employee behaviour is expected?),
10 l The conceptual framework of strategic HRM

composition (what headcount, staffing ratio and skill mix?), competence

(what general level of ability is desired?) and commitment (what level of
employee attachment and identification?).
Twelve policy goals for HRM have been identified by Caldwell (2004):

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 teamworking and cooperation across internal organiza-
tional boundaries;
6. creating a strong customer-first philosophy throughout the organization;
7. empowering employees to manage their own self-development and
learning;
8. developing reward strategies designed to support a performance-driven
culture;
9. improving employee involvement through better internal communi-
cation;
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.

But as Dyer and Holder (1988) emphasize: ‘HRM goals vary according to
competitive choices, technologies or service tangibles, characteristics of
their employees (eg could be different for managers), the state of the labour
market and the societal regulations and national culture.’ And Boxall,
Purcell and Wright (2007) note that ‘The general motives of HRM are
multiple.’
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
 The concept of human resource management l 11

(2003), which consists of a ‘clear vision and a set of integrated values’. More
specifically, HR strategies can be concerned with the development of
continuous 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. It has been defined by
Bontis et al (1999) as follows: ‘Human capital represents the human factor in
the organization; the combined intelligence, skills and expertise that gives
the organization its distinctive character. The human elements of the organi-
zation 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 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 employa-
bility – by providing learning and continuous development opportunities. It
involves the operation of ‘rigorous recruitment and selection procedures,
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 interdependent HRM policies and practices in
the fields of resourcing, learning and development, 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 performance) 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 performance in organizations’ (Scarborough et al, 1999). HRM
aims to support the development of firm-specific knowledge and skills that
are the result of organizational learning processes.
12 l The conceptual framework of strategic HRM

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 compe-
tence they reach.

Employee relations
The aim is to create a climate in which productive and harmonious relation-
ships can be maintained through partnerships between management and
employees and their trade unions.

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 work-
force, taking into account individual and group differences in employment,
personal needs, work style and aspirations and the provision of equal oppor-
tunities 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 prior-
ities, 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.

CHARACTERISTICS OF HRM
The characteristics of the HRM concept are that it is:

l diverse;
l strategic, with an emphasis on integration;
 The concept of human resource management l 13

l commitment-orientated;
l based on the belief that people should be treated as assets (human
capital);
l unitarist rather than pluralist, individualistic rather than collective, in its
approach to employee relations;
l a management-driven activity – the delivery of HRM is a line
management responsibility;
l focused on business values, although this emphasis is being modified in
some quarters and more recognition is being given to the importance of
moral and social values.

The diversity of HRM

There are no universal characteristics of HRM. Many models exist, and prac-
tices within different organizations are diverse, often corresponding to the
conceptual version of HRM in only a few respects. As Boxall et al (2007)
remark: ‘Human resource management covers a vast array of activities and
shows a huge range of variations across occupations, organizational levels,
business units, firms, industries and societies.’
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 organization. The focus is on the quan-
titative, calculative and business-strategic aspects of managing human
resources in as ‘rational’ a way as for any other economic factor. As Guest
(1999) 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 managements 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 comments 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
14 l The conceptual framework of strategic HRM

statements and reinforced by communications, training and performance

management processes.
The soft version of HRM traces its roots to the human-relations school; it
emphasizes communication, motivation and leadership. As described by
Storey (1989), it involves ‘treating employees as valued assets, a source of
competitive advantage through their commitment, adaptability and high
quality (of skills, performance and so on)’. It therefore views employees, in
the words of Guest (1999), as means rather than objects, but it does not go as
far as following Kant’s (2003 [1781]) advice: ‘Treat people as ends unto them-
selves rather than as means to an end.’ The soft approach to HRM stresses the
need to gain the commitment – the ‘hearts and minds’ – of employees
through involvement, communications and other methods of developing a
high-commitment, high-trust organization. Attention is also drawn to the
key role of organizational culture.
In 1998, Karen Legge defined the ‘hard’ model of HRM as a process
emphasizing ‘the close integration of human resource policies with business
strategy which regards employees as a resource to be managed in the same
rational way as any other resource being exploited for maximum return’. In
contrast, the soft version of HRM sees employees as ‘valued assets and as a
source of competitive advantage through their commitment, adaptability
and high level of skills and performance’.
It has, however, been observed by Truss (1999) that, ‘even if the rhetoric of
HRM is soft, the reality is often hard, with the interests of the organization
prevailing over those of the individual’. And research carried out by Gratton
et al (1999) found that, in the eight organizations they studied, a mixture of
hard and soft HRM approaches was identified. This suggested to the
researchers that the distinction between hard and soft HRM was not as
precise as some commentators have implied.

The strategic nature of HRM

Perhaps the most significant feature of HRM is the importance attached to
strategic integration, which flows from top management’s vision and lead-
ership, and which requires the full commitment of people to it. David Guest
(1987, 1989a, 1989b, 1991) believes that this is a key policy goal for HRM,
which is concerned with the ability of the organization to integrate
HRM issues into its strategic plans, to ensure that the various aspects of
HRM cohere, and to encourage line managers to incorporate an HRM
perspective into their decision making.
Karen Legge (1989) considers that one of the common themes of the
typical definitions of HRM is that human resource policies should be inte-
grated with strategic business planning. Keith Sisson (1990) suggests that a
 The concept of human resource management l 15

feature increasingly associated with HRM is a stress on the integration of HR

policies both with one another and with business planning more generally.
John Storey (1989) suggests that ‘The concept locates HRM policy formu-
lation firmly at the strategic level and insists that a characteristic of HRM is
its internally coherent approach.’

The commitment-orientated nature of HRM

The importance of commitment and mutuality was emphasized by Walton
(1985) as follows: ‘The new HRM model is composed of policies that
promote mutuality – mutual goals, mutual influence, mutual respect, mutual
rewards, mutual responsibility. The theory is that policies of mutuality will
elicit commitment which in turn will yield both better economic
performance and greater human development.’
David Guest (1987) wrote that one of the HRM policy goals was the
achievement of high commitment – ‘behavioural commitment to pursue
agreed goals, and attitudinal commitment reflected in a strong identification
with the enterprise’.
It was noted by Karen Legge (1995) that human resources ‘may be tapped
most effectively by mutually consistent policies that promote commitment
and which, as a consequence, foster a willingness in employees to act flexibly
in the interests of the “adaptive organization’s” pursuit of excellence’.
But this emphasis on commitment has been criticized from the earliest
days of HRM. Guest (1987) asked: ‘commitment to what?’, and Fowler (1987)
has stated:

At the heart of the concept is the complete identification of employees with the
aims and values of the business – employee involvement but on the company’s
terms. Power, in the HRM system, remains very firmly in the hands of the
employer. Is it really possible to claim full mutuality when at the end of the day the
employer can decide unilaterally to close the company or sell it to someone else?

People as ‘human capital’

The notion that people should be regarded as assets rather than variable
costs, in other words treated as human capital, was originally advanced by
Beer et al (1984). HRM philosophy, as mentioned by Karen Legge (1995),
holds that ‘human resources are valuable and a source of competitive
advantage’. Armstrong and Baron (2002) stated that ‘People and their
collective skills, abilities and experience, coupled with their ability to deploy
these in the interests of the employing organization, are now recognized as
making a significant contribution to organizational success and as consti-
tuting a significant source of competitive advantage.’
 Chapter 43 Employment Law 537

covered include criminal offences, risks to health labour officials or inspectors have a central place in
and safety, failure to comply with a legal obligation, the administration of the law. In some jurisdictions,
a miscarriage of justice and environmental damage. such as the Netherlands, employers are obliged to
The Enterprise and Regulatory Reform Act 2013 seek their approval before dismissing staff. Elsewhere,
introduced a public interest test. Employees will officials bring criminal prosecutions when they have
have legal protection only if they can show that evidence that an employer has acted unlawfully. In
they ‘reasonably believe’ that the disclosure they France, for example, even when an employer settles
have made is in ‘the public interest’. Disclosures a discrimination claim with an employee, it can
made before the date when this provision comes still find itself having to defend its actions in the
into force (25 June 2013) need only to have been criminal courts.
made ‘in good faith’. In the UK the inspectorate model is used in the
A disclosure outside the organization must usu- enforcement of health and safety law, in matters
ally be made to an appropriate body. For example, concerning the illegal employment of overseas
disclosing a health and safety issue to the Health migrants and, to an extent, in the enforcement of
and Safety Executive is likely to be protected, but the National Minimum Wage. But, in most areas
justified disclosures to the media may be protected of employment law, criminal sanctions play no role.
in certain cases. The employment tribunal claim The onus is overwhelmingly on aggrieved employees
form asks employees if they agree for the matters and, more commonly, former employees to bring
raised in their claim to be referred to the appropri- their cases before the civil courts. When a complaint
ate regulatory body. relates to the alleged breach of an employment
Dismissing employees for whistle-blowing who statute such as unfair dismissal or unlawful dis­
can show that they have acted in the public interest crimination, claimants bring their cases before
is deemed to be automatic unfair dismissal. There is their local Employment Tribunal. Here the case
no qualified period of service required and no cap will either be heard by an Employment Judge sitting
on compensation. alone, or sometimes by a panel of three in which the
judge is assisted by two lay members who have
industrial experience. In most cases the burden of
proof lies with the claimant (ie the person bringing
How is employment law the case), but on some questions of law it can
reverse so that the respondent (ie the employer)
enforced? must satisfy the tribunal that it did not act unlaw-
fully as is alleged. Employment tribunals then
It is in the area of enforcement and remedies that decide cases ‘on the balance of probabilities’, having
employment law varies most from country to country weighed the evidence that is presented to them by
(Slattery and Broadbent 2013). In many countries, each party or its representatives.
including Australia, Germany, India and Japan, Employment tribunals operate in a relatively in-
specialized employment tribunals are charged with formal way. Anyone can carry out the duty of repre-
deciding cases that are brought by aggrieved senting a party, the role being in no way restricted
employees or ex-employees who believe that an to professional lawyers. Sometimes claimants repre-
employer has treated them in an unlawful manner. sent themselves or are represented by a family mem-
Sometimes these institutions take an arbitration ber or a friend. Trade union officials increasingly
approach, seeking to promote a settlement to the carry out this kind of work too. Respondents are
dispute between the parties. In other jurisdictions more likely to employ lawyers to represent them,
tribunals are more clearly part of a court system, but sometimes represent themselves too. As a result,
simply deciding cases in favour of one party or the the Employment Tribunal provides a relatively swift
other after hearing evidence. Elsewhere, notably in and low-cost forum in which a case can be decided.
the United States, cases are heard by standard civil Appeals on questions of law can be taken to the
courts with no specialist brief in the field of employ- Employment Appeals Tribunal and, subsequently,
ment. A rather different type of system operates on to the Court of Appeal, Supreme Court and,
in countries where the criminal law plays a much if appropriate, the European Court of Justice. But
greater role in employment matters. Here local appealing a case is usually more costly.
538 Part 10 HRM Policy and Practice

Employment tribunals do not hear cases that

relate to breaches of contract or alleged committing
HRM and employment law
of torts such as negligence. So people wanting to
pursue wrongful dismissal cases or personal injury The extent to which employment law influences the
claims must instead take their case to the County way that people are managed in organizations varies
Court or High Court. In practice this requires them considerably. Larger corporations with high-profile
to hire lawyers and to be represented by a barrister. reputations to defend have a tendency to settle
Costs are awarded against losing parties too, mak- claims ahead of any tribunal hearing in order to
ing this a riskier and potentially expensive route avoid negative publicity in the media. The estimated
to take. costs associated with defending a claim also typically
In practice, awards against losing respondents dwarf the size of the award that the claimant can
are rarely very high. Ahead of a case, solicitors hope to win. So rather than tie up days of manage-
representing claimants often set out a schedule of ment time defending a case, claimants are simply
losses, which is a good deal inflated and does not paid off on condition that they sign a settlement
realistically represent the actual sum that would be agreement that precludes them from publicizing the
won following a successful hearing in court. This is case (CBI 2012: 29). The advantage of such a policy
done in a bid to frighten unwary employers into is that it effectively enables managers to run their
settling the case for a higher sum than they need to organizations without taking too much notice of
in order to avoid the hassle of defending the case in the expectations of employment law. The disadvan-
court. The truth, according to the annual statistics tage, of course, is that it encourages people whose
published by the Employment Tribunal Service is claims are not strong in law to bring cases in any
that the sums awarded are typically much lower event, in the hope of securing a payout.
than claimants might in theory hope to gain (see A very different approach is typically taken in the
Table 43.1). public and third sectors where considerable efforts
are made to comply with employment legislation.
Here, HR departments often gain a reputation for
being overcautious in the way that they handle
employee grievances, so great is their wish to avoid
Ta b l e 43.1  Median awards made having to defend a case in the Employment Tribunal.
in different types of This means that, in practice, the vast majority
of tribunal hearings involve smaller private sector
employment tribunal
enterprises that neither have the resources available
case 2011–12 to pay people off as a matter of routine, nor to ensure
that they are complying with the requirements of
Unfair dismissal £4,560 the law. Managers in smaller enterprises also tend
to prefer an informal management style, which can
Race discrimination £5,256 make legal challenges more likely (DBIS 2013b).
Published evidence suggests that, in practice,
Sex discrimination £6,746 employment law has a major impact on the way that
HR managers approach their work. As long ago as
Disability discrimination £8,928 2002, when the volume of employment legislation
was a good deal less than it is now, the Chartered
Religious discrimination £4,267 Institute of Personnel and Development established
that two-thirds of HR specialists were spending in
Sexual orientation discrimination £13,505 excess of 20 per cent of their time ‘dealing with
employment law issues’, while one-quarter reported
Age discrimination £6,065 that over 40 per cent of their working days were
being spent in this way (CIPD 2002). A further CIPD
Source: ETS Annual Report 2012 survey of HR professionals, carried out five years
later, reported that 40 per cent of respondents rated
‘securing compliance with employment regulations’
HUMA_C07.QXD 29/11/06 12:02 Page 232

CHAPTER 7 MANAGING EQUALITY AND DIVERSITY

2 Measuring in the short term. In many instances the full effects of an equality or diversity
initiative would only be realised in the long term. For many managers within organisations
this would be a disincentive to invest in such initiatives, particularly if the performance of
their department was measured in the short term. Moreover, it would be an even greater
disincentive to invest if the manager’s salary or bonus was affected by the short-term per-
formance of their department.
Overall, the business case argument can make an impact – for example, in circumstances of
skills shortages, needs for particular types of employees, or local labour market conditions –
but this is likely to be variable and patchy. As Dickens (1999: 10) states:

The contingent and variable nature of the business case can be seen in the fact that business
case arguments have greater salience for some organisations than others. . . . The appeal of a
particular business case argument can also vary over time as labour or product markets
change, giving rise to ‘fair weather’ equality action.

Stop
& Should the absence or weakness of a ‘business case’ for eliminating unfair discrimination
think and disadvantage absolve managers from trying to do so?

Justice and business sense

As you might have noticed, the two sets of arguments are not necessarily mutually exclusive.
Indeed, it is feasible and practical for managers to use both sets to justify equality or diversity
initiatives in their organisations. It reflects a pragmatic realisation that by stressing both argu-
ments there is more chance of gaining commitment to equality and diversity from a wider
group of people. Whether a manager is committed to equality because of justice or business
sense reasons does not really matter – it is the fact he or she is committed that counts. Of
course, this is not quite as simple in practice because once commitment has been gained,
there is then the question of what policies to put in place.
Before proceeding with a discussion of policy choices, there is an important point to note
that underpins much of the following discussion. Efforts to tackle unfair discrimination have
not been able to develop through a simple reliance on voluntary commitment to social justice
by managers or their rational acceptance of the business case. In most countries legislation
has been introduced which sets limits to lawful managerial action and places obligations on
managers to act in accordance with principles of fairness. In other words, some equality and
diversity practices are the result of a legal obligation, rather than management choice.
Bearing this general point in mind, you should also note the following:
 The type and extent of this legislation varies from country to country, so it is important to
read about the specific legislation in your own national context.
 Opinion varies as to whether state regulation is necessary or the extent to which it is legit-
imate or practical to legislate to prevent discrimination and promote equality of
opportunity.
 Even when legislation is in place there is no guarantee that this ensures equality of oppor-
tunity. This might be because the legislation is flaunted (unlawfully) or because it is
ineffective (too weak, too many loopholes, easily ignored, difficult to enforce, and so on).
In Europe there has been a move towards a common platform of human rights in relation to
equality and fairness. One of the key developments has been the attempt to harmonise the
protection against discrimination at work. Within each country there have been changes in
national legislation – either amendments to existing laws or the introduction of new laws – in

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EQUALITY AND DIVERSITY POLICIES

compliance with European Union directives. The basic principle behind the directives is a
right to equal treatment irrespective of racial or ethnic origin, religion or belief, disability, age
or sexual orientation. This principle is breached by direct and indirect discrimination,
harassment or an instruction to discriminate. As well as providing a shared platform of pro-
tection, the directives have established common legal definitions of these four terms, such
that they now have the same meaning in the different countries (although of course interpre-
tation of the meaning might still vary in different judicial contexts).
1 Direct discrimination is where a person is treated less favourably than another is, has been
or would be treated in a comparable situation on one of the grounds of racial or ethnic
origin, religion or belief, disability, age, or sexual orientation.
2 Indirect discrimination is where a provision, criterion or practice that appears to be neutral
and non-discriminatory would in fact disadvantage someone of a particular racial or
ethnic origin, religion or belief, disability, age or sexual orientation, compared to others,
unless it is objectively justified by a legitimate aim and it is an appropriate and necessary
means of achieving that aim.
3 Harassment is where unwanted conduct related to any of the listed grounds of discrimina-
tion takes place with the purpose or effect of violating someone’s dignity and of creating an
intimidating, hostile, degrading, humiliating or offensive environment.
4 An instruction to discriminate is where one person obliges another to act in a discrimina-
tory manner against a third party on the grounds noted above.

Equality and diversity policies

If the issue of disadvantage is to be addressed in a systemic and consistent way within an
organisation, then it is advantageous to have an overall policy that guides decision making
and action. Increasingly such policies are being created, although the terminology differs
from organisation to organisation: some call them equal opportunity policies, others diver-
sity policies and still others use both terms. The rationale for such policies can be based on a
mix of justice and business sense arguments, as was noted above. The form of these policies
varies between organisations and the next section will explain why this is the case. Before this,
it is necessary to make some general points about the purpose and forms of equal and diver-
sity policies and to note some of the criticisms made of them.
The ten points that follow are from the website of the UK’s Commission for Racial
Equality (www.cre.gov.uk) and are typical of the recommended good practice that employers
are encouraged to adopt. The initiatives from 3 to 10 are often described as ‘positive action’
(or ‘affirmative action’) and organisations are encouraged to adopt some, if not all, of these.
1 Develop an equal opportunities policy, covering recruitment, promotion and training.
2 Set an action plan, with targets, so that you and your staff have a clear idea of what can be
achieved and by when.
3 Provide training for all people, including managers, throughout your organisation, to
ensure they understand the importance of equal opportunities. Provide additional train-
ing for staff who recruit, select and train your employees.
4 Assess the present position to establish your starting point, and monitor progress in
achieving your objectives.
5 Review recruitment, selection, promotion and training procedures regularly, to ensure
that you are delivering on your policy.
6 Draw up clear and justifiable job criteria, which are demonstrably objective and job-
related.
7 Offer pre-employment training, where appropriate, to prepare potential job applicants
for selection tests and interviews; consider positive action training to help ethnic minor-
ity employees to apply for jobs in areas where they are under-represented.

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CHAPTER 7 MANAGING EQUALITY AND DIVERSITY

8 Consider your organisation’s image: do you encourage applications from under-represented

groups and feature women, ethnic minority staff and people with disabilities in recruitment
literature, or could you be seen as an employer who is indifferent to these groups?
9 Consider flexible working, career breaks, providing childcare facilities, and so on, to help
women in particular meet domestic responsibilities and pursue their occupations; and
consider providing special equipment and assistance to help people with disabilities.
10 Develop links with local community groups, organisations and schools, in order to reach
a wider pool of potential applicants.
The willingness of organisations to adopt such guidelines varies considerably. Moreover,
there is also considerable variation in the extent to which all the points are adopted. This can
be thought of as a sliding scale: at one extreme are those organisations that adopt a policy
that meets very few of the points, and at the other extreme those organisations that have
addressed all 10 points. Another way of looking at this is to think of different categories into
which an organisation might be placed according to its approach to equality and diversity.
Table 7.1 is an example of this type of categorisation.
One particular technique recommended by advocates of equality and diversity is ‘discrimi-
nation proofing’ the organisation. This entails auditing the processes to assess the potential
areas where unfair practice might occur. This might be through an absence of clear policy or
procedures, or from managerial lack of knowledge or training. The purpose of such an exer-
cise is to identify the areas of vulnerability and to take action to make improvements where
they carry an unacceptable level of risk.

Stop
& In which category in Table 7.1 would you place your own organisation (or an organisation
think you are familiar with)?

Even where organisations have equality and diversity policies in place, it does not necessarily
mean that these lead to organisational practices that ensure fair treatment within the work-
place. This point can be illustrated by looking at the findings from an analysis of data from a
nationally representative sample of British workplaces with 10 or more employees (Hoque and
Noon, 2004). The study assessed the frequency of equality policies and whether such policies
have any substance to them (meaning that they are backed up by practices that result in fair
treatment) or whether they are simply ‘empty shells’, with few or no practices to ensure their

Table 7.1 Types of equal opportunity organisation

The negative organisation Has no equal opportunity policy

Makes no claims of being an equal opportunity employer
Might not be complying with the law

The minimalist organisation Claims to be an equal opportunity employer

Has no written equal opportunity policy
Has no procedure or initiatives, but will react to claims of discrimination as they arise

The compliant organisation Has a written equal opportunity policy

Has procedures and initiatives in place to comply with some aspects of good
practice recommendations

The proactive organisation Has a written policy backed up with procedures and initiatives
Monitors the outcomes of initiatives to assess their impact
Promotes equality using full set of good practice guidelines, and might even go
beyond these

Source: Based on Healy (1993) and Kirton and Greene (2005)

234
 Chapter 1 The Essence of HRM 9

These concerns merit attention, but the more im- proposition that: ‘Human resource management
portant messages conveyed by the original notion (HRM) involves all management decisions and
of HRM such as the need for strategic integration, actions that affect the nature of the relationship be-
the treatment of employees as assets rather than tween the organization and employees – its human
costs, the desirability of gaining commitment, the resources’ (ibid: 1). They believed that: ‘Today... many
virtues of partnership and participation and the key pressures are demanding a broader, more compre-
role of line managers are still valid and are now hensive and more strategic perspective with regard
generally accepted, and the underpinning theories to the organization’s human resources’ (ibid: 4). They
are as relevant today as they ever were. also stressed that it was necessary to adopt ‘a longer-
And it should be remembered that these objec- term perspective in managing people and consider­
tions, with the exception of the last one, mainly ation of people as a potential asset rather than merely
apply to the original concept of HRM. But today, as a variable cost’ (ibid: 6). Beer and his colleagues were
explained in the final section of this chapter, HRM the first to underline the HRM tenet that it belongs
in action does not necessarily conform to this con- to line managers. They suggested that HRM had
cept as a whole. The practice of HRM is diverse. two characteristic features: 1) line managers accept
Dyer and Holder (1988) pointed out that HRM more responsibility for ensuring the alignment of
goals vary according to competitive choices, tech- competitive strategy and HR policies; 2) HR has
nologies, characteristics of employees (eg could be the mission of setting policies that govern how HR
different for managers) and the state of the labour activities are developed and implemented in ways
market. Boxall (2007: 48) referred to ‘the profound that make them more mutually reinforcing.
diversity’ of HRM and observed that: ‘Human re-
source management covers a vast array of activities
and shows a huge range of variations across occu- Contextual model of HRM
pations, organizational levels, business units, firms,
industries and societies.’ There are in fact a number The contextual model of HRM emphasizes the
of different models of HRM as described below. importance of environmental factors by including
variables such as the influence of social, institu-
tional and political forces that have been under­
estimated in other models. The latter, at best,
Models of HRM consider the context as a contingency variable.
The contextual approach is broader, integrating
The most familiar models defining what HRM is the human resource management system in the
and how it operates are as follows. environment in which it is developed. According to
Martin-Alcázar et al (2005: 638): ‘Context both
conditions and is conditioned by the HRM strat-
The matching model of HRM egy.’ A broader set of stakeholders is involved in
Fombrun et al (1984) proposed the ‘matching the formulation and implementation of human
model’, which indicated that HR systems and the resource strategies that is referred to by Schuler
organization structure should be managed in a way and Jackson (2000: 229) as a ‘multiple stakeholder
that is congruent with organizational strategy. This framework’. These stakeholders may be external
point was made in their classic statement that: ‘The as well as internal and both influence and are influ-
critical management task is to align the formal enced by strategic decisions
structure and human resource systems so that they
drive the strategic objectives of the organization’
(ibid: 37). Thus they took the first steps towards the The 5-P model of HRM
concept of strategic HRM.
As formulated by Schuler (1992) the 5-P model of
HRM describes how HRM operates under the five
The Harvard model of HRM headings of:
Beer et al (1984) produced what has become known 1 HR philosophy – a statement of how the
as the ‘Harvard framework’. They started with the organization regards its human resources,
10 Part 1 The Practice of Human Resource Management

the role they play in the overall success of ●● multicultural organizations;

the business, and how they should be treated ●● participation in decision-making;
and managed.
●● continuous learning.
2 HR policies – these provide guidelines for
action on people-related business issues and
for the development of HR programmes and The hard and soft HRM models
practices based on strategic needs.
Storey (1989: 8) distinguished between the ‘hard’
3 HR programmes – these are shaped by HR
and ‘soft’ versions of HRM. He wrote that: ‘The
policies and consist of coordinated HR
hard one emphasises the quantitative, calculative
efforts intended to initiate and manage
and business-strategic aspects of managing human
organizational change efforts prompted by
resources in as “rational” a way as for any other
strategic business needs.
economic factor. By contrast, the soft version traces
4 HR practices – these are the activities its roots to the human-relations school; it empha-
carried out in implementing HR policies sizes communication, motivation and leadership.’
and programmes. They include resourcing, However, it was pointed out by Keenoy (1997:
learning and development, performance and 838) that ‘hard and soft HRM are complementary
reward management, employee relations and rather than mutually exclusive practices’. Research
administration. in eight UK organizations by Truss et al (1997) indi-
5 HR processes – these are the formal cated that the distinction between hard and soft
procedures and methods used to put HR HRM was not as precise as some commentators
strategic plans and policies into effect. have implied. Their conclusions were as follows.

European model of HRM

Brewster (1993) described a European model of
HRM as follows:
Source review
●● environment – established legal framework; Conclusions on hard and soft models of
●● objectives – organizational objectives and HRM – Truss et al (1997: 70)
social concern – people as a key resource;
●● focus – cost/benefits analysis, also Even if the rhetoric of HRM is ‘soft’, the reality is
environment; almost always ‘hard’, with the interests of the
organization prevailing over those of the individual.
●● relationship with employees – union and
In all the organizations, we found a mixture of both
non-union;
hard and soft approaches. The precise ingredients
●● relationship with line managers – specialist/ of this mixture were unique to each organization,
line liaison;
which implies that factors such as the external and
●● role of HR specialist – specialist managers – internal environment of the organization, its
ambiguity, tolerance, flexibility. strategy, culture and structure all have a vital role
The main distinction between this model and what to play in the way in which HRM operates.
Brewster referred to as ‘the prescribed model’ was
that the latter involves deregulation (no legal frame-
work), no trade unions and a focus on organizational
objectives but not on social concern.
As set out by Mabey et al (1998: 107) the char-
acteristics of the European model are: HRM today
●● dialogue between social partners; As a description of people management activities
●● emphasis on social responsibility; in organizations the term HRM is here to stay,
 Chapter 1 The Essence of HRM 11

even if it is applied diversely or only used as a label

to describe traditional personnel management Source review
practices. Emphasis is now placed on the need for
HR to be strategic and businesslike and to add
value, ie to generate extra value (benefit to the busi- The meaning of HRM – Boxall et al
ness) by the expenditure of effort, time and money (2007: 1)
on HRM activities. There have been plenty of new
Human resource management (HRM), the
interests, concepts and developments, including
management of work and people towards desired
human capital management, engagement, talent
ends, is a fundamental activity in any organization
management, competency-based HRM, e-HRM,
high performance work systems, and performance in which human beings are employed. It is not
and reward management. But these have not been something whose existence needs to be radically
introduced under the banner of the HRM concept justified: HRM is an inevitable consequence of
as originally defined. starting and growing an organization. While there
HRM has largely become something that organ­ are a myriad of variations in the ideologies, styles,
izations do rather than an aspiration or a philoso- and managerial resources engaged, HRM happens
phy and the term is generally in use as a way of in some form or other. It is one thing to question the
describing the process of managing people. A con- relative performance of particular models of HRM
vincing summary of what HRM means today, which in particular contexts... It is quite another thing to
focuses on what HRM is rather than on its philoso- question the necessity of the HRM process itself,
phy, was provided by Peter Boxall, John Purcell and as if organizations cannot survive or grow without
Patrick Wright (2007), representing the new genera- making a reasonable attempt at organizing work
tion of commentators. and managing people.

Key learning points: The essence of human resource management

HRM defined management and employees and a climate of

mutual trust;
Human resource management (HRM) is concerned
with all aspects of how people are employed and ●● encourage the application of an ethical approach
managed in organizations. to people management.

Goals of HRM Philosophy of HRM

The goals of HRM are to: The beliefs of HRM included the assumptions that
it is the human resource that gives competitive
●● support the organization in achieving its edge, that the aim should be to enhance employee
objectives by developing and implementing commitment, that HR decisions are of strategic
human resource (HR) strategies that are importance and that therefore HR policies should be
integrated with the business strategy integrated into the business strategy (Storey, 2001: 7).
(strategic HRM);
●● contribute to the development of a high- Underpinning theories
performance culture;
‘Human resource management appears to lean
●● ensure that the organization has the talented, heavily on theories of commitment and motivation
skilled and engaged people it needs; create and other ideas derived from the field of
a positive employment relationship between organizational behaviour’ (Guest, 1987: 505).
12 Part 1 The Practice of Human Resource Management

The diversity of HRM been expressed about it. There may be something in
these criticisms, but the fact remains that as a
Many HRM models exist, and practices within different description of people management activities in
organizations are diverse, often only corresponding organizations HRM is here to stay, even if it is applied
to the conceptual version of HRM in a few respects. diversely or only used as a label to describe
traditional personnel management practices.
Reservations about HRM
On the face of it, the concept of HRM has much to
offer, at least to management. But reservations have

Questions
1 What is HRM? 6 What is the essence of the philosophy of
2 What was the main message of the Harvard HRM?
framework? 7 What is resource-based theory?
3 What was the main message of the matching 8 What is the significance of contingency theory?
model? 9 What are the key reservations made by
4 What are the goals of HRM? commentators about the early version of
5 What is the difference between hard and soft HRM?
HRM? 10 What is the position of HRM today?

References
Armstrong, M (1977) A Handbook of Personnel Boxall, P F, Purcell, J and Wright, P (2007) Human
Management Practice, 1st edn, London, Kogan resource management: scope, analysis and
Page significance, in (eds) P Boxall, J Purcell and
Armstrong, M (1987) Human resource management: P Wright, Oxford Handbook of Human Resource
a case of the emperor’s new clothes, Personnel Management, Oxford, Oxford University Press,
Management, August, pp 30–35 pp 1–16
Armstrong, M (2000) The name has changed but has Brewster, C (1993) Developing a ‘European’ model of
the game remained the same? Employee Relations, human resource management, The International
22 (6), pp 576–89 Journal of Human Resource Management, 4 (4),
Bakke, E W (1966) Bonds of Organization: pp 765–84
An appraisal of corporate human relations, Chartered Institute of Personnel and Development
Archon, Hamden (2013) HR Profession Map, http://www.cipd.co.uk/
Beer, M, Spector, B, Lawrence, P, Quinn Mills, D hr-profession-map-download.aspx [accessed
and Walton, R (1984) Managing Human Assets, 25 January 2013]
New York, The Free Press Delbridge, R and Keenoy, T (2010) Beyond
Boxall, P F (2007) The goals of HRM, in (eds) managerialism? The International Journal of
P Boxall, J Purcell and P Wright, Oxford Human Resource Management, 21 (6), pp 799–817
Handbook of Human Resource Management, Dyer, L and Holder, G W (1988) Strategic human
Oxford, Oxford University Press, pp 48–67 resource management and planning, in (ed)
Boxall, P F and Purcell, J (2003) Strategy and Human L Dyer, Human Resource Management: Evolving
Resource Management, Basingstoke, Palgrave roles and responsibilities, Washington DC, Bureau
Macmillan of National Affairs, pp 1–46
HUMN_C04.QXD 29/11/06 12:00 Page 123

THE NATURE OF LABOUR MARKETS

The nature of labour markets

The most general definition of the labour market is that it consists of workers who are look-
ing for paid employment and employers who are seeking to fill vacancies. The amount of
labour that is available to firms – labour supply – is determined by the number of people of
working age who are in employment or seeking employment and the number of hours that
they are willing to work. This number will be determined by the size and age structure of the
population and by the decisions made by individuals and households about the relative costs
and benefits of taking paid employment. These decisions are influenced by various factors,
one of which is the level of wages on offer. Generally speaking a higher wage will attract more
people into the labour market while a lower wage will attract fewer, as long as other factors,
such as the level of welfare benefits and people’s attitudes towards work, remain constant.
The number of jobs on offer to workers – labour demand – is the sum of people in
employment plus the number of vacancies waiting to be filled. The demand for labour is
determined by the level of demand for the goods and services produced by firms in the
market. When sales and production are rising, firms’ demand for labour rises. When sales fall
and production is cut back, firms’ demand for labour falls.
The simplest view of the labour market is that it is an arena of competition. Workers enter
the arena in search of jobs and employers enter it in search of workers. Competition between
employers for workers and between workers for jobs results in a ‘market wage’ that adjusts to
relative changes in labour demand and supply. Thus, when labour demand rises relative to
labour supply, the market wage rises as firms try to outbid each other for scarce labour. When
labour demand falls relative to labour supply, the market wage falls as workers compete with
each other for the smaller number of available jobs.
Competition means that no individual firm can set a wage that is out of line with the com-
petitive market wage. Neither can workers demand such a wage. Should a firm try to offer a
wage that is below the market rate, it will be unable to hire workers. Should a firm set a wage
above the market rate, it will go out of business because its costs of production will be above
those of its competitors. For the same reason, workers who demand a wage higher than the
market rate will price themselves out of jobs. No firm will hire them because to do so would
increase their costs of production relative to those of their competitors.
While it is undeniable that competitive forces operate in the labour market to a degree, few
would seriously pretend that this is a wholly accurate description of the real world. There are
limits to competition between firms and among workers. Wages do not respond instantly to
changes in labour demand. Nor is there a uniform wage in the labour market. Empirical
research has shown that rates of pay vary between firms, even in the same industry and oper-
ating in the same local labour market (Nolan and Brown, 1983). Other employment policies
also vary among firms. For example, some firms employ labour on a hire and fire basis and
make heavy use of casualised forms of employment such as temporary work while others
offer long-term employment security and career development. The policies that employers
adopt are influenced to a great extent by the characteristics they seek in their workforce:
 The need for a stable workforce. A stable workforce is advantageous to employers because
it reduces the costs of labour turnover, i.e. disruption of production due to the unplanned
reductions in the workforce that result from workers leaving, costs of recruitment and
selection, such as the financial costs of advertising for recruits and the cost in terms of
management time spent in recruiting and selecting replacements, and the cost of training
new recruits. These costs may be particularly high where skilled labour is scarce and
replacements hard to find, or where employers have invested considerable amounts in
training workers. In these situations employers have a strong interest in limiting the extent
of labour turnover.

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CHAPTER 4 HUMAN RESOURCE MANAGEMENT AND THE LABOUR MARKET

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

 The need for worker cooperation in production. A central issue in managing people at
work is how to manage their performance. One way of trying to ensure that workers
supply the required level of effort is by subjecting them to direct controls (Friedman,
1977). Traditionally this took the form of direct personal supervision by a superior and
externally imposed discipline. Today direct supervision is supplemented with electronic
surveillance, ‘mystery customers’ and customer questionnaire surveys in a managerial
effort to make workers’ effort levels increasingly visible. However, there are limits to the
extent that employers can rely on direct controls. To a great extent employers rely on suffi-
ciently motivated workers using their initiative to ensure efficiency and quality in the
production of goods and the delivery of services. The nature of the product or the produc-
tion process often makes it difficult to define what the appropriate effort levels are for each
worker and to measure how hard they are actually working. This makes it difficult for
managers to impose effort levels without the workers’ agreement. Heavy reliance on super-
vision and surveillance may also be counterproductive because of the resistance that it can
generate among workers. The alternative is to encourage workers to exercise responsible
autonomy at work (Friedman, 1977). In other words it may be more cost-effective for
managers to offer positive incentives to ensure that workers cooperate voluntarily with
management and use their job knowledge and their initiative to maintain and improve
efficiency and quality.
The greater are employers’ needs for a stable, highly cooperative workforce, the more likely
they are to introduce policies to retain workers and create a basis for mutual trust and coop-
eration while also raising the cost to the employee of losing their job should they fall short of
the standards demanded by management. These policies, which are associated with the ‘best
practice HRM’ principle of treating employees as valued assets rather than disposable com-
modities (see Chapter 1), internalise employment by fostering long-term employment
relationships and giving workers a degree of protection from external labour market pres-
sures. They include guarantees of long-term employment security, opportunities for training
and internal promotion, fringe benefits and pay that is higher than the market rate. However
these policies are themselves costly. Therefore the extent to which employers seek to in-
ternalise employment depends on the cost of labour turnover and the limits to direct control.
Where these are low, employers are more likely to treat labour as a disposable commodity, in
other words externalising the employment relationship.

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

Question
What is it about the nature of customer service work that leads employers to require voluntary
cooperation from workers? Why does this set limits to the extent to which management can
externalise the employment relationship?

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THE SUPPLY OF LABOUR

From this we can see that employers make strategic choices concerning the extent to which
they internalise or externalise employment. However, these choices are influenced by the spe-
cific labour market contexts in which they operate. As we shall see later in this chapter, the
overall state of the labour market is one important influence, while another is the way in
which the labour market is segmented, giving rise to advantaged and disadvantaged labour
market groups. To be able to understand how these influences operate, we first need to exam-
ine the two key dimensions of the labour market, labour supply and demand.

The supply of labour

‘In being bought and sold in the labour market, labour becomes a commodity’ (SCER, 2001: 5).
It follows that firms in competition with one another for labour will be interested in the current
and future availability of this commodity. Conventionally the process of human resource plan-
ning involves forecasting the supply and demand for labour so that suitable plans can be put in
place to address situations of labour shortage or surplus (see Chapter 5). Despite the apparent
logic of this approach Taylor (2005) suggests there is some evidence of firms rejecting system-
atic human resource planning as they find it impossible to predict labour supply and demand
with any degree of accuracy in a climate of uncertainty. Even so, some understanding of where
the future supply of labour can be sourced from and how plentiful that source is expected to be
is important in informing employers’ actions in the labour market.
The number of people seeking work in the labour market is influenced by factors relating
to the size and composition of the population. Within this section of the chapter we consider
the main demographic factors affecting total labour supply, namely population and popula-
tion change, the age structure of the population, gender and ethnicity.

Population
The supply side of the labour market derives from the country’s population, specifically men
aged between 16 and 65 years and women between the ages of 16 and 60 (working age).
Information on the total size of the current population and predictions of future patterns of
population growth and decline are thus important in estimating the current and future
supply of labour.
Population is affected by birth and death rates. When live births exceed the number of
deaths a net natural population increase arises and when mortality rates exceed birth rates a
net natural decline in population occurs. Population change is also influenced by net migra-
tion; that is the effect caused by people moving into and out of the country. In the 1950s and
1960s population growth was largely attributable to net natural change. Within this period a
relatively stable death rate coupled with the baby boom that followed the Second World War
triggered net natural growth. Since 1983 net migration has played an increased part in the
expansion of the population as the number of people migrating into the United Kingdom
continues to surpass the number leaving. In 2004 nearly 222,600 more people migrated to the
United Kingdom than left it. This net inflow represents the highest since the present methods
of estimation began in 1991. The net effects of migration are forecast to continue to play a
major role in population growth alongside net natural change (ONS, 2006a). For illustrative
purposes Home Office statistics (ONS, 2006a) show that between 1991 and 2004 the total
number of people accepted for permanent settlement in the United Kingdom more than
doubled. The biggest increase in acceptances was for people from Europe (excluding EEA
nationals) followed by those from Africa.
Latest data from the ONS (2006a) shows that the population of the United Kingdom has
been climbing steadily since 1971 and had reached 59.8 million people by 2004. Predictions

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LABOUR DEMAND

Stop
& Why might older mothers of dependent children display higher employment rates than
think younger women with children?

While parenthood continues to affect women’s employment rates disproportionately to men’s,

the proportion of working age mothers with dependent children who are in employment has
risen from 47 per cent in 1973 to 67 per cent in 2004 (EOC, 2006). In 2004 in all but the youngest
age category (mothers aged 16–24 with dependent children) the majority of married and lone
mothers of working age were engaged in paid employment. The speed with which women return
to work following maternity leave has also hastened significantly in the period since 1979;
according to EOC figures (2006) 70 per cent of mothers are back at work eight months after
giving birth, compared with just 15 per cent in 1979. The average amount of time women spend
away from waged work for general family care is falling rapidly too (Bradley, 1999).
Further key points to emerge from the data in Table 4.1 are:
 Mothers of dependent children are less likely to work than fathers of dependent children.
 Lone fathers are more likely to be in employment than lone mothers.
 Married and cohabiting parents have higher employment rates than lone parents.

Ethnicity and patterns of labour market participation

Employment participation rates for ethnic minorities are significantly lower than those for the
population as a whole. In autumn, 2005 66.2 per cent of ethnic minority people of working
age were either in work or seeking work compared with 78.8 per cent among the population as
a whole. The employment rate among ethnic minorities was 59.1 per cent as against 74.9 per
cent for the population as a whole, while unemployment was higher among ethnic minorities
at 10.7 per cent compared with 4.9 per cent of the entire workforce (LFS, 2006). It has been
argued that low participation rates among ethnic minorities are related to low levels of educa-
tional attainment and low skills, aspects of family structure, poor access to childcare, poor
housing and a lack of public transport facilities (Strategy Unit, 2003). However, research by
Wadsworth (2003) found that age, region and educational attainment explained hardly any of
the difference in employment rates as between ethnic minorities and British-born whites.
There are noticeable variations in activity and employment rates as between different
ethnic minority groups. For example, the employment rate among people of Indian origin is
69.8 per cent compared with just 38.5 per cent among Bangladeshis (LFS, 2006). Activity and
employment rates also vary within each ethnic group, generally being higher among British-
born members of ethnic minorities than among immigrants (Wadsworth 2003). Also, ethnic
minority women are less likely to participate in employment than men, with the differential
tending to be greater among immigrants rather than British-born ethnic minorities.
Nonetheless, British-born Indian women had the same employment rate – 73 per cent – as
British born white women in 2002 (Wadsworth, 2003).

Labour demand

Aggregate demand for labour

The aggregate demand for labour consists of total employment plus unfilled vacancies. As the
demand for labour is derived from the demand for goods and services it follows the eco-
nomic cycle, rising in upswings and falling in recessions. Changes in labour demand are
reflected in changes in the unemployment rate.

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Low levels of unemployment are usually taken as a sign that the economy is growing and is
in good shape. For employers however, the combination of record employment, low unem-
ployment and high numbers of economically inactive people exacerbates labour market
pressures contributing to what is referred to as a ‘tight labour market’. In tight labour markets
employers are likely to experience recruitment difficulties and skill shortages (CIPD, 2005).
The CIPD Barometer of HR Tends and Prospects (2005) suggested further tightening of the
labour market had occurred for these reasons during 2004 but problems had partially been
off set by firms employing immigrant workers, including those from countries such as Latvia,
Poland and Slovenia, which joined the EU on 1 May 2004 (CIPD, 2005).
Tight labour markets mean that employers have to compete more actively for workers and
workers have a wider choice of employment opportunities. This will lead to higher rates of
labour turnover as workers leave organisations for better jobs elsewhere. In response, firms may
be forced to increase pay. They may also adopt other policies aimed at retaining employees,
since vacancies arising from labour turnover will be hard to fill. Therefore there will be more
internal promotion and redeployment and this may necessitate increased investment in train-
ing. While these responses might be seen as moves towards internalising employment they are
not driven by the technical and skill requirements of production or a long-term employment
strategy but by immediate pressures from the labour market. These pressures may be reinforced
by stronger trade union bargaining power as a result of low unemployment and unfilled vacan-
cies. Once established, these employment practices may become embedded, although
employers may seek to reverse them should labour demand slacken and unemployment rise.
In addition to changes in aggregate demand for labour, we need to look at how demand
conditions for different labour market groups vary as the result of structured patterns of
inequality of employment opportunity. We also need to examine the changing pattern of
demand for labour and how it affects different labour market groups.

Labour market inequality

The quality of jobs on offer in the labour market varies. Some workers are in ‘good jobs’ with
high earnings, good working conditions, employment security and opportunities for training
and career development. Others are in ‘bad jobs’ with low status and pay, poor working con-
ditions, little access to training and few if any opportunities for promotion. How good and
bad jobs get created has been a matter of ongoing debate surrounding the theory of labour
market segmentation. One line of explanation, advanced by two economists, Doeringer and
Piore (1971), is based on the analysis of employers’ labour requirements outlined above.
Some firms face strong pressures to internalise the employment relationship in order to train,
develop and retain suitably skilled workers and gain their voluntary cooperation in produc-
tion. Others do not and are able to meet their labour requirements by following the
commodity labour approach and externalising the employment relationship.
Another explanation (Gordon, Edwards and Reich, 1982) is that some firms enjoy monopoly
power in their product markets and are able to use this power to increase the selling price of the
product, thereby increasing profits. Some of these companies are faced by workers who have
developed strong trade unions that can use their bargaining power to gain a share of these prof-
its in the form of high wages and other benefits, including job security provisions. At the same
time, management seeks to limit union solidarity and bargaining power by dividing the work-
force into horizontal segments and offering the prospect of promotion to those who are
cooperative and trustworthy. Firms that are unable to use monopoly power to raise their prices
do not have surplus profits to share with trade unions, so terms and conditions of employment
are less favourable. Since it is more likely that large, rather than small firms are able to exercise
monopoly power, primary sector employment is concentrated in large, rather than small firms.
One of the central predictions of the labour segmentation thesis is that there will be little
movement of workers between the primary and secondary sectors of the labour market.
Workers in the primary sector are unwilling to move to the secondary sector and the high

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LABOUR DEMAND

level of employment security that they enjoy means that they are unlikely to be forced to
through job loss. Workers who make up the disadvantaged segments of the labour market are
unable to move up into the primary sector because employers see them as undesirable candi-
dates for jobs. Primary sector employers want disciplined, cooperative workers with good
work habits, so when selecting from among applicants for jobs, primary sector employers will
tend to reject those with unstable employment histories that involve frequent unemployment
and job changes because they will assume that this indicates a poor quality worker. This will
automatically rule out secondary sector workers, regardless of their personal qualities, since
by definition secondary workers are in unstable, insecure jobs. It is also the case however, that
because of their experience of poor work, some secondary sector workers will tend to develop
negative attitudes and poor patterns of work behaviour that reinforce employers’ prejudices
against secondary sector workers as a whole.
These explanations for labour market segmentation emphasise the way in which firms’
employment decisions influence the wider labour market by dividing it into advantaged and
disadvantaged groups. However, the question of whether the labour market is divided into
primary and secondary sectors as a result of employers’ labour policies has generated consid-
erable debate. Numerous empirical studies to test the theory have been carried out in Britain
and the United States, with mixed results (see Joll, McKenna, McNab and Shorey, 1983; King,
1990 for a discussion of these).
What is not in doubt is that the quality of the jobs that people do is not determined simply
by their abilities, educational attainment and skills acquired through training. The chances of
someone being in a good or a bad job are also influenced by their membership of particular
socio-economic groups. There is clear evidence that the labour market is segmented along
lines that reflect ‘broader social forces leading to discrimination within the labour market’
(Rubery, 1994: 53).
Discrimination in the labour market means that workers’ chances of gaining access to
‘good’ or ‘bad’ jobs are unfairly influenced by non-work characteristics such as gender, race,
class, work-unrelated disability and age. Thus two equally skilled workers will find themselves
in different sectors of the labour market because one is a white male from a middle-class
social background and the other is a working-class black woman. This reflects deep-seated
patterns of discrimination within society in general as well as in the labour market. Here we
focus on how gender and ethnicity influence people’s experiences in the labour market.
Women and ethnic minority groups occupy a disadvantaged place in the labour market.
Women’s employment disadvantage reflects deep-seated societal norms concerning the
family and the respective roles of women and men in domestic roles and paid work. The
domestic roles played by many women mean that their employment opportunities are
restricted geographically and contractually. This is particularly true of women with children.
In the absence of highly developed systems of state support for childcare, childcare responsi-
bilities mean that many women cannot travel long distances to work and also that they
cannot work ‘standard’ hours. Therefore they are restricted to part-time work in the immedi-
ate locality. This means that they have limited choice of employment and therefore little
bargaining power and may have to accept secondary sector terms and conditions of employ-
ment. Ethnic minority workers, as well as facing racial prejudice and discrimination, may be
faced with additional limits to their choice of employment because they live in areas where
business activity is low and public transport facilities are poor (Strategy Unit, 2003).

Gender-based inequalities in employment opportunity

The social forces identified above mean there are major differences in the types of work that
men and women tend to do and the way in which male and female employment is segregated
by time. Patterns of occupational segregation are strongly in evidence in the labour market,
creating a division between male and female work. Bradley (1999) suggests that 66 per cent of
men and 54 per cent of women work only or mainly with their own sex, with women typi-

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CHAPTER 4 HUMAN RESOURCE MANAGEMENT AND THE LABOUR MARKET

cally crowded into administrative and secretarial work, catering, cleaning and caring occupa-
tions and men in skilled trades, construction and information technology (EOC, 2005). As
shown in Table 4.2, patterns of vertical segregation also loom large with men continuing to
dominate highly rewarded, senior roles in politics, business, media and culture and the public
and voluntary sectors (EOC, 2006).
The work that men and women do in the labour market is also segregated by hours of
work. Women are disproportionately represented in part-time work; women hold over 90 per
cent of part-time jobs and nearly half of all female employees (44 per cent) work part time
compared with just 8 per cent of men (ONS, 2004). Part-time working is most closely associ-
ated with women who have dependent children, although students and semi-retired older
people are also attracted to working in this way (Hakim, 1998). Part-time working is invari-
ably low-paid and this is reflected in the stubbornly persistent gender pay gap that exists
between women working part time and men working full time (EOC, 2005).

Female heterogeneity
The population, and hence the labour market, comprises different sorts of women, fractured
by age, class, ethnicity, qualification level, background and experience. So, whilst generalisa-
tions about the relative positions of men and women in employment serve some purpose, an
understanding of the different experiences of different sorts of people in the labour market is
more useful.
While we have seen that women are typically casualties of segregation in employment, some
women will be in a more advantageous labour market position than other women (and some
men). For example, the spring 2004 Labour Force Study (ONS, 2006a) shows us that a far
greater proportion of women with a degree or equivalent qualification were in employment
than women without. Some women are making significant strides in training and occupations
traditionally dominated by men, for example, women now comprise the majority of medical
students, there was also a 24 per cent rise in the number of female law students in the period
1971 to 1990 and a 61 per cent rise in women entering managerial work (Crompton, 1997).
Management is one of the areas in which women have made the most progress. In 2004,
33 per cent of all managers and senior officials were women (ONS, 2004). However, a closer
look at the gender composition at different levels of management and at management in dif-
ferent sectors reveals gendered patterns of horizontal and vertical segregation within
management careers. The dominance of men in the most senior management positions is
aptly illustrated by the following findings from the Cranfield Female FTSE Index 2005:

Table 4.2 Women’s share of a selection of senior ranked roles in the three consecutive years 2003–2005.

2003 2004 2005

% women % women % women

Members of Parliament 18.1 18.1 19.7

Local Authority Council Leaders n/a 16.6 16.2
Directors in FTSE 100 companies (executive and
non-executive directors) 8.6 9.7 10.5
Small businesses with women the majority of directors 12.3 14.4 n/a
Editors of national newspapers 9.1 9.1 13.0
Directors of major museums and art galleries 21.1 21.1 21.7
Chief executives of national sports bodies 14.3 6.3 6.7
Local authority chief executives 13.1 12.4 17.5
Senior ranks in the armed forces 0.6 0.8 0.8
Senior police officers 7.6 8.3 10.2
University vice chancellors 12.4 15.0 11.1
Health service chief executives 28.6 27.7 28.1

Source: EOC (2006).

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CHAPTER 5 HUMAN RESOURCE PLANNING

Defining human resource planning

In Through the Looking Glass Humpty Dumpty tells Alice, ‘When I use a word it means
exactly what I choose it to mean, neither more nor less.’ The same might be said of ‘human
resource planning’ (HRP) as the phrase can be used in a number of different ways. The main
distinction is between those who view the term as synonymous with ‘manpower planning’
and those who believe that ‘human resource planning’ represents something rather different
(Taylor, 2005).
Manpower planning has been defined as ‘a strategy for the acquisition, utilisation, improve-
ment and retention of an enterprise’s human resources’ (Department of Employment, 1974).
The prime concern is generally with enabling organisations to maintain the status quo; ‘the
purpose of manpower planning is to provide continuity of efficient manning for the total
business and optimum use of manpower resources’ (McBeath, 1992: 26), usually via the appli-
cation of statistical techniques. The term ‘human resource planning’ emerged at about the
same time as ‘human resource management’ started to replace ‘personnel management’, and
for some (e.g. McBeath, 1992; Thomason, 1988) the terminology is just a more up-to-date,
gender-neutral way of describing the techniques associated with manpower planning.
For others, human resource planning represents something different but the extent of this
difference can vary. In some instances, human resource planning is seen as a variant of man-
power planning more concerned with qualitative issues and cultural change, than with
hierarchical structures, succession plans and mathematical modelling (e.g. Cowling and
Walters, 1990). In other instances, the term can be used to signal a significant difference in
both thinking and practice (Liff, 2000). For example, Bramham (1989) argues that there are
fundamental differences between the two approaches:

There are particularly important differences in terms of process and purpose. In human
resource planning the manager is concerned with motivating people – a process in which
costs, numbers, control and systems interact to play a part. In manpower planning the man-
ager is concerned with the numerical elements of forecasting, supply-demand matching and
control, in which people are a part. There are therefore important areas of overlap and inter-
connection but there is a fundamental difference in underlying approach.
(Bramham, 1989: 147)

This broad interpretation of HRP can be seen as rather vague and lacking explicit practical
application or specification. For example, Marchington and Wilkinson (1996) argue that
Bramham’s conception of HRP is synonymous with HRM in its entirety and, as such, loses any
distinctive sense. Indeed, in his book Human Resource Planning, Bramham (1989) discusses a
very wide range of people management issues, including employee development, reward man-
agement and employee relations, and only focuses on specific planning issues in one chapter.
A third approach is to define HRP as a distinct process aimed at predicting an organisation’s
future requirements for human resources that incorporates both the qualitative elements
of human resource planning and the quantitative elements of manpower planning. These two
elements are often labelled as ‘soft’ and ‘hard’ human resource planning respectively. Tansley
(1999: 41) summarises the general conceptions of ‘hard’ HRP in the literature as follows:
 emphasis on ‘direct’ control of employees – employees are viewed like any other resource
with the need for efficient and tight management;
 akin to the notion of manpower planning – with emphasis on demand–supply matching;
 undertaken by HR specialists;
 related HR strategies are concerned with improving the utilisation of human resources.

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

 emphasis on ‘indirect control of employees – with increasing emphasis on employee
involvement and teamwork;
 a wider focus to include an emphasis on organisational culture and the clearer integration
between corporate goals and employee values and behaviour;
 involves HR specialists, line managers and possibly other employees;
 greater emphasis on strategies and plans for gaining employee commitment.
Like the broader interpretations of HRP, definitions of ‘soft’ HRP tend to assume a ‘best prac-
tice’, high-commitment approach to people management. Although there is emphasis on the
need to integrate human resource planning activity with corporate goals, the implicit
assumption is that this will be achieved via the design and application of plans aimed at
developing employee skills and securing their commitment to organisational goals. However,
as we shall discuss later in the chapter, there may be some business strategies, e.g. cost min-
imisation, that require different approaches to people management.

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

In order to convey the meaning of HRP as a set of activities that represent a key element of
HRM but are distinct from it, and to include both the soft and hard aspects of the planning
process, the definition used in this chapter is as follows:

HRP is the process for identifying an organisation’s current and future human resource
requirements, developing and implementing plans to meet these requirements and monitor-
ing their overall effectiveness.

There are a number of ways in which this process can be undertaken. The chapter begins with
an exploration of the key stages in the traditional approach to HRP (incorporating many of
the ‘hard’ elements) and then considers more contemporary variants.

The traditional approach to HRP

The prime concern within traditional or ‘hard’ HRP relates to balancing the demand for and
the supply of human resources. Demand reflects an organisation’s requirements for human
resources while supply refers to the availability of these resources, both within the organisation
and externally. Key stages within the traditional HRP process are largely derived from the
techniques associated with manpower planning. The approach can be depicted in a number of
different ways (see, for example, Armstrong, 2005; Bramham, 1988; Torrington et al., 2002)
but the models have a number of key features in common. All are essentially concerned with
forecasting demand and supply and developing plans to meet any identified imbalance result-
ing from the forecasts.
The Bramham model has proved to be one of the most influential. It was initially devised
in 1975 and the basic structure is still relevant, albeit with minor modifications, for example
by Pilbeam and Corbridge (2002). This is the model used in this chapter as a framework for
the key stages of traditional HRP; see Figure 5.1.

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CHAPTER 5 HUMAN RESOURCE PLANNING

Figure 5.1 The process of human resource planning

Analysis and Internal labour External labour Corporate Corporate

Investigation market market capability strategy

Turnover Quality Performance Growth/decay

Cohort analysis Availability Productivity New markets/
Profiles Sources Structure opportunities
Skills audit Price Technology Key objectives
Succession Skill change Work methods
Rewards

Forecasting Supply Demand

HR imbalance –
quantitative and qualitative

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

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

Source: This figure is taken from Human Resource Planning, Bramham, J. (1994), with the permission of the publisher, the Chartered Institute of Personnel and
Development, London.

Investigation and analysis

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

Internal labour market

A combination of quantitative and qualitative data can provide a ‘snapshot’ of the existing
workforce. This can include analysis of the workforce on a variety of levels such as skills,
qualifications, length of experience and job type as well as on factors relating to equal oppor-

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tunities, i.e. gender, ethnic origin, disability and age. This can help to ensure that the organis-
ation is making most effective use of existing resources and can identify any potential
problem areas; for example, if the composition of the workforce does not reflect the local
community or if the organisation is not fully utilising the skills it has available. Movement
through the organisation can also be investigated by tracking promotions, transfers and the
paths of those in more senior positions.

External labour market

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

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

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

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

Corporate strategy
Whereas corporate capability is primarily concerned with the current situation in the organis-
ation, corporate strategy focuses on future direction. Factors to be considered here might include
the organisation’s stage in its life cycle (see, for example, Kochan and Barocci, 1985); plans for

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CHAPTER 5 HUMAN RESOURCE PLANNING

consolidation or diversification; mergers, acquisitions and key organisational objectives. Each of

these factors is likely to have some impact on the numbers and types of human resources
required in the future. For example, a common consequence of mergers is for the rationalisation
of merged activities to lead to a significant number of redundancies (CIPD, 2000).

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

Activity This is an example of demand forecasting in a tyre and exhaust centre using the work study
method. The main tasks have been classified as follows:

Key tasks Hours per task

Exhausts 0.6
Tyres 0.3
Brakes 1.1

Forecasts jobs in 000s

Year 1 Year 2 Year 3

Exhausts 30 31 32
Tyres 100 115 130
Brakes 25 29 34

Convert into total work hours (000s)

Year 1 Year 2 Year 3

Exhausts 18 18.6 19.2

Tyres 30 34.5 39
Brakes 27.5 31.9 37.4
TOTAL 75.5 85 95.6

Convert into employees required (assuming 1800 hours/employee)

Year 1 Year 2 Year 3

Employees (full-time equivalents) 41.9 47.2 53.1

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

Forecasting the demand for human resources

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

Objective methods
Objective methods identify past trends, using statistical and mathematical techniques, and
project these into the future to determine requirements. Three methods frequently referred
to in the literature are time trends, ratio analysis and work study. Time trends consider pat-
terns of employment levels over the past few years in order to predict the numbers required

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

Activity Return to the forecasting exercise in the tyre and exhaust centre. This time management
estimate that productivity improvements can be made each year as follows:

Time per job:

Year 1 Year 2 Year 3

Exhausts 0.6 0.55 0.5

Tyres 0.3 0.25 0.2
Brakes 1.1 1.05 1.0

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

Subjective methods
The most common approach used in demand forecasting is managerial judgement, i.e. man-
agers estimate the human resources necessary for the achievement of corporate goals.
Estimates are likely to be based on a combination of past experience, knowledge of changing
circumstances and gut instinct. The approach is more flexible and adaptable than objective
methods but is inevitably less precise. There is also a danger that forecasts will be manipu-
lated due to organisational politics and ‘empire building’. For example, managers may inflate
estimates of future requirements because they want to increase the size of their department
(and thus possibly protect or improve their own position) or because they expect that esti-
mates will be cut and want to secure at least some improvements in staffing levels.
A more systematic use of the subjective approach is via the Delphi technique. A group of
managers make independent forecasts of future requirements. The forecasts are then amalga-
mated, recirculated and managers then modify their estimates until some sort of consensus is
reached. The process can help to minimise problems of manipulation in forecasts produced on
an individual basis but, although the literature frequently refers to the technique as a common
approach, empirical data suggest that it is rarely used in practice (Torrington et al., 2002).

Budgets
In this method the starting point is not past data but future budgets, i.e. what the organis-
ation can spend if profit and market targets are met. According to Bramham (1988: 59), this
is an extremely attractive approach: ‘it has the supreme advantage that, in working from the

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future to the present, the manager is not necessarily constrained by past practices’. However,
future budgets are likely to be determined, at least in part, by assumptions about changes to
past and current performance and are still reliant on the accuracy of predictions.
These different approaches to demand forecasting can be combined to provide more com-
prehensive forecasts. So, for example, objective methods may be used to give an indication of
future requirements but projections can then be modified by managerial judgement or to
take account of budgetary constraints. Similarly, estimates based on ratio data may be
adjusted to take account of productivity improvements resulting from new working methods
or the introduction of new technology.

Forecasting the supply of human resources

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

Measuring labour turnover – quantitative methods

The most common method of measuring labour turnover is to express leavers as a percentage
of the average number of employees. The labour turnover index is usually calculated using
the following formula:
Number of leavers in a specified period
––––––––––––––––––––––––––––––––––––––– ⫻ 100%
Average number employed in the same period
This measure is used most effectively on a comparative basis and frequently provides the
basis for external and internal benchmarking. Labour turnover can vary significantly between
different sectors and industries; for example, a recent survey into labour turnover (CIPD,
2005) reports that the average labour turnover rate in the UK is 15.7 per cent but this varies
between different industries and sectors. For example, 65 per cent in hotels, catering and
leisure, 36 per cent in call centres and 12 per cent in the public sector. There is no single best
level of labour turnover but external comparisons can be useful to benchmark labour
turnover against other organisations in the same industry, sector or location. However, even
organisations with lower than average turnover rates can experience problems if people have
left from critical jobs or from posts that are difficult to fill. Conversely, high turnover is not
necessarily problematic and might even prove useful if an organisation is seeking to reduce
costs or reduce the numbers employed (Sadhev et al., 1999). The main limitation of the
labour turnover index is that it is a relatively crude measure that provides no data on the
characteristics of leavers, their reasons for leaving, their length of service or the jobs they have
left. So, while it may indicate that an organisation has a problem, it gives no indication about
what the specific problem might be, nor what might be done to address it.
Example
Company A has 200 employees. During the year 40 employees have left from different jobs
and been replaced. The turnover rate is 20 per cent.
Company B also has an average of 200 employees. Over the year 40 people have left the
same 20 jobs (i.e. each has been replaced twice). The turnover rate is also 20 per cent.

Limitations about the location of leavers within an organisation can be addressed to some
extent by analysing labour turnover at department or business unit level or by job category.
For example, managers generally have lower levels of resignation than other groups of
employees (CIPD, 2005). Any areas with turnover levels significantly above or below organ-
isational or job category averages can then be subject to further investigation. Most attention
is levelled at the cost and potential disruption associated with high labour turnover. CIPD
survey data (2005) estimates the average cost per leaver to be £4625. However, low levels of
labour turnover should not be ignored as they may be equally problematic.

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Stop
& What are the key problems associated with low labour turnover?
think

Low labour turnover can cause difficulties as a lack of people with new ideas, fresh ways of
looking at things and different skills and experiences can cause organisations to become stale
and rather complacent. It can also be difficult to create promotion and development oppor-
tunities for existing employees.
Nevertheless, many organisations are keen for some levels of stability. While the labour
turnover index focuses on leavers, the stability index focuses on the percentage of employees who
have stayed throughout a particular period, often one year. This therefore allows organisations to
assess the extent to which they are able to retain workers. The formula used to calculate stability is:
Number of employees with1 year’s service at a given date
–––––––––––––––––––––––––––––––––––––––––––––––– ⫻ 100%
Number employed 1 year ago
This can be a useful indicator of organisational stability but does require a pre-set decision
about a relevant period for which it is important to retain staff. To return to our earlier example:
Company A has 160 employees with more than one year’s service and has a stability rate of 80%.
Company B has 180 employees with more than one year’s service and has a stability rate of 90%.

As with demand forecasting, labour turnover and stability indices are frequently used to project
historical data into the future. So, for example, if an organisation identifies an annual turnover
rate of 8 per cent it may build this into future projections of available supply. Alternatively,
managerial judgement may predict a reduction or an increase in turnover rates in the light of
current circumstances and forecasts can be adjusted accordingly.
More data on the length of service of leavers can be provided through the census method.
This is essentially a ‘snapshot’ of leavers by length of service over a set period, often one year.
Length of service has long been recognised as an influential factor in labour turnover. Hill
and Trist (1955) identified three phases in labour turnover, the ‘induction crisis’, ‘differential
transit’ and ‘settled connection’. People are more likely to leave during the first few months, as
the relationship between the individual and the organisation is unsettled and insecure, and
less likely to leave the longer they are in the organisation. The census method can help to
identify patterns of leavers and any key risk periods.
Another way of investigating the relationship between labour turnover and length of service is
to consider the survival rate, i.e. the proportion of employees recruited in a specific year who are
still with the organisation at a certain later date. So, for example, plotting the survival rate of a
cohort of 30 graduate trainees might show that 12 remain with the organisation after five years,
giving a survival rate of 40 per cent. It is also common to measure the half-life of a cohort, i.e. the
time taken for the cohort to reduce to half its original size. Both survival rates and half-life meas-
ures can be useful for identifying problem periods and for succession planning purposes.
The major drawback with all quantitative methods of turnover analysis is that they pro-
vide no information on the reasons why people are leaving. So, for example, the census
method may show that the highest proportion of people leave in the first six months but the
information on its own does not show whether this is due to poor recruitment or induction
practices, the nature of the job, management style or other factors. Thus, quantitative analy-
ses can help to highlight problems but they give those responsible for planning no indication
about how these problems might be addressed.

Measuring labour turnover – qualitative methods

Investigations into reasons for turnover are usually undertaken via qualitative means. A vari-
ety of approaches are used in UK organisations. The CIPD undertakes an annual survey of
recruitment, retention and labour turnover and the most recent report (CIPD, 2005) shows
the popularity of different methods (see Figure 5.2).

165
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CHAPTER 5 HUMAN RESOURCE PLANNING

Figure 5.5 Reconciling demand and supply

If demand exceeds supply:

Increase external supply  Alter recruitment and selection criteria

– different ages, gender, ethnic origin
– different skills, qualifications and experience
 Alter recruitment and selection practices
– advertise in different ways
– target different labour markets
– introduce new selection techniques
– offer relocation
 Change terms and conditions
– more flexible working
– improve pay and benefits

Increase internal supply  Train and develop existing staff

 Alter internal movement patterns
– promote differently
– encourage lateral movement
 Improve retention
– change terms and conditions
– more flexible working patterns
 Reduce absenteeism

Reduce demand  Redesign work

 Use existing staff differently
– overtime
– multi-skilling
– high performance work teams
 Subcontract work
 Relocate work
 Automate

If supply exceeds demand:

Decrease supply  Early retirement

 Compulsory/voluntary redundancy
 Assisted career change and alternative employment
 Secondments, sabbaticals, career breaks

Discourage retention  Short-term contracts

 Part-time contracts

Increase demand  Increase markets for products and services

 Diversification

Source: Adapted from Rothwell (1995).

The scope and content of plans are also influenced by the time-scales involved. Schuler
(1998) suggests that the main phases of HRP should be undertaken for three different time
horizons – short term (1 year), medium term (2–3 years) and long term (3 years+).
Advocates of human resource planning argue that the process helps to ensure vertical and
horizontal integration, i.e. the alignment of human resource policies and practices with cor-
porate goals and with each other. So, for example, plans to address supply shortages by
altering selection criteria can influence the type of training required, the level of pay and
reward offered to existing and prospective employees and the way the employment relation-
ship is managed. However, in practice the situation is likely to be complicated by the fact that

170
 53

HR strategies

As described in Chapter 3 strategic HRM is a mindset, which leads to

strategic actions and reactions, in the form of either overall or specific HR
strategies or strategic behaviour on the part of HR professionals. The role of
HR is covered in Chapter 5. This chapter focuses on HR strategies under the
following headings:

l What are HR strategies?

l What is the purpose of HR strategies?
l What are the main types of overall HR strategies?
l What are the main areas in which specific HR strategies are developed?
l What are the criteria for an effective HR strategy?
l How should HR strategies be developed?
l How should HR strategies be implemented?

Part 4 of this book contains a strategic HRM toolkit, which provides

guidance on conducting a strategic review as the basis or the development of
HR strategies.

WHAT ARE HR STRATEGIES?

HR strategies set out what the organization intends to do about its human
resource management policies and practices and how they should be inte-
54 l The practice of strategic HRM

grated with the business strategy and each other. They are described by
Dyer and Reeves (1995) as ‘internally consistent bundles of human resource
practices’, and in the words of Peter Boxall (1996) they provide ‘a
framework of critical ends and means’. Richardson and Thompson (1999)
suggest that ‘A strategy, whether it is an HR strategy or any other kind of
management strategy, must have two key elements: there must be strategic
objectives (ie things the strategy is supposed to achieve), and there must be
a plan of action (ie the means by which it is proposed that the objectives will
be met).’
Because all organizations are different, all HR strategies are different.
There is no such thing as a standard strategy, and research into HR strategy
conducted by Armstrong and Long (1994) and Armstrong and Baron (2002)
revealed many variations. Some strategies are simply very general declara-
tions of intent. Others go into much more detail. But two basic types of HR
strategies can be identified. These are: 1) overall strategies such as high-
performance working; and 2) specific strategies relating to the different
aspects of human resource management such as learning and development
and reward.

WHAT IS THE PURPOSE OF HR STRATEGIES?

The purpose of HR strategies is to articulate what an organization intends to
do about its human resource management policies and practices now and in
the longer term, bearing in mind the dictum of Fombrun et al (1984) that
business and managers should perform well in the present to succeed in the
future. HR strategies may set out intentions and provide a sense of purpose
and direction, but they are not just long-term plans. As Lynda Gratton (2000)
commented, ‘There is no great strategy, only great execution.’

OVERALL HR STRATEGIES
Overall strategies describe the general intentions of the organization about
how people should be managed and developed and what steps should be
taken to ensure that the organization can attract and retain the people it
needs and ensure so far as possible that employees are committed, motivated
and engaged. There are four categories of overall strategy:

1. An emergent, evolutionary and possibly unarticulated understanding of

the required approach to human resource management. This will be
influenced by the business strategy as it develops, the position of the
 HR strategies l 55

organization in its life cycle, and the organizational configuration

(prospector, defender or analyser). It will also be affected by the views,
experience and management style of the chief executive, senior
managers and the head of HR, whose influence will depend on position
and credibility.
2. Broad-brush statements of aims and purpose that set the scene for more
specific strategies. They will be concerned with overall organizational
effectiveness – achieving human resource advantage by, as Boxall and
Purcell (2003) point out, employing ‘better people in organizations with
better process’ and generally creating ‘a great place to work’.
3. Specific and articulated plans to create ‘bundles’ of HR practices and
develop a coherent HR system. This can be achieved through the
approaches summarized below.
4. The conscious introduction of overall approaches to human resource
management such as high-performance management, high-involvement
management and high-commitment management as described below.
These overlap to a certain extent.

High-performance management
High-performance management aims to make an impact on the performance
of the organization through its people in such areas as productivity, quality,
levels of customer service, growth, profits and, ultimately, the delivery of
increased shareholder value. High-performance management practices
include rigorous recruitment and selection procedures, extensive and
relevant training and management development activities, incentive pay
systems and performance management processes. As a bundle, these prac-
tices are often called high-performance work systems (HPWS). This term is
more frequently used than either high-involvement management or high-
commitment management, although there is a degree of overlap between
these approaches and an HPWS. High-performance work system strategies
are considered in Chapter 9.

High-involvement management
The term ‘high involvement’ was used by Lawler (1986) to describe
management systems based on commitment and involvement, as opposed
to the old bureaucratic model based on control. The underlying hypothesis is
that employees will increase their involvement with the company if they are
given the opportunity to control and understand their work. He claimed that
high-involvement practices worked well because they acted as a synergy
and had a multiplicative effect. This approach involves treating employees
as partners in the enterprise whose interests are respected and who have a
56 l The practice of strategic HRM

voice on matters that concern them. It is concerned with communication and

involvement. The aim is to create a climate in which a continuing dialogue
between managers and the members of their teams takes place in order to
define expectations and share information on the organization’s mission,
values and objectives. This establishes mutual understanding of what is to be
achieved and a framework for managing and developing people to ensure
that it will be achieved.
The practices included in a high-involvement system have sometimes
expanded beyond this original concept and included high-performance
practices. For example, as defined by Benson et al (2006), ‘High-involvement
work practices are a specific set of human resource practices that focus on
employee decision-making, power, access to information, training and
incentives.’ As noted above, high-performance practices usually include
relevant training and incentive pay systems. Sung and Ashton (2005) include
high-involvement practices as one of the three broad areas of a high-
performance work system (the other two being human resource practices
and reward and commitment practices).
The way in which high involvement made an impact was explained by
Guest (1997). He suggested that the commitment and flexibility provided by
highly involving action lead to behaviour changes among employees.
Because the employees show high levels of motivation, commitment and
organizational citizenship, they adopt better-performing behaviours,
leading to lower absenteeism and turnover rates, increased productivity and
higher levels of quality.

High-commitment management
One of the defining characteristics of HRM is its emphasis on the importance
of enhancing mutual commitment (Walton, 1985). High-commitment
management has been described by Wood (1996) as ‘A form of management
which is aimed at eliciting a commitment so that behaviour is primarily self-
regulated rather than controlled by sanctions and pressures external to the
individual, and relations within the organization are based on high levels of
trust.’
The approaches to achieving high commitment as described by Beer et al
(1984) and Walton (1985) are:

l the development of career ladders and emphasis on trainability and

commitment as highly valued characteristics of employees at all levels in
the organization;
l a high level of functional flexibility, with the abandonment of potentially
rigid job descriptions;
l the reduction of hierarchies and the ending of status differentials;
 HR strategies l 57

l a heavy reliance on team structure for disseminating information (team

briefing), structuring work (teamworking) and problem solving (quality
circles).

Wood and Albanese (1995) added to this list:

l job design as something management consciously does in order to

provide jobs that have a considerable level of intrinsic satisfaction;
l a policy of no compulsory lay-offs or redundancies, and permanent
employment guarantees, with the possible use of temporary workers to
cushion fluctuations in the demand for labour;
l new forms of assessment and payment systems and, more specifically,
merit pay and profit sharing;
l a high involvement of employees in the management of quality.

As defined above, high-involvement and high-commitment management

have many similarities.
The following are some examples of overall HR strategy statements:

AEGON:
The Human Resources Integrated Approach aims to ensure that from whatever
angle staff now look at the elements of pay management, performance, career
development and reward, they are consistent and linked.

B&Q:
l Enhance employee commitment and minimize the loss of B&Q’s best
people.
l Position B&Q as one of the best employers in the UK.

Egg:
The major factor influencing HR strategy was the need to attract, maintain and
retain the right people to deliver it. The aim was to introduce a system that
complemented the business, that reflected the way we wanted to treat our
customers – treating our people the same. What we would do for our
customers we would also do for our people. We wanted to make an impact on
the culture – the way people do business.
(HR director)

GlaxoSmithKline:
We want GSK to be a place where the best people do their best work.
58 l The practice of strategic HRM

An insurance company:

Without the people in this business we don’t have anything to deliver. We are
driven to getting the people issues right in order to deliver the strategy. To a
great extent it’s the people that create and implement the strategy on behalf of
the organization. We put people very much at the front of our strategic thought
process. If we have the right people, the right training, the right qualifications
and the right sort of culture then we can deliver our strategy. We cannot do it
otherwise.
(Chief executive)

Lands’ End:

Based on the principle that staff who are enjoying themselves, are being
supported and developed, and who feel fulfilled and respected at work, will
provide the best service to customers.

A local authority:

[Our HR strategy is about] having a very strong focus on the overall effectiveness
of the organization, its direction and how it’s performing; here is commitment
to, and belief in, and respect for individuals, and I think that these are very
important factors.
(Chief executive of a borough council)

A public utility:

The only HR strategy you really need is the tangible expression of values and
the implementation of values… unless you get the human resource values right
you can forget all the rest.
(Managing director)

A manufacturing company:

The HR strategy is to stimulate changes on a broad front aimed ultimately at

achieving competitive advantage through the efforts of our people. In an
industry of fast followers, those who learn quickest will be the winners.

(HR director)

A retail stores group:

The biggest challenge will be to maintain [our] competitive advantage and to do

that we need to maintain and continue to attract very high-calibre people. The
key differentiator on anything any company does is fundamentally the people,
 HR strategies l 59

and I think that people tend to forget that they are the most important asset.
Money is easy to get hold of; good people are not. All we do in terms of training
and manpower planning is directly linked to business improvement.
(Managing director)

SPECIFIC HR STRATEGIES
Specific HR strategies set out what the organization intends to do in areas
such as:

l human capital management – obtaining, analysing and reporting on data,

which inform the direction of value-adding people management
strategic, investment and operational decisions;
l high-performance management – developing and implementing high-
performance work systems;
l corporate social responsibility – a commitment to managing the business
ethically in order to make a positive impact on society and the envi-
ronment;
l organization development – the planning and implementation of
programmes designed to enhance the effectiveness with which an organ-
ization functions and responds to change;
l engagement – the development and implementation of policies designed
to increase the level of employees’ engagement with their work and the
organization;
l knowledge management – creating, acquiring, capturing, sharing and using
knowledge to enhance learning and performance;
l resourcing – attracting and retaining high-quality people;
l talent management – how the organization ensures that it has the talented
people it needs to achieve success;
l learning and development – providing an environment in which employees
are encouraged to learn and develop;
l reward – defining what the organization wants to do in the longer term to
develop and implement reward policies, practices and processes that will
further the achievement of its business goals and meet the needs of its
stakeholders;
l employee relations – defining the intentions of the organization about what
needs to be done and what needs to be changed in the ways in which the
organization manages its relationships with employees and their trade
unions.

The following are some examples of specific HR strategies:

60 l The practice of strategic HRM

The Children’s Society:

l Implement the rewards strategy of the Society to support the corporate plan
and secure the recruitment, retention and motivation of staff to deliver its
business objectives.
l Manage the development of the human resources information system to
secure productivity improvements in administrative processes.
l Introduce improved performance management processes for managers and
staff of the Society.
l Implement training and development which supports the business objec-
tives of the Society and improves the quality of work with children and
young people.

Diageo:

There are three broad strands to the Organization and People Strategy:
1. Reward and recognition: use recognition and reward programmes to stim-
ulate outstanding team and individual performance contributions.
2. Talent management: drive the attraction, retention and professional growth
of a deep pool of diverse, talented employees.
3. Organizational effectiveness: ensure that the business adapts its organization
to maximize employee contribution and deliver performance goals.
It provides direction to the company’s talent, operational effectiveness and
performance and reward agendas. The company’s underlying thinking is that
the people strategy is not for the human resource function to own but is the
responsibility of the whole organization, hence the title ‘Organization and
People Strategy’.

A government agency:

The key components of the HR strategy are:

l Investing in people – improving the level of intellectual capital.
l Performance management – integrating the values contained in the HR
strategy into performance management processes and ensuring that reviews
concentrate on how well people are performing those values.
l Job design – a key component concerned with how jobs are designed and
how they relate to the whole business.
l The reward system – in developing rewards strategies, taking into account
that this is a very hard-driven business.

HR strategies for higher education institutions (the Higher Education

Funding Council):

1. Address recruitment and retention difficulties in a targeted and cost-effective

manner.
 HR strategies l 61

2. Meet specific staff development and training objectives that not only equip
staff to meet their current needs but also prepare them for future changes,
such as using new technologies for learning and teaching. This would
include management development.
3. Develop equal opportunity targets with programmes to implement good
practice throughout an institution. This would include ensuring equal pay for
work of equal value, using institution-wide systems of job evaluation. This
could involve institutions working collectively – regionally or nationally.
4. Carry out regular reviews of staffing needs, reflecting changes in market
demands and technology. The reviews would consider overall numbers and
the balance of different categories of staff.
5. Conduct annual performance reviews of all staff, based on open and
objective criteria, with reward connected to the performance of individuals
including, where appropriate, their contribution to teams.
6. Take action to tackle poor performance.

A local authority:

The focus is on the organization of excellence. The strategy is broken down into
eight sections: employee relations, recruitment and retention, training,
performance management, pay and benefits, health and safety, absence
management and equal opportunities.

CRITERIA FOR AN EFFECTIVE HR STRATEGY

An effective HR strategy is one that works in the sense that it achieves what
it sets out to achieve. In particular, it:

l will satisfy business needs;

l will be founded on detailed analysis and study, not just wishful thinking;
l can be turned into actionable programmes that anticipate implemen-
tation requirements and problems;
l is coherent and integrated, being composed of components that fit with
and support each other;
l takes account of the needs of line managers and employees generally as
well as those of the organization and its other stakeholders. As Boxall and
Purcell (2003) emphasize, ‘HR planning should aim to meet the needs of
the key stakeholder groups involved in people management in the firm.’

Here is a comment on what makes a good HR strategy:

A good strategy is one which actually makes people feel valued. It makes them
knowledgeable about the organization and makes them feel clear about where
they sit as a group, or team, or individual. It must show them how what they do
62 l The practice of strategic HRM

either together or individually fits into that strategy. Importantly, it should

indicate how people are going to be rewarded for their contribution and how
they might be developed and grow in the organization.

(Chief executive, Peabody Trust)

HOW SHOULD HR STRATEGIES BE DEVELOPED?

When considering approaches to the formulation of HR strategy it is
necessary to underline the interactive (not unilinear) relationship between
business strategy and HRM, as have Hendry and Pettigrew (1990). They
emphasize the limits of excessively rationalistic models of strategic and HR
planning. The point that HR strategies are not necessarily developed formally
and systematically but may instead evolve and emerge has been made by
Tyson (1997): ‘The process by which strategies come to be realized is not only
through formal HR policies or written directions: strategy realization can also
come from actions by managers and others. Since actions provoke reactions
(acceptance, confrontation, negotiation etc) these reactions are also part of the
strategy process.’ Perhaps the best way to look at the reality of HR strategy
formulation is to remember Mintzberg et al’s (1988) statement that strategy
formulation is about ‘preferences, choices, and matches’ rather than an
exercise ‘in applied logic’. It is also desirable to follow Mintzberg’s analysis
and treat HR strategy as a perspective rather than a rigorous procedure for
mapping the future. Moore (1992) has suggested that Mintzberg has looked
inside the organization, indeed inside the heads of the collective strategists,
and come to the conclusion that, relative to the organization, strategy is anal-
ogous to the personality of an individual. As Mintzberg sees them, all
strategies exist in the minds of those people they make an impact upon. What
is important is that people in the organization share the same perspective
‘through their intentions and/or by their actions’. This is what Mintzberg
calls the collective mind, and reading that mind is essential if we are ‘to
understand how intentions… become shared, and how action comes to be
exercised on a collective yet consistent basis’.

Propositions on formulating HR strategy

Boxall (1993) has drawn up the following propositions about the formulation
of HR strategy from the literature:

l The strategy formation process is complex, and excessively rationalistic

models that advocate formalistic linkages between strategic planning and
HR planning are not particularly helpful to our understanding of it.
 HR strategies l 63

l Business strategy may be an important influence on HR strategy but it is

only one of several factors.
l Implicit (if not explicit) in the mix of factors that influence the shape of
HR strategies is a set of historical compromises and trade-offs from stake-
holders.

It is also necessary to stress that coherent and integrated HR strategies are only
likely to be developed if the top team understands and acts upon the strategic
imperatives associated with the employment, development and engagement
of people. This will be achieved more effectively if there is an HR director who
is playing an active and respected role as a member of the top management
team. A further consideration is that the effective implementation of HR
strategies depends on the involvement, commitment and cooperation of line
managers and staff generally. Finally, there is too often a wide gap between the
rhetoric of strategic HRM and the reality of its impact, as Gratton et al (1999)
emphasize. Good intentions can too easily be subverted by the harsh realities
of organizational life. For example, strategic objectives such as increasing
commitment by providing more security and offering training to increase
employability may have to be abandoned or at least modified because of the
short-term demands made on the business to increase shareholder value.

Schools of strategy development

Purcell (2001) has identified three main schools of strategy development: the
design school, the process school and the configuration school.
The design school is deliberate and is ‘based on the assumption of economic
rationality’. It uses quantitative rather than qualitative tools of analysis and
focuses on market opportunities and threats. What happens inside the
company is ‘mere administration or operations’.
The process school adopts a variety of approaches and is concerned with
how strategies are made and what influences strategy formulation: ‘It is
much more a study of what actually happens with explanations coming from
experience rather than deductive theory.’ As Purcell suggests, the impli-
cation of the design concept is that ‘everything is possible’ while that of the
process school is that ‘little can be done except swim with the tide of events’.
The rationalist approach adopted by Purcell’s design school broadly corre-
sponds with the classical approach to strategy, and Porter is a typical repre-
sentative of it. Purcell’s process school is the postmodern version of strategy
of which Mintzberg is the most notable exponent. But, as Grant (1991) has
indicated, the rationalist approach may indeed be over-formalized and rely
too much on quantitative data, but the Mintzberg approach, which down-
plays the role of systematic analysis and emphasizes the role of intuition and
vision, fails to provide a clear basis for reasoned choices.
64 l The practice of strategic HRM

The configuration school draws attention to the beliefs that, first, strategies
vary according to the life cycle of the organization, second, they will be
contingent on the sector of the organization and, third, they will be about
change and transformation. The focus is on implementation strategies,
which is where Purcell thinks HR can play a major role.

Levels of strategic decision making

Ideally, the formulation of HR strategies is conceived as a process that is
closely aligned to the formulation of business strategies. HR strategy can
influence as well as be influenced by business strategy.
Research conducted by Wright et al (2004) identified two approaches that
can be adopted by HR to strategy formulation: the inside-out approach and
the outside-in approach. They made the following observations about the
HR–strategy linkage:

At the extreme, the ‘inside-out’ approach begins with the status quo HR function
(in terms of skills, processes, technologies etc) and then attempts (with varying
degrees of success) to identify linkages to the business (usually through focusing
on ‘people issues’), making minor adjustments to HR activities along the way…
On the other hand, a few firms have made a paradynamic shift to build their HR
strategies from the starting point of the business. Within these ‘outside-in’ HR
functions, the starting point is the business, including the customer, competitor
and business issues they face. The HR strategy then derives directly from these
challenges to create real solutions and add real value.

They made the point that ‘the most advanced linkage was the “integrative”
linkage in which the senior HR executive was part of the top management
team, and was able to sit at the table and contribute during development of
the business strategy’.
In reality, however, HR strategies are more likely to flow from business
strategies, which will be dominated by product/market and financial
considerations. But there is still room for HR to make a useful, even essential,
contribution at the stage when business strategies are conceived, for example
by focusing on resource issues. This contribution may be more significant if
strategy formulation is an emergent or evolutionary process – HR strategic
issues will then be dealt with as they arise during the course of formulating
and implementing the corporate strategy.
A distinction is made by Purcell (1989) and Purcell and Ahlstrand (1994)
between:

l ‘upstream’ first-order decisions, which are concerned with the long-term

direction of the enterprise or the scope of its activities;
 HR strategies l 65

l ‘downstream’ second-order decisions, which are concerned with internal

operating procedures and how the firm is organized to achieve its goals;
and
l ‘downstream’ third-order decisions, which are concerned with choices on
human resource structures and approaches and are strategic in the sense
that they establish the basic parameters of employee relations
management in the firm.

It can indeed be argued that HR strategies, like other functional strategies

such as product development, manufacturing and the introduction of new
technology, will be developed within the context of the overall business
strategy, but this need not imply that HR strategies come third in the pecking
order.

Strategic options and choices

The process of developing HR strategies involves generating strategic HRM
options and then making appropriate strategic choices. It has been noted by
Cappelli (1999) that ‘The choice of practices that an employer pursues is
heavily contingent on a number of factors at the organizational level,
including their own business and production strategies, support of HR
policies, and cooperative labour relations.’ The process of developing HR
strategies involves the adoption of a contingent approach in generating
strategic HRM options and then making appropriate strategic choices. There
is seldom if ever one right way forward.
Choices should relate to but also anticipate the critical needs of the
business. They should be founded on detailed analysis and study, not just
wishful thinking, and should incorporate the experienced and collective
judgement of top management about the organizational requirements while
also taking into account the needs of line managers and employees generally.
The emerging strategies should anticipate the problems of implementation
that may arise if line managers are not committed to the strategy and/or lack
the skills and time to play their part, and the strategies should be capable of
being turned into actionable programmes. Consideration needs to be given
to the impact of the five forces on HR policy choice identified by Baron and
Kreps (1999):

1. the external environment (social, political, legal and economic);

2. the workforce;
3. the organization’s culture;
4. the organization’s strategy;
5. the technology of production and organization of work.
 HR strategies l 71

l it is more difficult to gain acceptance of non-routine initiatives;

l employees will be hostile to initiatives if the initiatives are believed to be
in conflict with the organization’s identity, eg downsizing in a culture of
‘job-for-life’;
l the initiative is seen as a threat;
l inconsistencies between corporate strategies and values;
l the extent to which senior management is trusted;
l the perceived fairness of the initiative;
l the extent to which existing processes could help to embed the initiative;
l a bureaucratic culture that leads to inertia.

Barriers to the implementation of HR strategies

Each of the factors listed by Gratton et al can create barriers to the successful
implementation of HR strategies. Other major barriers include failure to
understand the strategic needs of the business, inadequate assessment of the
environmental and cultural factors that affect the content of the strategies,
and the development of ill-conceived and irrelevant initiatives, possibly
because they are current fads or because there has been an ill-digested
analysis of best practice that does not fit the organization’s requirements.
These problems are compounded when insufficient attention is paid to prac-
tical implementation problems, the important role of line managers in imple-
menting strategies and the need to have established supporting processes for
the initiative (eg performance management to support performance pay).

Overcoming the barriers

To overcome these barriers it is necessary to: 1) conduct a rigorous prelim-
inary analysis of needs and requirements; 2) formulate the strategy; 3) enlist
support for the strategy; 4) assess barriers; 5) prepare action plans; 6) project-
manage implementation; and 7) follow up and evaluate progress so that
remedial action can be taken as necessary.
HRM_C33.qxd 10/22/04 2:45 PM Page 753

C H APTER 33

MEASURING HR: EFFECTIVENESS

AND EFFICIENCY

THE OBJECTIVES OF THIS CHAPTER ARE TO:

1 CLARIFY THE MEANING OF THE TERM ‘MEASURING HR’

2 EXPLAIN A RANGE OF MEASURES WHICH ARE FREQUENTLY USED

3 EXPLORE THE USE OF SCORECARDS AND OTHER STRATEGIC FRAMEWORKS IN MEASURING HR

4 EXPLORE CURRENT METHODS TO MAKE THE PROVISION OF HR MORE EFFECTIVE AND EFFICIENT
HRM_C33.qxd 10/22/04 2:45 PM Page 754

Part VII Cross-functional issues

We have explored in some detail some of the research which indicates that differing
HR activities will impact on the bottom-line performance of the firm, and that intan-
gible assets are critical to a firm’s value. This focus is growing in importance. In addi-
tion there is a recognition that traditional accountancy measures are inadequate, as
they are unable to reflect the value of people to the organisation. Measures are
needed which can demonstrate how people are an asset which adds value to the busi-
ness rather than just a cost. This, together with the anticipation of the need to report
people measures in a company’s annual report, have provided a context where the
measurement of HR has become increasingly important. However, there remains
resistance by the HR function to measurement and IRS (2003) reports that less than
half of respondents to its survey calculate measures of HR value.

WHAT DOES ‘MEASURING HR’ MEAN?

The research referred to in previous chapters has a very clear focus on measuring or
assessing a range of best practices in terms of workforce organisation and manage-
ment (such as self-managing teams, high training spend, reduced status differentials)
and relating these to impact on productivity and profitability. This is a very specific
approach to ‘proving’ that HR practices affect bottom-line performance. In this
chapter we include this type of measurement, but we are taking a much wider per-
spective and will review a broader range of measures which are used to demonstrate
how the HR function and HR capital contribute to the organisation.
HR measures are sometimes talked about in the context of measuring the contri-
bution of the HR function. An example of such measures might be the staffing costs
of the HR function, recruitment speed, training delivery, management satisfaction
with HR advice and services, and so on. Such factors are clearly down to the people
in the HR function and are under their control. There are many more measures, how-
ever, which may be only partly within the control of members of the HR function,
and partly within the control of others in the organisation, and indeed there are some
measures over which the HR function may have no control, particularly in an organ-
isation where HR is devolved to line managers. For example absence and employee
turnover are typical measures in many organisations. But to what extent are absence
levels, for example, the result of the absence policy (and HR may or may not have
designed this alone), the way the policy is implemented by line managers, the influ-
ence of other policies (such as work-life balance), the influence of the way that work
is structured and commitment to peers (as for example in self-managing teams)? The
list could go on. It could be argued that the HR function has an ultimate respons-
ibility for all of this, but in reality this is not a tenable view, and there is also a much
greater emphasis on partnership in HR requiring many activities to be business

ACTIVITY 33.1

Employee turnover is frequently measured in organisations. Identify which aspects of

the organisation have an influence on this and who in the organisation would be seen
as having a responsibility for these aspects.

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Chapter 33 Measuring HR: effectiveness and efficiency

driven and owned rather than HR driven and owned. Thus many HR measures
represent aspects of human capital in the organisation on which the HR function
has some influence. IRS (2002a) in its survey found that respondents commented on
the inherent difficulty in identifying the contribution of the HR function in many
measures.

FREQUENTLY USED MEASURES

IRS (2002a) divides measures into hard and soft measures, with training days, for
example, being a hard (objective) measure and employee satisfaction, for example,
being a soft measure. In its survey IRS found that employers most frequently calcu-
lated absence rates (96 per cent), employee turnover (98 per cent) and expenditure
on training (88 per cent). However, these figures are based on a small sample, so
actual percentages should be treated with caution. Other popular measures were
employee relations indicators (such as number of grievances and tribunal cases),
training days, cost to fill vacancies, time to fill vacancies, HR costs as a proportion
of profit or total costs and time spent communicating with staff. Only 9 per cent of
the organisatons surveyed measured productivity.
In terms of soft measures, IRS found that 85 per cent of the sample measured
employee satisfaction, 72 per cent measured line manager satisfaction, 68 per cent
measured senior manager satisfaction and 60 per cent measured customer satisfac-
tion. Employee satisfaction was considered to be the most effective soft measure.
Such measures are frequently collected in an ad hoc manner, are not integrated or
tied in with business strategy and may not result in action being taken. Below we
look at some of the more popular measures in more detail.

Absence analysis and costing

For aggregate analysis the absence rate is the number of days of absence, that is,
when attendance would have been expected, of all employees. The absence percent-
age rate is this figure divided by the total number of actual working days for all
employees over the year, multiplied by 100. This simple percentage figure is the one
most often used and enables the organisation’s absence level to be compared with
national figures, or those of other organisations in the same sector.
The absence frequency rate is the number of spells of absence over the period, usu-
ally a year. Comparing this and the absence percentage rate gives critical information
about the type of absence problem that the organisation is experiencing.
Absence data, as well as enabling external comparisons, can be analysed by
department, work-group, occupation, grade and so on. In this way the analysis will
throw up problem areas, and additional analysis can be used to try to identify the
causes of differing levels of absence in different parts of the organisation. The data
may be supplemented by information from questionnaires or interviews with
employees or line managers.
The purpose of producing this information is to understand the causes and extent
of absence in order to manage it effectively. So, for example, such analysis may result
in a new absence policy, employee communications about the impact of absence,
appropriate training for line managers, changes to specific groups of jobs and the
introduction of a new type of attendance system such as flexitime. The information

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Part VII Cross-functional issues

provides a base for future monitoring. Absence data can be analysed further to pro-
vide benchmarks of ‘high’, ‘medium’ and ‘low’ absence levels in the organisation, and
can be used to set improvement targets. This analysis can also be used to trigger spe-
cific management actions when an employee reaches different benchmark levels. For
example, a trigger may be the number of days or number of spells per year or, as in the
Bradford factor (see Figure 15.2 on p. 324 for the formula), a combination of both.
The costing of absence needs to have a wider focus than just the pay of the absent
individual. Other costs include:
• line manager costs in finding a temporary replacement or rescheduling work;
• the actual costs of the temporary employee;
• costs of showing a temporary employee what to do;
• costs associated with a slower work rate or more errors from a temporary
employee;
• costs of contracts not completed on time.
These costs can be calculated and provide the potential for productivity improvement.

Equal opportunities analysis

Equal opportunities analysis aims to provide an organisational profile of, most fre-
quently, ethnic origin, gender, age and disability. The resulting percentages from this
can be compared with national and local community figures to give an initial idea of
how representative the organisation is. Further analyses break these figures down to
compare them by department, job category and grade. It is in this type of analysis
that startling differences are likely to be found, for example as shown in Figure 33.1.

Figure 33.1 Breakdown of senior manager staff group and administrative staff group

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Chapter 33 Measuring HR: effectiveness and efficiency

The information gleaned can be used to:

• question the extent and spread of disadvantaged groups in the organisation;
• identify specific barriers to a more representative spread;
• formulate appropriate policy and action plans;
• set targets to be achieved and to monitor year on year compared with these base
figures.
Other analyses can be carried out to show promotion, internal moves and sec-
ondment figures for disadvantaged groups compared with advantaged groups, for
example, white males. Further mention is made of these and the recruitment system
in the following section.

ACTIVITY 33.2

What metrics does your HR function calculate?

What is the purpose of each one?
How are the results translated into action?
To what extent are these measures related to business strategy?
To what extent are these measures integrated?

Turnover analysis and costing

We cover this aspect in Chapter 8 on Retention.

The workforce and organisational performance

There is a range of analyses which can relate the contribution of the workforce to
organisational performance. These relationships can be used to control headcount,
measure organisational effectiveness and compare this with that of similar organisa-
tions. The information can also be used to communicate to employees what their
contribution is to the business. Turnover per employee and profit per employee can
be calculated in order to monitor performance and to demonstrate to each employee
the importance of cost consciousness. If an employee of an organisation employing
3,000 employees realises that profit per employee is only £900 this means far more
to that individual than expressing profit as £2.7 million. Cost consciousness suddenly
becomes important as the fragile and marginal nature of profits is demonstrated. A
further calculation expresses the cost of employees in relation to the total costs of
production. To work this out, turnover less profit (that is, the cost of production) is
compared with employee costs (salary plus on-costs). The percentage of production
costs accounted for by employees will vary markedly according to the nature of the
business. For example, in some pharmaceutical businesses people costs will account
for 70 per cent of all production costs (due to a heavy emphasis on research and
development) whereas in a less people-intensive business, as found in other parts of
the manufacturing sector, people costs may only account for around 15 per cent.
Changes in the percentage of people costs over time would need to be investigated.

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Part VII Cross-functional issues

People costs are a good way of communicating to employees just how important they
are to the success of the business.

WINDOW ON PRACTICE

HR survey: What do managers need from the function?

Cathy Cooper (2001) reports on how Fidelity International redesigned its annual
manager survey so that it became a meaningful tool in helping the company to
improve people management. The original survey which had been used for five years
tended to be a ‘popularity contest for HR’. The first stage in redesign was to
investigate what the survey should focus on. To this end an external consultant was
employed to carry out focus groups with HR staff to establish the strengths and
weaknesses of the department. The survey manager then held one-to-one interviews
with managers to establish their concerns. The interview data were then used to frame
topics for the survey. The focus taken in the survey was on how well we (all managers,
including HR) manage our people, and not on how well or badly HR is doing. The
survey was designed to take 10 minutes to complete and asked respondents to
identify the extent to which they agreed or disagreed with a number of statements.
Respondents were invited to make any additional comments they wished. Some
questions were retained, however, to get specific information on HR’s performance.
The survey was delivered by the company intranet to make responding easy. Of the
500 managers they invited to participate they received completed questionnaires
from over half.
The results of the survey were used to develop 12 broad goals for the HR function
with which individual objectives will be aligned. Senior managers have been involved
in how the goals could best be met, and then HR directors and their teams in different
locations will develop a project action plan.
Source: Summarised from C. Cooper (2001) ‘Win by a canvass’,
People Management, Vol. 7, No. 2, 25 January, pp. 42–4.

Measures can be benchmarked externally against other similar organisations which

would allow a meaningful comparison, such as competitors. They can also be bench-
marked internally by comparing departments, different locations and so on. IRS
(2002a) found that around one-third of the organisations it surveys regularly carried
out external benchmarking and the same percentage regularly carried out internal
benchmarking.

USING SCORECARDS AND OTHER FRAMEWORKS FOR

MEASUREMENT

Considerable attention has been given to the use of scorecards, such as the balanced
scorecard (Kaplan and Norton 1992) and, later, the HR scorecard (Becker et al.

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Chapter 33 Measuring HR: effectiveness and efficiency

2001), in linking people, strategy and performance. These are perhaps the best-
known scorecards, but many different scorecards have been developed over the last
decade or so. Such scorecards utilise a range of measures of HR which are viewed as
critical to the success of the business strategy, and which move the process of meas-
urement on from an ad hoc to a strategic and integrated approach. Kaplan and
Norton widened the perspective on the measurement of business performance by
measuring more than financial performance. Their premise is that other factors
which lead to financial performance need to be measured to give a more rounded
view of how well the organisation is performing. This means that measures of busi-
ness performance are based on measures of strategy implementation in a range
of areas. Kaplan and Norton identify three other areas for measurement in addition
to financial measures: customer measures, internal business process measures and
learning and growth measures. In each of these areas critical elements need to be
identified and then measures devised to identify current levels and measure progress.
Some organisations implementing this scorecard have developed the learning and
growth area to include a wider range of HR measures.
Becker et al. (2001) argue that it is important to have a ‘measurement system
[that] convincingly showcases HR’s impact on business performance’ (p. 4), other-
wise, they argue, the HR function cannot show how it adds value and risks being
outsourced. The system they suggest focuses on ‘HR architecture’, and by this they
mean the ‘sum of the HR function, the broader HR system, and the resulting
employee behaviours’ (p. 1). This is therefore a broad view of HR measurement, as
we discussed in the first section of this chapter. Becker and his colleagues have
designed a seven-step process to clarify and measure HR’s strategic influence:

Step 1. Clearly define business strategy in a way that involves discussing how the
strategy can be implemented and communicated.

Step 2. Develop a business case for HR as a strategic asset explaining how and why
HR can facilitate business strategy – Becker and his colleagues suggest how current
research relating HR to firm performance can be useful here.

Step 3. Create a strategy map – which should involve managers across the organ-
isation, and needs to address the critical strategic goals, identify the performance
drivers for each goal, identify how progress towards goals can be measured, identify
barriers to goal achievement, identify required employee behaviour for goal achieve-
ment, question whether the HR function is developing employee competencies and
behaviours needed to meet the goals, and if this is not happening, what needs to
change.

Step 4. Identify HR deliverables from the strategy map – which may include
performance drivers and enablers; for example low turnover, high levels of specific
competencies and so on may be needed to reduce product development time.

Step 5. Align HR architecture with the deliverables in step 4. Policies can be

developed to result in these deliverables – for example policies encouraging low
turnover may be supported by family-friendly and work-life balance policies, divers-
ity policies, career development opportunities and so on.

Step 6. Design a strategic HR measurement system. This requires that valid meas-
ures of HR deliverables are developed. For example in specifying low turnover it

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Part VII Cross-functional issues

would be important to identify which particular staff groups this applies to, whether
voluntary turnover only is to be calculated, whether internal job moves are included
and so on.
Step 7. Implement management by measurement – Becker and his colleagues sug-
gest that once the measurement system has been developed this can then become a
powerful management tool.
In designing measures Becker and his colleagues suggest that HR efficiency as well
as deliverables need to be measured. Efficiency measures tend to be cost measures,
for example cost per new hire, or HR cost per employee. They suggest that these are
both lagging indicators. Leading indicators can also be measured. These are defined
as measures of ‘high performance work system’ and HR system alignment. The high-
performance work system appears to be defined in terms of best-practice-type meas-
ures, for example hours training received each year by each employee, or percentage
of the workforce regularly undergoing annual appraisal. HR system alignment indic-
ates the extent to which the high-performance work system is tailored to business
strategy via supporting each HR deliverable. Useful lists of HR deliverables and
efficiency measures can be found in Ulrich (1997).
An alternative framework for monitoring, measuring and managing human cap-
ital is the ‘human capital monitor’ and this has been developed in the UK by Andrew
Mayo (2001). The human capital monitor is designed to connect the intrinsic value
of the human capital in the organisation with the working environment. It includes
processes and systems which impact on employees’ behaviour together with the
value that is created by people. As with the previous models discussed this is not
specifically designed for the HR function to monitor itself. The model adds together
the value of people as assets (box 1) and the motivation and commitment (box 2) to
produce the people contribution to added value (box 3). The model is shown in
Figure 33.2.
The first box in the model, people as assets, provides a method of balancing
people costs with a measure of the value that they contribute. Mayo argues that
calculating the value of people is important for four reasons. First, resourcing deci-
sions should be about more than just cost; second, it important to understand
relative values of individuals and teams; third, it helps make informed investment
decisions showing the relative benefits of investing in people as opposed to other
assets; and finally, it enables the company to monitor whether its talent is increasing
or decreasing. To demonstrate the types of measures that Mayo suggests, we use
the example of capability, where the following measures are provided: personal
behaviour; business and professional know-how; network of contacts; qualifica-
tions and experience; attitudes and values. In terms of maximising human capital
we will look at potential. Here Mayo suggests that success in acquisition could
be measured by total human asset worth, average IAM (individual asset multiplier)
of new recruits and the increase in strategically important core capabilities. The
drivers for acquisition of potential include employer brand and acceptance rates,
among others.
We turn now to the second box concerning motivation and commitment. Here
Mayo suggests such measures as absence levels, satisfaction surveys, attrition rates
and reasons for leaving, among others. He suggests five influencing factors as listed
in the model, and for the work-group, for example, he proposes two measures: team
assessments of working practices and a team stability index.

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Chapter 33 Measuring HR: effectiveness and efficiency

THE HUMAN CAPITAL MONITOR

People as assets People motivation and commitment People contribution to added value

Human asset worth Measures The value added to each stakeholder

= Employment costs × – How successful are we?
Individual asset multiplier
(IAM)/1000
IAM = a function of + The work environment that drives = • Financial
• capability success • Non-financial
• potential
• contribution
• values alignment
Maximising human capital • Leadership • Current
• Acquisition – How successful • Practical support • Future
• Retention are we? • The work-group
• Growth – What drives • Learning and development
success? • Rewards and recognition

Figure 33.2 Mayo’s human capital monitor (Source: Adapted from A. Mayo (2001) The human value of the enterprise:
Valuing people as assets – monitoring, measuring and managing. London: Nicholas Brealey, p. 65.)

In the final box, people contribution to added value, Mayo suggest that the focus
should be on wealth creation, which is a much broader concept than profit, as some
of the wealth created can be reinvested in the business. To this end he compares a con-
ventional income statement with a value-added financial statement, which goes beyond
seeing people as just costs. In assessing current value Mayo suggests that work needs
to be analysed into work which creates value and non-value added work (such as re-
doing work, duplication, computer downtime, cross-charging and so on), and that
the percentage of each type of work needs to be a focus. He argues that building
future value is dependent on innovation and that measures of this need to be derived.
Case 33.1 on the website focuses on human capital.

EFFECTIVE AND EFFICIENT HR PROVISION

The literature has for some time been replete with articles about the decentralisation
and devolution of HR management as methods of integrating HR activities with day-
to-day line management. The thrust has been for the line to take ownership of HR
activities, with HR specialists acting as a consultant, coach, facilitator and strategic
partner. The advantages of this approach to restructuring HR activities and the
issues in implementation have been dealt with in detail and we do not intend to
rehearse these issues here. For further details see, for example, Hall and Torrington
(1998). Emerging approaches to improve the efficiency and effectiveness of the HR
function are outsourcing, HR service centres and e-HR.

Outsourcing
HR administration has typically been outsourced, for example pensions, payroll
and recruitment. But more specialist aspects have been subject to outsourcing too,

761
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Armstrong’s Handbook of Human Resource Management

Practice (Michael Armstrong and Stephen Taylor)
MICHAEL ARMSTRONG 13TH EDITION
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AND STEPHEN TAYLOR

ARMSTRONG’S
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Strategic Human Resource Management (Michael

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 iii

STRATEGIC
HUMAN RESOURCE
MANAGEMENT
A GUIDE TO ACTION

4TH EDITION

Michael Armstrong

London and Philadelphia

iv

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HUMAN RESOURCE
Derek Torrington
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ISBN: 0 273 68713 1

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

A catalog record for this book is available from the Library of Congress

10 9 8 7 6 5 4 3 2 1
08 07 06 05

Typeset in 10/12.5pt Sabon by 35

Printed and Bound by Mateu Cromo Artes Graficas, Spain

The publisher’s policy is to use paper manufactured from sustainable forests.