Readings in strategic human resource management
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Readings in ff
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MAN A\G E M E N T
Edited by Alan R Nankervis Robert L Compton
Digitized by the Internet Archive in
2010
http://www.archive.org/details/readingsinstrateOOnank
Readings
in Strategic
Human
Resource Management
Edited by Alan R Nankervis Robert L Compton
esource MAN a\g E M E N T
Nelson
An
International
Thomson
Publishing
Company
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First published
1994
10 9 8 76543 2 1 99 98 97 96 95 94 Copyright © Alan R Nankervis
&
Robert L Compton 1994
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National Library of Australia Cataloguing-in-Publication data Nankervis, Alan R. Readings in strategic human resource management. ISBN 17 009039 6. 1. Personnel management. 2. Personnel management
-
Australia. 3. Industrial relations. 4. Industrial relations Australia.
I.
Compton, R.
L.
II.
-
Title.
658.3
Designed by Terminal Design Cover designed by Tony Palmer Typeset in Perpetua 10/12 pt by Eclipse Graphics Printed in Australia by McPherson's Printing Group
Nelson Australia Pty Limited ACN 004 603 454 (incorporated Victoria) trading as Thomas Nelson Australia.
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1
1
Contents
Preface
vii
Acknowiedgements
viii
of contributors
ix
List
Introduction
Part
1
1
Strategic perspectives of human resource
1
Human
2
The
3
Managerial strategic choice and
resource management: a
management
9
critical analysis
Karen Le^e
1
strategic contributions of the
personnel function
35
Roger Collins
the
4
management of human
resources
Yaw Debrah The impact of corporate strategy on
49
human
resource
management 57
John Purcell 5
6
Part 2 7
Beyond
traditional paternalistic
and developmental approaches
to organisational change and human resource strategies Doug Stace and Dexter Dunphy Strategic human resource management: theory and practice Robin Kramar
105
The environment for strategic human resource management
125
Managing change
environment
in a challenging
127
Russell Lansbury
8
Collective
employment
contracts
new working time arrangements Raymond Harbridge and David 9
New Zealand
in
143
Tolich
management in Australian and New Zealand companies: some emerging themes and issues Dawson and
Human
resource
Gill
training or preparation for Alan Nankervis
Human
resource
Resources
157
Palmer
management education:
skill
1
and
Total quality
Patrick
10
87
management and
Institute: the profession
John Smart and Michael Pontijex
175
life?
the Australian
and
its
Human
professional
body 185
vi
Contents
Part 3 Issues in strategic
human resource management
12
Human
13
Psychological testing: does
14
Personality or performance?
Robert
207
resource planning in a changing environment
Kane and Susan Stanton it
209
work?
Kevin Chandler
The
235
case against personality testing in
management
Robert Spillane
239
—
249
16
Credendalism on the diploma treadmill Tony Biion and Robert Compton Human resource managers and training: a peek into the future Peter Hosie
259
17
A challenge
15
to career
management
practice
Alan Fish andJack Wood
279
18
Future directions in remuneration
19
Mick Bennett Catch the new wave in
management 291
human
resources:
human value management Jac Fitz-enz
301
Part 4 International perspectives of strategic
human resource management human resource management issues for
20
International
21
International
305 the 1990s
Wayne Cascio in Australian
Peter Bowling
307
human
resource
management
companies and Denice Welch
327
22
Personnel management in Hong Kong: a review of current issues Paul Kirkbiide and Sara Tang
23
Human
resource
David Tai Wai Wan, Thomas and Ho Beng Chia
Wyatt,
Anthony Tsai-Pen Tseng
367
Part 5 Looking to the future
383
24
Hilmer discusses the future for Australians
25
The shape of the new organisation: implications for human resource management
Frederick
at
work
Hilmer
David Limerick
351
management in Singapore: an overview
385
395
Preface
Human Resource Management supplements our earlier text, Management and is designed to provide academics, practitioners and students with an updated reference for the exploration of contemporary Readings in Strategic Strategic Resource
human
resource
management (HRM)
issues.
Incorporating the opinions and research findings of some of the most
prominent
HRM
academics and practitioners from the US, the
UK and
Australasian region, the readings represent the state of the art in strategic
the
HRM.
HRM and strategic HRM models environments of Australasia, the US and the UK and discuss many of the critical issues in contemporary theory and practice. Readings in Strategic Human Resource Management may be used as a companion to Contributing authors examine the application of to the diverse
existing
HRM
texts, for
reference and research purposes. Critical analysis of the
models and the views presented subsequent practice of all
will
who aspire
undoubtedly enhance the learning and
to
become Alan
effective
HRM professionals.
R Nankervis
University of Western Sydney,
Robert
L Compton
Nepean
In common with all such compilations, this book depended on the co-operation and enthusiasm of its contributing authors. Their assistance is acknowledged with considerable gratitude. Neva Gregory for her initial word processing and the editorial and production staff of Thomas Nelson Australia, in particular Britta Christiansen, Jill Brown, Meg O'Hanlon and Lee Walker, also deserve our warm
appreciation.
The
editors
and publisher would
also like to
thank the following for permission
Asia Pacific Journal of Human Resources, (reading 2, 6, 10, 11, 12, 15, 16, 18, 20, 22, 23, 25); Australian Graduate School of Management,
to
reproduce
articles:
New South Wales (reading 21); International Journal of Career Management (reading 17); InternationalJournal ofEmployment Studies (reading 3, 4);
University of
The Human Resources Professional (reading
19).
List of contributors
Mick Bennett Cullen Egan Dell
Tony Buon Industrial Program Service (New South Wales) Professor Wayne Cascio Universit)^ of
Colorado, Denver
Kevin Chandler
Chandler
8c
MacLeod
Ho Beng Chia National University of Singapore Professor Roger Collins University of New South Wales
Robert Compton University of Western Sydney,
Professor Patrick
Nepean
Dawson
University of Adelaide
DrYawDebrah Nanyang Technological
University
Professor Peter Dowling University of Tasmania, Launceston
Professor Dexter
Dunphy
University of New South Wales
Alan Fish Charles Sturt University
Dr Jac
Fitz-enz
Saratoga Institute, California Associate Professor
Raymond Harbridge
Victoria University, Wellington
Professor Frederick Hilmer University of New South Wales
Peter Hosie
Ngee Ann
Polytechnic, Singapore
Associate Professor Robert
Kane
University of Technology, Sydney
Dr Paul
Kirkbride
Ashridge Management College, United Kingdom
X
List
of contributors
Dr Robyn Kramar Macquarie University Professor Russell Lansbury Sydney University
Dr Karen Legge Imperial College, Oxford Professor David Limerick Griffith University
Alan Nankerxis University of Western Sydney, Nepean Professor Gill Palmer University of Wollongong
Michael Pontifex
& Associates
Pontifex
Professor John Purcell
Templeton College, Oxford Associate Professor John Smart
Deakin University Professor Robert Spillane
Macquarie University
Dr Doug
Stace
University of New South Wales
Susan Stanton Kentucky Fried Chicken Sara Tang
Mass Transit Railway Corporation, David Tolich
Dr Anthony Tseng-Pen National University of Singapore
Dr David Wan National University of Singapore
Denice Welch
Monash
University
Professor Jack
Wood
University of Sydney
Dr Thomas Wyatt National University of Singapore
Hong Konj
Human resource management (HRM), as a concept and a framework for practice, last decade from academics and practiMore recendy, the notion of strategic HRM, which involves the alignment of HRM and overall organisational objectives and strategies, has become popular with human resource (HR) professionals. HRM and strategic HRM supersede earlier personnel management theories and derive from the writings of a small number of influential US academics (eg Beer et al 1985; Cascio 1989; Nkomo 1980; Buder Ferris & Napier 1991; Walker 1992). Principal features of these new concepts in management include a
has gained broad acceptance during the tioners across the Australasian region.
managerial focus; the perception of employees as organisational 'resources', the integration of
HR functions with each other and towards organisational goals
all
and a long-term planning of the strategic
Critics
orientation.
HRM model suggest that
it
reflects
its
US context with
an essentially unitarian perspective which may not be applicable in other environments. Others (eg Boxall & Bowling 1990) discern two different strands of strategic HRM the soft and hard versions ^which focus on either employee and union consultation and participation strategies or, alternatively, management control and the exclusion of unions from the workplace. From their empirical research, other critics conclude that few organisations actually implement strategic
—
—
HRM practices. Nevertheless,
and
activities
HRM and strategic HRM have significantiy influenced the views
of academics and practitioners throughout Australasia and there
evidence that strategic (eg
HRM approaches are increasing in Australian
CCH Australia Limited
is
companies
1989; Korn/Ferry Survey 1993). Most professional
now bear HRM nomenclature, whether in Australia, New Zealand, Singapore, Hong Kong, Malaysia or Thailand. The Australian professional associ-
courses
ation has
become
conferences are
the Australian
common in
Human Resources Institute
HRM HRM tides.
(AHRI), strategic
the region and few practitioners eschew
In this context, the challenge for HR specialists is not to reject the dominant US paradigm, but to construct a model (or models) and a framework for practice which more accurately reflects and contributes to the development of their own diverse and unique environments. A model of HRM or strategic HRM in Australia
and New Zealand would need
to incorporate the institutionalised
and often
adversarial nature of industrial relations systems, the plethora of social legislation
employment opportunity, affirmative action, occupational health and and the consultative approaches inherent in award restructuring and enterprise bargaining processes. In contrast, the paternalistic management styles prevalent in many companies in Hong Kong, Singapore and Malaysia may lend themselves to a more unitarian approach. Such strategic HRM models will need to be also sufficientiy flexible to incorporate different social, cultural, economic and legislative conditions between countries of the region (eg Bumiputera preferences in Malaysia, laissez-faire (eg equal
safety)
— 2 Readings in
strategic
human
resource
governmental policies in
may
management
Hong Kong versus
also require modification according to
high regulation in Singapore). They
changes
in industrial relations condi-
tions (eg the Employment Contracts Act 1991 (Cwlth) of New Zealand).
Thus models of HRM and
strategic
HRM within Australasia may be based upon
those developed in the US, but they require substantial and sensitive modification to
ensure their applicability to the countries in
this region.
Readings in Strategic
Management aims to stimulate discussion on the relevance and Human existing models and provides ideas for their modification to adequacy of accommodate different en\ironments. It is divided into five major sections strategic perspectives, industry and organisational en\ironments, strategic and functional issues, international dimensions and future challenges. Resource
Strategic perspectives of
human
resource management
The readings in this section explore the broad notions of organisational strategy, strategic management and strategic HRM. A number of models is proposed and critiqued, along with their practical implications.
Legge's seminal reading,
'Human
resource management: a cridcal
analysis',
examines the internal contradictions of the dominant US model of strategic HRM, suggesting that a more relevant model for UK, Australian and New Zealand practice would incorporate pluralist ('mutuality') and flexible rather than unitarian and rigid perspectives. is also the theme of Collins' reading, 'The personnel function', which presents a model to optimise the appropriate 'fit' between strategic HRM and organisational strategies in changing national and industry en\aronments.
Flexibility rather
than prescription
strategic contributions of the
Following a review of the literature on the notion of strategy from
its
military
more recent management and HRM applications, Debrah's reading, 'Managerial strategic choice and the management of human resources', explores Kochan, McKersie and Cappelli's (1984) 'strategic choice' model of the linkage between HRM and organisational objectives and outcomes. His conclusions suggest that not only should a model of strategic HRM be flexible, it should also be proactive rather than reactive. His article parallels the work of Gardner and Palmer (1992). Purcell's reading, 'The impact of corporate strategy on human resource management', is based on an empirical study in the UK and pro\ides some sobering findings on the practical relationship between strategic HRM and corporate strategy, concluding that 'current trends in corporate strategy in many origins to
its
companies render the ideals of human resource management... Australian companies appear to have progressed further in direction, although Kramar ('Strategic human resource management: theory
large diversified
unobtainable'. this
and
Some
practice') cautions that
on the
basis of a series of case study analyses,
it is
imperative that senior managers support such relationships and that line managers are convinced of their importance.
A broader study of Australian service industries by Dunphy and Stace in their reading 'Beyond traditional paternalistic and developmental approaches to organi-
Introduction 3
sational
change and human resource
'universalist solutions in
hard or
soft) are
human
strategies', leads
them
to
conclude that
resource strategy and practice (whether they be is needed is a contingency framematching management processes to the
probably inappropriate: what
work of management
process, to help in
changing business needs of the organisation'. The Dunphy and Stace typology of change strategies model is helpful in guiding the alignment of styles of manage-
ment with
desired scales of change.
The environment for strategic human resom'ce management Two schools of thought predominate the debates concerning
HRM and
relationships
economic and industry environments. The first, expressed by writers such as Pascale (in Walker 1992) and Kochan (1986), suggest that strategy formulation is 'the result of a conscious and rational process of planning' and is both possible, and indeed crucial, to ensure organisational effectiveness. While acknowledging its difficulties Mintzberg (1989) suggests that 'to manage strategy... is to craft thought and action, control and learning, stability and change'. The second view, supported by contingency theorists, argues that environmental pressures severely constrain, if not prohibit, the development of organisational strategies, and consequentiy strategic HRM. This section explores contemporary environmental pressures on strategic HRM and their implications for its theory and practice. Lansbury's reading, 'Managing change in a challenging environment', examines the issues of social and organisational change and focuses on the most effective strategies for dealing with organisational adaptation and flexibility within turbulent Australasian environments. His focus is on the need for continual 'learning' within organisations, achieved through comprehensive training and development programs. The flexibility of between
strategic
its
national, social,
organisational structures, especially through the devolution of
HRM functions,
is
essential to ensure the attainment of organisational objectives.
Harbridge and Tolich in 'Collective employment contracts and new working New Zealand', explore the impact of three flexible work schedules (ie the modification of the working week, the rescheduling of hours of work and changes to overtime and penal payments) on productivity and effectiveness within several New Zealand companies as a consequence of the Employment Contracts Act 1991 (Cwlth). time arrangements in
Dawson and Palmer
in 'Total quality
management
in Australian
and New
Zealand companies: some emerging themes and issues', critique the influence of current change programs in a selection of Australasian companies. Their conclusions suggest that total quality
management (TQM), concentrating on individual may result in significant employee
rather than collective employee involvement,
'empowerment', but that
it
requires substantial adaptation to be effective in
culturally diverse workforces.
The two remaining
readings in this section explore the roles of tertiary edu-
and the professional association in equipping practitioners with the attitudes, knowledge and skills necessary to ensure that their organisations successfully cation
4 Readings
in strategic
human
resource
management
adapt to environmental pressures. In his reading 'Human resource management education: skill training or preparation for life?', Nankervis questions the content of present
HRM courses and their inherent problems. He suggests that future pracHRM but will also need
titioners will not only require traditional functional skills in
an understanding of the broad ideological perspectives of emplover-employee relationships in order to define their own sense of professionalism. Pontifex and Smart conclude this section with a brief history of the professional association and its change from the Institute of Personnel Management (IPMA) to the Australian Human Resources Institute (AHRI). They suggest that HRM is not yet a fully-fledged profession, but that many of its members can be considered professionals in their approaches and practices. There appears to be some consensus that strategic HRM is beginning to come of age in a uniquely Australasian manner, but that a truly strategic approach will require the resolution of the internal and external environments.
Issues in strategic
human resource management
This section seeks to explore
how
HRM acti\ities are
changing
in
response to
external pressures, internal strategies and the developing perspectives of practitioners.
Kane and Stanton
in
'Human
resource planning in a changing en\ironment',
HR planning, an area fundamental to the HRM in Australian organisations. In their ovsai words, 'HR planning holds out the promise of integrating the various HR functions and
present their research on the state of
development of strategic
of involving the practitioners more closely in the development and implementation of corporate level strategy and plans'. WTiile their results are not greatly encouraging, they reflect the transitional and multi-faceted nature of
HRM
practices in this function.
Chandler and Spillane in separate articles, 'Psychological testing: does it work?' and 'PersonaHty or performance? The case against personalit)' testing in
management', debate the merits of psychological acti\ities
with particular reference to
its
testing
used in a number of HR development of stable,
effectiveness in the
Chandler argues clearly that psychological assessment can be seen as a factor in distinguishing high fi^om low performing organisations,
yet creative staffing. WTiile
Spillane
is
scathing in his attack
In a similar vein,
on
\vhat
Buon and Compton
he
calls
'management by
personalitN''.
in their reading 'Credentialism
— on the
diploma treadmill', question the escalation of credentials required for jobs at all levels and pro\ide some constructive suggestions for the better management of recruitment and selection processes. Their arguments seem all the more rele\'ant as Australian organisations place greater emphasis on competency management. Wliere competencies are not validly determined, the danger of 'creeping credentialism' will be ever-present. In his reading,
'Human
resource managers and training: a peek into the
Hosie continues to stress the strategic nature of contemporarv HRM, exploring the training and development issues likely to arise for HR managers. As future',
Introduction 5
training activities are increasingly scrutinised, HR professionals must be able to demonstrate that expenditure on training is a necessary business investment. This will not be the case where there is no proven correlation between training and
performance improvement. Hosie's article is complemented by Fish and Wood in 'A challenge to career management practice', in which they examine the strategic issues relevant to career
management. With organisation right-sizing and delayering, traditional approaches and models are becoming out-of-date. At the same time, career management tends to be forgotten, ignored or seen as too difficult to implement in an ever-changing environment.
Bennett introduces the issue of remuneration management and identifies which organisations will need to put in place to maintain consistency with microeconomic reform and to provide flexibility to meet broad family obligations. To conclude this section, Jac Fitz-enz completes the cycle of strategic HRM with a discussion of 'human value management', a move away from the traditional expense centre image of HR management to a view of HR as a value adding strategies
business unit.
International perspectives of strategic
human resource management
As Australasian organisations strive to expand globally, their strategies will be heavily influenced by the social, economic, political
and
industrial conditions of
neighbouring countries. International approaches to business and commerce inevitably require more flexible and more complex staffing strategies, often with significant differences in employee conditions between home and host countries. Comparisons between HRM practices in different countries of the region provide opportunities for the revision of
all
HR functions,
including recruitment,
HR
development, performance management and remuneration. This section contains a selection of readings which explore
all
of these aspects.
human resource management based on an empirical study of multinational companies in the US, the Middle East, Asia, Europe and Australia. He suggests that the major issues of international expansion concern strategic staffing practices. Expatriate management, diversity management and the global development of managerial talent present complex but crucial challenges for HR specialists involved in such Cascio's introductory reading 'International
issues for the 1990s',
is
multinational operations. This view
resource
is
echoed by Bowling in 'International human
management in Australian companies', which examines
the strategies of
Australian companies in attempting to prevent or redress high expatriate failure rates.
Like Cascio, Bowling suggests that creative contingency strategies are
management of international ventures. two readings explore the different social, economic, political and industrial relations systems of Hong Kong and Singapore and the impact of these essential to ensure the successful
The
last
conditions on the development of strategic
and Tang current
in their reading, 'Personnel
issues',
report
on the
HRM models and practices. Kirkbride
management
results of a survey
in
Hong Kong: a review of in Hong Kong during
conducted
6 Readings in
1989.
It is
strategic
human
resource
management
evident that a 'sophisticated paternalist' approach to the
HRM
management
Chinese-owned of employees is corporations appear contemporary multinational to adopt whereas companies, of absence governmental regulation in Hong relative models. The US and UK Kong and economic prosperity coupled with labour scarcity may enable signifipervasive in current
cantly
more
HRM practices in the future.
flexible
In contrast,
Wan
et al in
'Human resource management
overview', explore the effects of a
HRM
models and
practice, especially in
practices. Like
in Singapore:
more regulated economic system on
Hong Kong,
an
strategic
Singapore has limited natural
unemployment and similar cultural conditions. Its human resource priorities include a focus on increasing labour productivity, improving employee flexibility and adapting to change common themes throughout the resources, negligible
—
Australasian region.
Looking to the future
The
readings in the concluding section discuss the recurrent theme of 'change'
and
its
impact on organisations and the
HR profession.
Hilmer's reading, 'Hilmer discusses the future for Australians at work', examines Australia's
managers
required
we
if
in relation to their overseas counterparts
are to catch
up
to
some of our regional and
addresses the need for an urgent review of
HR
and the reforms
global competitors.
tertiary
He
education and the
knowledge and experience HR professionals will need for future success. Building on Hilmer's theme. Limerick discusses the new organisation and the demands that this will place on managers in terms of mindsets, skills and competencies. Specifically, Limerick analyses the impact the new organisation will have
on the HR profession. To conclude, a quotation from this reading seems appropriate: 'We must break the chain of the old mindset if we are to grapple successfully with the task of managing adaptive organisations. .the enemy within ourselves is the old mindset'. .
References Beer,
M, Spector,
B,
Lawrence, P R, Quinn
Mills,
D 8c Walton, A E
1984,
Human Assets, The Free Press, New York Boxall, P &: DowUng P 1990, 'Human resource management and
Managing
the industrial
and Industry, vol 3, no 2 & 3 Napier, N 1991, Strategy and Human Resources Management,
relations tradition'. Labour Butler, J, Ferris,
G
&:
South-Western Publishing Co, Cincinatti, Ohio
Wayne F 1989, Managing Human Resources: Productivity, Quality of Work Life, and Profits, 2nd edn, McGraw-Hill Inc, New York CCH Australia Limited 1989, Personnel Management, CCH Australia Limited, Sydney Gardner, M & Palmer, G 1992, Employment Relations: Industrial Relations and Human Resource Management in Australia, Macmillan Education Australia, Melbourne Cascio,
Introduction 7
Kochan,
T A, McKersie, R B & Cappelli, P 'Strategic choice and industrial relations
theory', Industrial Relations, vol 23,
Kochan,
T A,
Katz,
HC&
no
Industrial Relations, Basic Books,
Korn/Ferry Survey 1993, 'HR winning claims',
Mintzberg, S
M
The Free
battle to
pp 16-39
The Transformation of American
be key
member
Press,
Our
of team, survey
Strange World of
New York
1980, 'Stage three in personnel administration: Strategic
resource management', Walker, J
Winter,
HR Monthly, November 1993, pp 12-13 H 1989, Mintzberg on Management: Inside
Organisations,
Nkomo,
1,
R B 1986, New York
McKersie,
pp 69-77 McGraw-Hill Inc, New York
Pi^rsonn^/, July-August,
W 1992, Human Resource
Strategy,
human
Strategic perspectives
of
human
resource
management
—
Reading
1
Human resource management;
a
critical analysis
Kam Le^ Introduction In recent years, in both the UK and USA, as companies have been confronted by Japanese competition and employment stereotypes, struggled with recession and searched for excellence, the vocabulary for managing their workforces has tended to human resource management or, better Nor is this shift exclusively confined to commercial management consultants. It may be
to change. Personnel management is giving still,
to strategic
human
resource
those followers of fashion, the
charted
first
in the writings of
Foulkes 1986; Tichy
way
management.
US
academics and managers (eg Beer et al 1985; 1982; Walton 8c Lawrence 1985), but
Fombrun & Devanna
has now been recognised by both managers (eg Armstrong 1987; Fowler 1987) and academics (eg Guest 1987; Hendry &: Pettigrew 1986; Miller 1987; Storey 1987b; Torrington & Hall 1987) in the UK. Of course this is hardly the first time that the language of management has changed: the shift over the years away from traditional manufacturing industries towards process industry, high-tech manufacturing and service sectors, with accompanying changes in occupational and employment structures, had already been mirrored in managers' increasing
tendency to refer to 'employee' rather than
'industrial'
relations, well before the perceived slackening in trade
—
let
alone 'labour'
union pressure
in the
politico-economic environment of the 1980s. But whereas that shift reflected
some
changes in the practice of management (eg moves towards staff status in process industries), can the same be said of this latest shift in vocabulary? Is HRM different in substance or emphasis from personnel management? If so, in what ways and what might such a shift signify? In this reading I propose to critically consider this question. In doing, so I wish to examine not only the similarities and differences between personnel management and human resource management, but to explore the potential contradictions and paradoxes that might be embedded in both approaches. The question will also be posed as to whether HRM offers a new approach that might resolve the contradictions embedded in personnel management (Watson 1977, 1983) or whether it is merely a new rhetoric aimed at masking old contradictions in the language of today.
Personnel management and is
hmnan resom'ce management:
there a difference?
Both managers and academics, particularly in the UK, have recognised the problem of identifying clear differences between personnel management and
12 Readings
in strategic
HRM. Fowler inHRM:
human
(1987,
p
resource
3),
management
for example, argues that substantively there
What's neiu [personnel managers will ask] about the concept that personnel
is the business' (to
competition of yesteryear). best luhen they are treated
quote the theme of a Personnel
What
is
new about
'the
as responsible adults ?
could indeed be no more
and no
less
business of
Management
Haven
't
essay
these been at the heart of is,
of course,
Such words are echoed by Armstrong's (1987, p 32) comment
management,
new
the view that employees give of their
good personnel practice for decades? To which the answer
It
is little
yes.
that:
than another name for personnel it has tlie virtue of emphasising the
but, as usually perceived, at least
people as a key resource, the management of which is the direct concern management as part of the strategic planning processes of the enterprise. Although there is nothing new in the idea, insufficient attention has been paid to it in many organisations. The new bottle or label can help to overcome this deficiency.
need
to treat
of top
Nor is Armstrong alone in suggesting a re-labelling process. Guest (1987, p 506) number of personnel departments have become human resource departments vAihout any obvious change in roles, just as the new editions of several
points out that a
long-standing textbooks have changed tide but litde
being
else.
human
Scepticism about there
management and management is further reinforced by the practice, particuthe US, of using human resource management 2is a generic term and one inter-
little
substantive difference between
resource
traditional personnel larly in
changeable with personnel management. In order to identify possible differences between personnel
human
resource management,
we can
take two approaches.
management and we can ask
Firstly,
whether their normative models differ; secondly, whether descriptively their respective practices differ. As Guest (1987, p 507) suggests, we cannot really ask what human resource management looks like in practice unless we have a model about what it should constitute. Otherwise we run the danger of accepting as HRM any practices so labelled, even if indistinguishable from what a few years ago we would have termed personnel management. In theory, once a normative model of HRM is established and empirical research undertaken, several outcomes are logically possible: the normative models of personnel management and HRM might be similar but their practices differ; their normative models might differ, but their practices be similar; both their respective normative models and respective practices might be similar, or both, respectively might differ. It is in the final case that we might be most confident that HRM and personnel management really are different approaches to managing employees. Examining the normative models is amenable to conceptual analysis of published statements, but identifying similarities or differences in the practice of
personnel management and HRM is a matter of empirical observation. Unfortunately at the time of writing, while empirical research is being conducted,
human
Strategic perspectives of
resource
management 13
notably by researchers in the School of Industrial and Business Studies, University
of Warwick, and
Templeton College, Oxford, few detailed published
at
regard to the
exist, particularly in
studies
UK context. This has given rise to the danger that
—
some commentators may be comparing like with unlike that is, comparing descriptive, empirically grounded models of personnel management (such as those of Legge 1978; Mackay & Torrington 1986; Tyson
with normative models (eg Walton 1985) of
of these considerations,
it
seems sensible
& Fell
1986;
Watson 1977)
HRM (Guest 1987, p 507). In the light
initially to
normative models of personnel management and
focus
on a comparison of the
HRM.
Normative models of persomiel management It
may be
useful to start with several conventional definitions of what the function
of personnel
management ideally should be. (Relatively lengthy quotations management and HRM from a normative perspective are
defining personnel
presented here in order to provide a data base to support and
illustrate
subsequent
observations.) First
some American
definitions:
management aims at getting effective results with people, personnel adminisis a basic management function or activity permeating all levels of management in any organization. Personnel administration is. organizing and
Since
tration
.
treating individuals at work so that they their intrinsic abilities, thus attaining
group,
and
luill
maximum efficiency for themselves and their
thereby giving the enterprise of luhich they are
competitive advantage
and
its
optimum
a part
daily operations.
that each
.
.
& Myers 1969)
most significant aspect ofpersonnel management
through the direction
determining
its
results.
(Pigors
It is believed that the
.
get the greatest possible realization of
and control of the human
is to
befound
resources of an otganization in
its
the successful performance of the personnel function necessitates
manager orient himself within
his total business
help achieve the various organizational programs
environment in order
to
and objectives. (Megginson 1972)
Basically personnel
is
concerned
luith the
be done to achieve the organisation
!$
matching of people
to the jobs that
must
goals.
(Glueck 1974)
is defined here as follows: The field of management which do with planning, organizing, directing and controlling the functions of
Personnel management
has
to
procuring developing, maintaining and utilising a labor force, such
that:
14 Readings
a
in strategic
human
Objectives for
resource
management
which the company
is
established are attained economically
and
effectively.
b
Objectives of all levels ofpersonnel are served to the highest degree,
c
Objectives of society are duly considered
and served. (Jucius
These may be contrasted with some Personnel management
a
is
British definitions:
responsibility
as being a description of the work of those
part of management which
is
1975)
of all those
who
who manage people, as
are employed as specialists.
concerned with people at work
and with
It is
well that
their rela-
an enterprise. Personnel management aims to achieve both and justice, neither of which can be pursued successfully unthout the other. It seeks to bring together and develop in an effective organization the men and women who make up an enterprise, enabling each to make his own best contribution to its success both as an individual and as a member of a working group. It seeks to provide fair terms and conditions of employment, and satisfying work for tionships within
efficiency
those employed. (Institute of Personnel
Personnel management
is
Management 1 963)
concerned with obtaining the best possible stafffor an
organization and, having got them, looking after them so that they will want to stay
and give of their best
to theirjobs.
(Cuming 1975)
Personnel management
and
their
is
a
series
employing organisations
of activities which: first enable working people to
agree about the objectives
and nature of their
working relationship and, secondly, ensures that the agreement
is fulfilled.
(Torrington &f
HaU 1987)
common themes emerge. It would appear about selecting, developing, rewarding, and directing employees in such a way that not only will they achieve satisfaction and 'give of their best' at work, but by so doing enable the employing organisation to Analysing these statements, some
that personnel
management
achieve
Furthermore, personnel management
its
goals.
is
not just of personnel specialists alone. differences are implicit
The American
when comparing
If
is
these are
the American
the task of all managers,
common themes some and
British definitions.
assume a unitary frame of reference: achieving the 'greatest possible realisation of [employees'] intrinsic abilities' is assumed to be not only perfectly compatible with 'attaining the maximum efficiency for themselves and their group', but a precondition of the organisation's achieving its 'optimum results'. The British definitions, in contrast, adopt a pluralist perspective: efficiency and justice are contrasted in the IPM definition, although their ultimate definitions clearly
Strategic perspectives of
human
resource
management 15
is assumed possible; Cuming's definition recognises that employees' and commitment is problematic and conditional; above all, Torrington and Hall assert that the employment relationship should be rightiy the subject ofjoint negotiation, agreement and regulation.
reconciliation loyalty
Normative models of hmnan resom-ce management
How do
such definitions of personnel management differ from normative
statements about
HRM? Again, let us start with some American definitions:
We have come to believe that the transformation we are observing amounts than a subtle
new
shift in the traditional practices
to
more
of personnel or the substitution of
amounts
terms for uruhanging practices. Instead the transformation
to
a new
model regarding the management of human resources in organizations. Although the model is still emerging, and inconsistencies in its practice are often seen, we believe that
that
a
set
of basic assumptions can be identified that underlie the policies
we have observed to be part of the
HRM transformation.
The new assumptions
are: •
proactive, system-wide interventions, with emphasis strategic planning cultural
on fit, linking
change (cfold assumption:
reactive,
HRM with
piecemeal inter-
ventions in response to specific problems) •
people are social capital capable of development (cfpeople as variable cost)
•
coincidence of interest between stakeholders can be developed (cf self interest
•
seeks
dominates, conflict betioeen stakeholders)
power equalization for trust and collaboration
(cf seeks
power advantages
for bargaining and confrontation) •
open channels of communication to build trust, commitment (cf control of information floiv to enhance efficiency, poiuer)
•
goal orientation (cf relationship orientation)
•
participation
and informed
choice (cf controlfrom top)
(Beer
The new goals,
HRM model
mutual
The theory
is
is
influence,
&Spectar 1985)
composed of policies that promote mutuality
mutual
respect,
mutual rewards, mutual
that policies of mutuality will
yield both better economic performance
—mutual
responsibility.
commitment which in turn
elicit
and greater human
will
development.
(Walton 1985)
Effective
human
resources
management
have a tendency
to create
and function
vacuum but must be many personnel managers
does not exist in a
related to the overall strategy of the organization.
in their
their primary valve is helping to realise top
and
.
.
Too
own little luorlds, forgetting management goals.
that
line
(Foulkes 1986)
16 Readings in
The
strategic
human
resource
management
may be
British definitions again
contrasted with the American:
HRM
What, from a review of the existing literature does 'strategic appear to mean ? We start out by noting that there are two themes which overlap one another: the first
contained in the term
'human
resources
'.
The
'strategic
',
'
the second in the idea, or philosophy, of
latter suggests people are
a valued
a
resource,
critical
an organisation 's current performance andfuture growth. The term in this context has both established and new connotations [these are]
investment in 'strategic'.
1
.
.
the use of planning;
2 a
coherent approach to the design
and management ofpersonnel systems based
on an employment policy and manpower strategy, and 'philosophy
underpinned by a
';
3 matching HRM activities and policies 4 seeing
often
some explicit business strategy; and
to
the people of the organization as
a
'strategic resource' for
achieving
'competitive advantage'.
(Hendry &' Pettigrew 1986)
The main dimensions of if line
HRM [involve] the goal of integration [ie if human
can be integrated into
resources
strategic plans, if human resource policies cohere,
managers have internalised
reflected in their
company 's
behaviour
strategic
and
plans are
the importance of human resources
if employees identify
likely to
this is
be more successfully implemented], the goal
of employed commitment, the goal offlexibility/adaptability functionalflexibility], the goal of quality
and public
and
with the company, then the
[ie quality
ofstaff,
[ie
organic structures,
performance, standards
image].
(Guest 1987)
Human resources management is directed mainly at management needs for human resources (not necessarily employees) to be provided
emphasis on planning, monitoring, and
and
deployed. There
control, rather
is
greater
than on problem solving
and mediation. It is totally identified with management interests, being a general management activity and is relatively distant from the workforce as a whole. Underpinning personnel management are the twin ideas that people have a to proper
treatment as dignified
right
human beings while at work, and that they are only
effective
as employees wfien theirjob-related personal needs are met. Undetpinning
human
resources
much right
the
management is the idea that management of human resources is same as any other aspect of management, and getting the deployment of
numbers and skills at the
right place
is
more important than interfering with
people's personal affairs.
(Torrington
common themes stand out: that resources policies should be integrated with strategic business planning
In the majority of these definitions several
human
& Hall 1987)
Strategic perspectives of
and used
to reinforce
human
resource
management 17
an appropriate (or change an inappropriate) organisational
human resources are valuable and a source of competitive advantage, may be tapped most effectively by mutually consistent policies that
culture, that
that they
promote commitment and which, employees
as a
consequence, foster a willingness in
to act flexibly in the interests of the 'adaptive organisation's pursuit of
excellence'. However, again, some differences may be observed between the American and British models. The American models of HRM, in a similar manner to their models of personnel management, assume a unitary frame of reference: that 'there is a long-run coincidence of interests between all the various stakeholders of the organisation', as Beer and Spector (1985, p 283) would put it. Even where potential union problems are recognised, co-optation is identified as the way forward: 'odier managers have decided to actively promote more co-operative relations with their existing unions.
.
.
[concluding] that they could not successfully
management strategy without the active support of the unions' (Walton 1985, p 61). The British models adopt a rather different position. While Armstrong's 'revised' model (1987) merely makes some gestures in the transform their workforce
direction of a pluralistic stance, other commentators, in recognising that the
HRM
model
might
essentially unitaristic,
is
and marginalises the
role that trade unions
play in organisations, find this a source either of logical inconsistency within the
model or of practical (1987, p 3) asks
'Is it
infeasibility in
its
really possible to
full
day the employer can decide unilaterally to close else?',
while,
on the
other,
unitaristic implications
an appeal following a
on the one hand, Fowler when at the end of the the company or sell it to someone
execution. Thus,
claim
mutuality
Guest (1987, p 520) suggests that
'for
many, the
of human resource
management could only begin to have much more radical shift of ownership and control in
industry'.
Most
HRM
models, whether British or American, assert that employees are
valued assets and, with the emphasis on commitment, adaptability and employees as a source
of competitive advantage, the image might equally be presented as
and Fell (1986, p 135) point out, human resource may be understood in a completely different sense, as a factor of production, along 'resourceful humans'. But as Tyson
with land and capital, and an 'expense of doing business' rather than 'the only
resource capable of turning inanimate factors of production into wealth'. This perception of 'resource' appears to underlie Torrington and Hall's model of HRM, with
its
emphasis on appropriate factors of production ('numbers' and
'skills')
the 'right' (implicitiy the 'lowest possible') price. In their model, too, the
at
human
resources appear passive ('to be provided and deployed') rather than (to quote Tyson and Fell) 'the source of creative energy in any direction the organisation dictates and fosters'. Indeed Torrington and Hall's description of the conception of employees in a personnel management model appears to have far more in common with most models of HRM, than their own conception of human resources in their HRM model. It is partly on the basis of these different conceptions of human resources that Storey (1987, p 6) draws a distinction between what he terms the harddinA 5q/?versions of HRM. The former emphasises the 'quantitative, calculative, and business strategic aspects of managing the head-count resource in as "rational"
18 Readings
in strategic
human
resource
management
a way as for any other economic factor' and the latter emphasises 'communication, motivation and leadership'. Put differendy, the /lard version might be said to
emphasise the management aspect, and the soft version, the human resource aspect of HRM. This disdnction may also be seen as echoing an earlier one made by Legge (1978) between the conformist (management) and 'deviant' (human resource) innovation in personnel management.
The normative models compared
A close
examination of commentators' normative statements about personnel HRM suggest there are clear similarities between the two.
management and 1
Both models emphasise the importance of integrating personnel/HRM American commentators, it cannot even be said that the language has changed Pigors and Myers (1969) speak of 'determining competitive advantage' and Megginson practices with organisational goals. Particularly in the case of the
—
(1972) of 'orienting to the total business environment'.
2 Both models vest
personnel/HRM
firmly in line
management.
3 Both models, in the majority of instances, emphasise the importance of individuals fully developing their abilities for their
and
to
make
own
personal satisfaction
their 'best contribution' to organisational success.
The
similarity
underlined when comparing Torrington and Hall's model of personnel management with the other commentators' models of HRM. For their conception of the ideas underlying personnel of the two models in
management
'that
this respect
is
people have a right to proper treatment
as dignified
beings while at work, and they are only effective as employees related personal needs are met'
version
is
when
identical to the values underlying
human
their joball
the
soft
HRM models. Furthermore, their statement elaborating this position,
that speaks of the desirability of 'mutuality' and 'reciprocal dependence' between employer and employee in order for the employer to obtain 'commitment to organisational objectives that is needed for organisational success' (Torrington & Hall 1987, p 11) uses the same language as Walton's
(1985, p 36)
HRM model: 'the new management strategy involves policies that
promote mutuality in order to elicit commitment, which in turn can generate increased economic effectiveness and human development'. 4 Both models identify placing the 'right' people into the 'right' jobs as an important means of integrating personnel/HRM practice with organisational goals, including individual development. Glueck's (1974) and Cuming's (1975) statements about personnel management's function in this respect are virtually p 51) that an 'essential process' of strategic one of matching available human resources to
identical to that of Tichy et al (1982,
human
resource
management
'is
The recognition that this matching process is neverdynamic one given the rate of environmental and organisational change, and that employees really should be selected and developed in ways that enhance their adaptability and flexibility is common to both HRM models and to what might be termed the deviant innovation model of personnel
jobs in the organisation'. theless a
Strategic perspectives of human resource
management and So,
as
management 19
embracing organisational development (OD) value systems p 514-15; Legge 1978, p 87-9).
practice (cf Guest 1987,
is
HRM and those of And, indeed, the sharp comparison of what he terms
there any difference between the normative models of
personnel management?
One is tempted
to say 'not a
contrasts that Guest (1987, Table 1) elicits in his
lot'.
human resource management 'stereotypes', in spite much to an implicit comparison of the descriptive practice of personnel management with the normative aspirations of HRM, rather personnel management and
of his disclaimers, appear to owe than comparing
like with like.
However, both stark comparisons and assumptions
of similarities should be treated with caution. Even at the level of normative neither personnel management nor analysis let alone empirical observation
—
—
HRM
is
a singular model, but each
is
conceptualised in a variety of guises. Perhaps
the sharpest contrasts may be found in comparing British personnel management models with US HRM models, or paradoxically, the hard and soft versions of the HRM model. However, I think some general differences can be detected, even if these are largely of meaning and emphasis rather than substance. Firstly, many statements about personnel management, when placed in the context of the texts from which they are derived, seem to see it as a management activity which is largely aimed at non-managers. Apart from management develop-
ment
(often treated as a separate activity or function) personnel
management
appears to be something performed on subordinates by managers rather than something that the latter experience themselves other than as a set of rules and
—
procedures that may constrain their freedom in managing their subordinates as they think fit. HRM, on the other hand, not only emphasises the importance of employee development, but focuses particularly on development of the management team (see, for example, the interviews with Bob Beck, Alan Lafley and Clifford J Erlich in Foulkes 1986). This other differences.
shift
of emphasis appears related to two
management and HRM highlight the role of management, the focus is different. In the personnel management models, line's role is very much an expression of the view that all managers manage people, so all managers in a sense carry out personnel management. It also carries the recognition that most specialist personnel work still has to be implemented within line management's departments where the workforce is physically located (see for example Legge 1978, pp 22-S). In the HRM models, HRM is vested in line management as business managers responsible for co-ordinating and directing all resources in the business unit in pursuit of bottom line results. Not only does the bottom line appear to be specified more precisely than in the personnel management models, with much emphasis on quality of product or service (see for example, Storey 1987, p 16; Upton 1987), but a clear relationship is drawn between the achievement of these results and the line's appropriate and Secondly, while both personnel
line
proactive use of the
human
resources in the business unit. Personnel policies are
not passively integrated with business
strategy, in the sense
of flowing from
are an integral part of strategy in the sense that they underlie
pursuit of a desired strategy.
and
it,
but
facilitate
the
20 Readings
in strategic
human
resource
management
The third difference is that most HRM models emphasise the management of the management. Although the models of the 1970s proclaimed a similar message, these were not fully integrated with the run-of-the-mill normative personnel management models of the 1970s. OD was always seen as standing slighdy apart from 'mainstream' personnel management and, in fact, was generally kept separate in a formal institutional sense, with separate OD consultants, not always with a background in, or located within the personnel department (see Pettigrew 1985). Above all, it was often presented as a fringe activity, an initiative that was 'nice to have' but essentially the gilt on the gingerbread, to be dispensed \sdth at the first hint of financial cutbacks (along with training!). Peters and Waterman's (1982) linking of strong cultures vAth financial success (however spurious), along with American management's fascination with the linkages between a stereotyped 'Japanese' employment culture and Japanese economic strength, has raised the development and management of an appropriate organisation's culture as the central activity for senior
OD
culture as the strategic or 'transformational' leadership
a sense of purpose and involvement to integrated
and
all
internally consistent set of
selection, training, sation's core values
activity,
organisational
that gives direction,
members.
HR policies in
It is
through an
relation to recruitment,
development, rewarding and communications, that the organican best be conveyed, according to the normative HRM models.
—
HRM
is a doubly important issue not just integration of but the internal integration and consistency of policies themselves to enact a coherent 'strong' culture. The normative personnel management models do not present personnel policies as senior management's
Integration, therefore,
HRM
policies with strategy,
instrument for reinforcing or changing organisational values in a manner consistent with preferred business strategy.
These three differences
more
in
emphasis
all
point to
HRM,
in theory,
being
management task than personnel management in that it is experienced by managers, as the most \^ued company resource to be managed, it concerns them in the achievement of business goals and it expresses senior management's preferred organisational values. From this perspective it is essentially a
central strategic
HRM
not surprising that Fowler (1987, p 3) identifies the real difference between as 'not what it is, but who is saying it. In a nutshell
and personnel management
HRM represents the discovery of personnel management by chief executives'. this
is
so,
what are the problematic
Contradictions in
human
issues in
resource
HRM
It will
be argued here that
level,
the value of integration that
is
its
management
problematic at two it
If
enactment?
levels. Firsdy, at
promotes contains a
the surface
logical contradiction,
given the dual usage of the concept of integration. Integration appears to have two
meanings: integration or 'fit' with business strategy and the integration or complementarity and consistency of 'mutuality' employment policies aimed at generating
employee commitment, flexibility, quality, and the like. This double meaning of integration has been referred to also as the external and internal fit of HRM policies (Baird & Meshoulam 1988). The problem is that while 'fit' with strategy would
Strategic perspectives of
argue a contingent design of HRM
employment
to the design of
that
to
management 21
— —^would argue an
at least with the
absolutist
Can this contradiction be the meaning of HRM as a distinct at a deeper level, it may be suggested
policy.
reconciled without stretching to the limit
approach
resource
policy, internal consistency
50^ human resource values associated with 'mutuality'
approach
human
managing employees? Secondly,
HRM, no less than personnel management, is confronted by a contradiction
of capitalism: that is, responsibility for accommodating the dilemma the 'labour commodity'
groups in
a
is
capitalist society,
major means
it is
liable to subvert those interests
HRM
have the potential to cope more effectively with traditional approaches to personnel management?
Does
that,
to further the interests of
although
dominant
(Watson 1977). than
this tension
The problem of integration of HRM to argue for the matching, even the tight meshing, of HRM policies with business strategy. Various approaches have been proposed. Perhaps the most popular to suggest that HRM policies— in particular those
A characteristic
is
is
related to recruitment
rewards
—should
'fit'
and
selection, training
and development,
appraisal
and
the stage of development at which the organisation has
arrived in pursuing growth. Typically the organisation's stage of development
is
characterised in terms of product or geographical diversity (eg single product; single product, vertically integrated;
growth by acquisition of unrelated businesses;
related diversification of product lines through internal growth
and
acquisition;
form owner manager/ agency; functional; separate self-contained businesses; multidivisional; mixed forms; global organisation). See, for example, Baird and Meshoulam (1988), Smith (1982), Tichy et al (1982). multiple products in multiple countries)
and by the
associated organisational
(eg
A similar approach, but leaving aside explicit assumptions about organisational growth,
is
Miles
and Snow's (1984)
identification of three basic types of strategic
behaviour and supporting organisational characteristics, which they term prospector 2Lnd analyser.
defender,
A defender strategy is characterised by a narrow and relatively
product-market domain, single, capital-intensive technology; a functional and skills in production efficiency, process engineering and cost control. Miles and Snow cite Lincoln Electric as a typical example. A prospector strategy is typified by the continual search for new product and market opportunities and experimentation with potential responses to emerging environmental trends. Prospector characteristics include a diverse product line; multiple technologies; a product or geographically divisionalised structure, and skills in product research and development, market research and development engineering. Hewlett Packard
stable
structure;
is
identified as a typical prospector. Analysers, according to Miles
in two differing types of product
market domains
— one
and Snow operate
relatively stable, the
other
changing. Given different market demands analysers enact a diversity of behaviours.
Thus they
are characterised by a limited basic product line; search for a small
number of related product and/or market opportunities; cost-efficient technology for stable products and project technologies for new products; mixed (frequentiy
22 Readings
in strategic
human
matrix) structure; and
marketing. Miles and
resource
skills in
Snow
management
production efficiency, process engineering and
identify Texas Instruments as a typical analyser.
logic of these different strategies
depending on
differ,
strategy.
is
that the organisations'
HRM
policies
The
should
For example, Miles and Snow suggest that the basic
HRM strategy of defenders will be to 'build' human resources, that of prospectors to human resources and that of analysers to 'allocate' human resources. These different approaches to HRM in theory have very different implications for choice of policy. If we take the examples of selection and development, for instance, Miles and Snow suggest that a defender company should typically engage in litde recruiting above entry level, with selection based on 'weeding out undesirable employees', while training and development should involve extensive, formal skills-building programs (ie the make approach). In contrast, prospectors should seek to 'buy in' talent a strategy that should involve sophisticated recruiting at all levels, with selection involving pre-employment psychological testing, training being limited, the emphasis being on skills-requirement identification and their acquisition in the labour market. By implication Miles and Snow suggest that analyser companies should match recruitment, selection, and development strategies to the nature of the product (stable, innovative) and the stage of the product life-cycle and thus engage in make (stable product, 'cash cow') 'acquire'
—
or buy
HRM
policies (innovative product, 'rising star') as appropriate to the
market domains. Miles and Snow's analysis
different
attempting to achieve external strategy. Firstiy,
of
is it
raises fit
two potentially problematic issues
or the integration of
when
HRM policies with business
possible to have a corporation-wide, mutually reinforcing set
HRM policies, if the organisation operates in highly diversified product markets,
and,
if
not, does
it
matter in terms of organisational effectiveness? Secondly,
if
HRM policies, will some strategies most normative HRM models—fail to emphasise
business strategy should dictate the choice of
—unlike
dictate policies that
commitment, flexibility and quality? If these questions are relevant to an organisation with market diversity in Miles and Snow's terms, they are writ large for conglomerates operating not only in different markets in one industry, but in a range of industries.
Taking the first point, if a highly diversified corporation is to match its HRM wide range of very different product-market requirements then clearly the logic of such a position is that different policies would emerge in
policies to a
different divisions or subsidiaries. Conversely, Miller (1987) does well to
draw to pursuing company-wide, internally consistent HRM policies for example, Hewlett Packard or Marks and Spencer are notable for low levels of business, (as opposed to product) diversification, of 'sticking to the knitting'. However, whether the pursuit of different sets of HRM policy in a diversified corporation 'matters' is another question, assuming such an organisation sought integration only at the financial level and allowed its business units a high level of autonomy. All that would then be required for congruence would be that each unit adopts policies that were our attention that many of the companies generally recognised
—
consistent with
its
as
—
—irrespective of
own business strategy and mutually reinforcing
Strategic perspectives of
the extent to which they contradicted
human
resource
management 23
HRM poHcies pursued in other business
units elsewhere in the corporation. While, as a consequence,
no organisation-wide
would not be necessary as integration at operating level and, hence, of personnel. Then not only would the difficulty of merging distinct sub-cultures be likely, but perceptions of potential inequalities and inconsistencies between erstwhile autonomous units' HRM policies might undermine the trust and commitment that is supposed to develop from perceptions of congruence. In relation to this question Miller (1987) makes a further interesting observation. To suggest that to achieve competitive advantage each business unit strong culture
would be
likely to develop,
arguably
this
its HRM policies being pursued elsewhere assume that the business units are market driven. While
in a diversified corporation should tailor in the corporation, this
may be
is
to
true of individual units within the corporation,
it is
not necessarily so
of the corporation as a whole. As Miller points out, the success criteria of diversified
conglomerates are defined in financial terms and largely sought through the manipulation of corporate assets. 'The success of Hanson Trust will depend not on building competitive advantage in the businesses within the portfolio... but by acquired growth' (Miller 1987, pp 359-60). Such a corporate strategy though may not lead to organisational effectiveness as broadly understood 'and, indeed, there is a creeping criticism that these businesses, as a result of their failure to engage world markets, are bad for the economy' (Miller 1987, p 359). If a multi-business conglomerate's success is sought through acquisition, asset stripping
and attention
—
to
its
price-earnings ration
—may
on the
stock markets,
its
HRM
compulsory redundancy, reward based on short-term performance results) which, although consistent with business strategy, are unlikely to generate employee commitment. Even where a company does seek competitive advantage in the market for its products or services, patterns of demand and cost structures may argue that, at least at the level of non-managerial employees, flexibility is more effectively achieved through Tayloristic work organisation, treating labour as a variable input, and exploiting the secondary labour market rather than through enhancing the skills and quality of the workforce. This would appear to be the chosen strategy of much of the High Street, whether fast food chains or a large part of the retail sector. In cases such as these, the hard version of human resource management appears more relevant than the 50^ version of human re^owrc^ management. In other words, matching HRM policies to business strategy calls for minimising labour costs, rather than treating employees as a resource whose value may be enhanced, in terms of Guest's model, by increasing their commitment, functional flexibility, and quality. Furthermore where such cost-minimisation policies are pursued in relation to direct employees, lack of integration may occur at another level. It may 'policies'
be
in
staff,
if not
entirely pragmatic
such companies that
soft
version
logically call for actions (eg
HRM policies are followed for
resulting in a lack of internal consistency
which may
ftirther
managerial
undermine the
commitment of direct employees. Attempts to reconcile strategy (external
fit)
this
may
contradiction
—
that
matching HRM policy
involve the denial of internal
fit
to business
with core soft
HRM
.
24 Readings
in strategic
human
—have taken two forms.
First
values
the two forms of integration
treatment
management
resource
is
is
the argument that the lack of consistency in
illusory.
may appear
Actions that
of individuals as a \-ariable cost, rather
to epitomise the
than resource, in the interests of
wood whose performance
business strategy, eg chopping out dead
not up to
is
standard, t)dng rewards closely to individual performance, transferring employees to other jobs and parts of the organisation in the light of business requirements,
an opportunity for employees to develop their resourcefulness If some employees prove unequal to the challenge and have to competences. and or if business circumstances dictate that some have to be dispensed with', be sacrificed in the interests of the organisation as a whole, this is really an example of tough love, or 'care which does not shy away from tough decisions' (Barham, is
in fact providing
Eraser
&:
The
Heath 1988, p
28; Peters
& Waterman
1982,
96, 240).
pp
use of tough love as a rhetorical device to mediate this contradiction
may
bv quotations from two managers, cited in Barham, Fraser and Heath (1988) and Foulkes (1986) respectively. First, in a booklet setting out its management principles, an insurance company's chief executive asserts:
be
illustrated
The needs of our business company's
be most effectively attained if the needs of the people
are met. If people are in poor shape, the
objectives are unlikely to be achieved. Yet the needs
comefirst. People need with
ivill
and meaning,
for fulfilment, success,
'soft care',
to be developed,
of the business
still
but this will not be achieved by treating them
by alloiuing issues to be
smoothed over luithout being properly
addressed. To treat people without care will cause them and, therefore the business, to
diminish. Experience su^ests that the needs ofpeople
met
if we treat ourselves
management, which
with 'tough
love'.
..This
is
basically does not involve care.
Respect for the individual does not
and the business will be best
very different from 'macho'
Tough
mean pandering to the
love requires courage.
individual's weaknesses
or even unsfies. Involving people through tough love to secure both their development
and good performance
managers
requires
People, of course, are far and
But
they are not
develop pecfple
more than
and
away
tfie
to take initiatives.
that. It is very easy to forget
to care for
them,
.
most important resource in any company.
and even
to love
when endeavouring
them, that
tfie
business must come first. Without that, there can be no lasting security.
paradise in which
effort is
to
needs of the
A fool's
concentrated only on the present well-being of the staff
without regard for the future, will eventually disintegrate
and
it
may
well be
tfie
staff that suffer most.
(Barham, Fraser &" Heath 1988,
p 28)
Note here that 'putting the needs of the business first', is presented as an tough love, and that 'love', as opposed to 'soft care' or even 'pandering to the individual's wishes', is a question of sometimes being 'cruel to be kind'. Without toughness the staff may be the ones to 'suffer most'. 'Care' for
—
intrinsic part of
the individual appears essentially as respect for employees'
woman) enough
to take
it'
abilitv'
to
be 'developed'
deems appropriate and, implicidy, to be 'man (or if personal sacrifice for the good of the organisation is
in ways that the organisation
Strategic perspectives of
human
resource
management 25
required. Indeed the very denial that tough love is at all like 'macho' management only serves to reinforce the suspicion that in its manifestation to unfortunate employees exhibiting 'individual weaknesses' it may appear indistinguishable. The assumptions of paternalism and a unitary frame of reference which
pervade the quotation above are echoed in the words of a vice-president of ITT, cited in Foulkes (1986, p 382): The positive fact
is
that the removal of a marginal, unproductive or unnecessary
surplus employee, provided
improves
the people the
employee
with
to
and ethically handled, almost always and above-average employees, who are, after all,
legally
it's
the morale of the average
company most wants
to retain. It is
observe a fellow worker who
is
demoralising to a good, productive
consistently
—and
dogging it
getting away
it.
It is the
to see that the level of employee always as high as possible, even when the
personnel manager's responsibility
performance and productivity
is
achievement of that objective requires the unilateral removal of unsatisfactory employees.
and certainly in rhetoric, glosses the and commitment to soft HRM values. Development, flexibility and adaptability are defined by the organisation and are in its own interests. The company's interests and those of its employees are equated. If an individual's abilities and performance are defined as inappropriate by the company, given the identification of employee and organisational interests, that person must inevitably be redefined as no longer an employee, and a tough decision may have to be made in loving concern for the employees the company wishes to retain, who depend on its survival growth.
Tough
love, then, possibly in substance,
potential tensions between external
An alternative approach to
changes where,
in sectors
fit
to reconciling these potential contradictions
is
to point
Thus, the argument has been presented that even cost-minimisation has been the order of the day (eg
in business strategy. traditionally,
mass production, supermarket retailing), given the levels of cost-effectiveness achieved by enhancing the quality of the product or service. Hence commitment must be generated in employees directly manufacturing the product or at the customer interface whether through participative structures and policies of employee involvement or through training and development. Austin Rover's Working with Pride program of quality circles and employee involvement (Storey 1987) and Bejam's training programs (Upton 1987) have been cited as typical senior management initiatives to improve quality, although we await systematic research on the workings of these policies in practice. Again it is difficult to know where rhetoric ends and the extent to which compliance with the normative soft in
—
HRM model is really sought or achieved on the shop floor. Certainly the managers Storey (1987, p 17) cites, suggest a gap between 'espoused theory' and 'theory in use'. Furthermore, this line of argument comes close to suggesting a higher degree of homogeneity in business strategy among organisations than the commentators cited earlier perhaps would suggest.
version
— 26 Readings
in strategic
human
Is the
human
resource
management
resource
management model
internally consistent'^
Leaving aside potential contradictions between integration of HRM policy with and the ability to achieve an integrated company-wide HRM policy; between policy matched to business strategy and the soft HRM model,
business strategy
indeed between the hard and
soft versions
of the model
itself,
contradictions
may
be found in the goals of commitment, flexibility and quality, and of 'strong' culture sought bv die soft version of the model. Firsdy, there seems to be some confusion over the concept of commitment. Guest (1987, p 513) in querying 'commitment to what?', identifies 'multiple and perhaps competing commitments' to organisation, career, job, union, work group, and familv. If we assume that HRM emphasises high standards of performance 'the excellent companies are measurement-happy and performance-oriented... borne of mutually high expectations and peer review' (Peters 8c Waterman 1982, p 240) and quality of product/service, individuals' job commitment would seem important, along with their desire to develop their skills and competences. But the
—
higher the level of commitment to a particular set of skills, arguably, there may occur a decrease in an employee's preparedness to be flexible as between jobs, or willing to accept a redefinition of a job that might diminish elements to which a
commitment has been made. Hendry and Pettigrew (1988, p 43) suggest an
interesting sidelight
potential conflict in their discussion of multi-skilling at
Retraining itself has unforeseen consequences.
changes attitudes
to production.
the particular interest then
interesting
when
lies
One effect is the belief that it adversely and the job is only really managing director put it: 'we
in the exercise of these skills,
As
the
taught them everything but the importance of the production to the
this
Learning to overcome equipmentfaults means that
the machine breaks down.
hear them saying
on
Hardy Spicer:
machine
''break
down, break down
ethic.
You could almost
"'.
HRM
appears torn between preaching the virtues of individualism At first sight most commentators, observing its backgrounding of collective, union-based employee relations and its highlighting of individual skills and development, assert that it is individualistic rather than collectivist in orientation (see, for example. Guest 1987; Storey 1987). In this they are supported Secondly,
and
by
collectivism.
much management At
BMW there
far as
is
we can a
rhetoric.
For example, according to a manager
a new concentration on the individual. self-organising
and
this
means
at
BMW^:
We have got to achieve as much more
that there has to be
individual responsibility.
(Barham, Fraser
iff
Heath
1
988,
p 54)
But, at the same time, there is a parallel emphasis on team work, whether in the form of quality circles or functional flexibilit)', and above all, on the individuals in it, but rather as an organic entity with an interest in survival. The potential conflict between emphasising the importance of the individual on the one hand and the
— Strategic perspectives of
desirability of co-operative
sation values.
on the
other,
is
human
resource
team work and employee commitment
management 27
to the organi-
glossed over through the general assumption of unitaristic
For example, from Norsk Data comes the observation:
Norsk Data
is
made up of individuals like yourself. We have the
Ifyou 'II be yourself and use your whole personality in yourjob, will stand behind you
'Norsk Data Spirit the rest of the
'.
team
and your efforts. (Barham, Fraser
This quotation also points to
why
—not only does
& Heath 1988, p 30)
HRM stresses the development of a strong
give direction to an organisation, but it mediates the tension between individualism and collectivism, as individuals socialised into a strong culture are subject to unobtrusive collective controls on
corporate culture
attitudes
it
and behaviour
However,
thirdly,
there exists a potential tension between the development of a
strong corporate culture and employees' ability to respond flexibly and adaptively.
Following Brunsson's (1982) arguments, o^'^c^iw ideologies (defined as ideas shared
by all organisational members), when conclusive (that is, in
one sense
—speed of response—can promote
decisions can be
made
clear,
narrow and consistent) is because
adaptability. This
—read strong culture
quickly as the conclusive ideology
on the acceptability of an action, eliminating lengthy discussion while generating commitment to implementing it. But this 'adaptability' is only when the action required involves no radical departure from the tenets of acts as
an
effective filter
the strong culture, as conclusive ideologies rule out changes that challenge their
assumptions. Leaving aside the strong bureaucratic cultures that inhibit risk-taking
and innovation per se (Golzen 1988), the development of a culture congruent with and supportive of a particular business strategy can act as a block to employees adopting different behaviours in response to changing market demand. A much quoted example is that of IBM whose narrow ideology of 'IBM is service' contained particular assumptions about the nature of product and service (mainframe, customised systems, salesmen as management consultants to customer-as-end-user, seeking quality of product and service) which were inappropriate when strategy dictated an entry into the personal computers market (standardised product, cost
competition, dealer as customer) (Mercer 1987). ethic in
a
its
traditional markets inhibited
The very success of the IBM service
an adaptive response from employees to
new market. Yet conclusive ideologies, reflecting strong cultures, Brunsson argues, in the
long term may be more amenable to radical shifts than the broad, ambiguous ideologies, often taken as symptomatic of a weak culture. Superficially, while the latter might appear to allow more flexible responses on the part of the employee, their very vagueness fails to generate the necessary
commitment
for effective
action. Nevertheless, such ideologies tend to survive as they are difficult to
disconfirm, being apparentiy applicable to a wide range of situations. In contrast
the very precision of conclusive ideologies allows their disconfirmation as individuals' own experience of changed circumstances cannot be reconciled with
— 28 Readings
in strategic
human
resource
management
and justifications. In these circumstances the
their unequivocal prescriptions
ideology (culture) is likely to be questioned and replaced. Until a new ideology is in place, Brunsson suggests, it will be impossible for the organisation to take effective action as the period of transition will
be marked by
tainties that will inhibit individuals' willingness to
make
a
conflicts and uncercommitment to any one
course of action and hinder co-ordination.
Hence it could be said that the relationship between strong cultures, employee commitment, and adaptability contains a series of paradoxes. Strong cultures allow for a rapid response to familiar conditions, but inhibit immediate flexibility in response to the unfamiliar, because of the propriate ideology.
Weak
commitment generated to a (now) inaf>when equated with ambiguous
cultures, in contrast,
ideologies, allow flexibility in response to the unfamiliar, but cannot generate
commitment to action. Yet strong cultures, through disconfirmation and eventual ideological shift may prove ultimately more adaptive to change, assuming the emergence of a new strong yet appropriate culture. This may be at the cost of a transitional period when ability to generate commitment to any course of action new or old is minimal.
—
Human resource management and the Underlying the contradictions contradiction
embedded
in
in the
HRM
'contradictions of capitalism'
outlined above
is,
of course, the major
management of employees
in capitalist systems
committed to the production, realisation, and accumulation of surplus value. As Watson (1983, p 25) points out, industrial capitalism depends 'on the institution of the employment and rational organisation of free labour'. But while the principle of control of employees is implicit in ideas of employment and rational organisation, that of freedom and autonomy is implied in the notion of formally free labour. In buying employees; capacity to work, organisations are buying the
right to control people's work, but in return they have to
consequence of employees developing a reward bargain. This
'calculative' orientation
of labour to 'think for themselves' and to
cope with the
'calculative' orientation to their effortis
equally a product of the 'freedom'
move between employers,
a requisite of
notionally unconstrained labour markets. Although buying the right to control
employees' work, employers cannot prescribe tasks in
detail, particularly
when
highly complex. Furthermore, in the interests of flexible response to variances in day-to-day operational processes, neither would they wish
to.
Employers may buy
the right to control their employees' work, but because in practice they must
surrender on a daily basis the means of production to the 'control' of workers for their use in the production process, they
must
operation to ensure that their discretion
exercised for rather than against the
is
also seek their employees' co-
employers' interests.
Hence as Buroway to achieve control
(1979) put
it,
there exists the need
on the part of the employer
by 'manufacturing consent', rather than by exclusively exercising
coercion. But, as already discussed, while the exercise of control through coercion carries the
problem of provoking employee non-co-operation and
resistance, the
— Strategic perspectives of
human
resource
management 29
commitment to the job carries the potential danger of generating employee inflexibility and conservatism. Furthermore, as Hyman (1987, pp 43-4) creation of
points out, in attempting to walk this tightrope, employers are faced with another
dilemma. Efficient labour and administrative processes often
call for
cohesive
and standardisation of their terms and conditions of employment, negotiated through representatives accountable to and for groups of employees. Yet such cohesion and standardisation is likely to generate a collective relations within a workforce
solidarity
which employees may use against the employer's
interests.
HRM
Following Hyman 's (1987, pp 42-3) argument, it might be suggested that just as much as traditional personnel management is confronted by the problem
of mediating these contradictions. But the logic of the soft version HRM model would argue a rather different approach to traditional personnel management. Traditional personnel management emerged at a time when most direct labour was treated as a variable rather than fixed cost. The consequent frequent hiring and firing not only made it sensible to have a specialist function perform this and related 'terms and conditions of employment' activities, but by doing so, enabled a dissociation between the sale of labour power and the performance of the labour process, thereby obscuring the commodity status of labour. Apart from performing this function, personnel specialists also had to cope with and ameliorate the consequences of coercive direct control, often employing the masking activities of 'welfare' to disguise the application of rational techniques to counter the problems created by other rational techniques. Not surprisingly, then, the personnel specialist traditionally has been identified as the 'man in the middle', a buffer and potential scapegoat for the actions of the rest of management (Watson 1977, pp 175-7; Watson 1983, p 34). (In a similar vein Purcell in Marginson et al (1988) interprets correlational evidence from the Warwick Company Level Survey to suggest that large corporate personnel departments perform a gatekeeper function to divorce trade unions from strategic management considerations but at the cost of becoming isolated from strategic decision-making.) Soft version HRM, on the other hand, insofar as it advocates the treating of labour as a fixed cost, has less need to separate the sale of labour power from its application in production into different management activities. Instead 'terms and conditions of employment' can be linked to work organisation as part of an integrated management responsibility. For, in emphasising the importance of quality (skills), flexibility (with its potential implication for the need to exercise discretion) and commitment in employees, it has opted to obscure the commodity status of labour by adopting strategies of co-optation through the development of 'responsible autonomy' rather than attempting to exercise 'direct control'
—
(Friedman 1977). Furthermore, in
its
emphasis on strong culture, in theory
HRM
is
able to
achieve a cohesive workforce but without the attendant dilemma of creating potentially dysfunctional solidarity. For a strong culture
employees through a shared 'service',
set of managerially
aimed
at uniting ('quality',
assume an identification of employee and Such co-optation through cultural management, of course
'innovation', etc), that
employer interests.
is
sanctioned values
—
30 Readings
in strategic
human
resource
reinforces the intention that
management's If
it
management
autonomy
will
be exercised
'responsibly', ie in
interests.
was possible to apply consistently the soft version HRM model, it might it mediates the contradictions of capitalism more effectively
well be argued that
than traditional personnel management, as the implied rejection of
direct control
more complete 'securing and obscuring of the commodity (Hyman 1987, p 42). But, as argued earlier, if HRM, in theory,
strategies allows a status of labour'
demands the integration of employment policies with business strategy, and hence, in some circumstances, to treat labour as a variable input, consistent adherence to the soft version model will come under pressure as 'employers require workers to be both dependable anrf disposable' (Hyman 1987, p 42). The tensions this may cause are illustrated by the problems that face computer companies when simultaneously confronted by recession and growing market maturity. Companies such as IBM and Hewlett Packard were caught between commitment to 'no redundancy'
in the light
model and the need
of their very public adherence to the soft version
and
HRM
While the adoption of retraining strategies was consistent witli the model, the problem in achieving a lower headcount overall is illustrated by the dubious masking strategies of compulsory unpaid leave days and offers of 'early' retirement incentives no doubt illustrations of tough love in action (Sparrow & Pettigrew 1988). for fewer people
different
skills.
—
This reading has argued that while normative models of personnel and resource
management
are not dissimilar,
some
human
significant differences in focus
While these differences point to HRM being a more central management management, at least in theory, the contradictions embedded within the wu/i/fl/z/)' model and the tensions between the hard and soft versions of the model, call into question whether its enactment will realise its aspirations. Furthermore, the model's contradictions both reflect and are reinforced by the deeper contradictions of capitalism. It will be most interesting to identify from presently ongoing empirical research the extent to which companies are able to enact the soft version mutuality model and, at the same time, achieve external fit with business strateg)'. It will be interesting too to discover whether even the most 'transformational' leader attempts to do so. Indeed, how often, and in what circumstances \vas the normative model of personnel management ever fully enacted? Clearly, we need to know more about the organisational and market circumstances that facilitate the adoption of the mutuality model, and how widely within an organisation it can be applied. Are there circumstances in which the soft version model to direct employees on a greenfield site, goes hand in hand with the implementation of a hard version on traditional sites? Is such soft version implementation often preceded by a hard version plant closure program and enforced redundancies? Certainly, reading between the lines, this seems to have been the case of Norsk Hydro (Fox 1988). exist.
task than personnel
Strategic perspectives of
It
may be suggested approach
contradicts
its
is
to
fit
(for a contingent
HRM)
management 31
approach) and of internal
will inevitably give rise to
avowedly strategic approach.
research by Purcell
resource
that the tensions generated by the potentially conflicting
requirements of external absolutist
human
and Ahlstrand
It is
fit
(for
an
a pragmatism which
not surprising then that recent
in multi-divisional
companies suggests that there
and employee relations practice own interests and protect their own
often a lack of fit between strategic restructuring
as different
managerial groups pursue their
domains (Ahlstrand
& Purcell
& Ahlstrand
1988; Purcell
some of the apparent implementations of HRM
1987).
It
may well be
that
involve the adoption of particular
'Japanese' techniques, but opportunistically rather than strategically.
Given these problems it might well be asked why the language of HRM has gained the currency it appears to have not least among management groups themselves. After all, as has been argued, there is litde real difference between normative HRM and personnel management models and, in practice, it is
—
probable that managing employee relations in the vast majority of companies remains a pragmatic activity, whether labelled personnel management or HRM. Furthermore, many of the techniques of HRM can be found in any personnel
management textbook of a decade ago. I would suggest that, in many cases, the than a reflection of the
rise
of the new right
use of the new
label is
no more or
less
—^whether in the UK or USA. In Britain
do-gooding specialists trying to constrain managers, of weakly kowtowing to militant unions, of both lacking power and possessing too much power. Our new enterprise culture demands a different language, one that asserts management's right to manipulate, and ability to
personnel management evokes images of line
The dual usage of the concept resource, with its simultaneous passive and proactive connotations, and its hard and soft version models, is very useful here. While the language and policies of the hard version model can be used on employees peripheral to the organisation, those of generate and develop resources.
HRM
the soft version
model can be used
to reassure
and secure
'core'
employees whose
deemed essential for the achievement of competitive advantage. The language of tough love seeks to co-opt the assent of both those who may suffer as well as those who may benefit from its effects. Ironically, it is the contradictions embedded in HRM that have facilitated the development of this rhetoric even if resourcefulness
is
they simultaneously render strategic action problematic.
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Reading 2
The
strategic contributioiis
of the personnel function
Ro^fT Collins
Over the past decade many managers have been pressured into rethinking the most fundamental aspects of their organisations and their activities. Sources of pressure have included major shifts in the world marketplace, the international
and local economies, social values, demographic characteristics, and rapid developments in technology. These developments, both overseas and in Australia, have been well documented (for example, see Wheeler 8c Hunger 1983, Fombrun, Tichy & Devanna 1984, Johnson &: Scholes 1984, and Hilmer 1985). Management's responses to these developments have attracted increasing attention from writers, researchers and educators (Chandler 1962; Porter 1980 & 1985; Easterby-Smith &: Davies 1983). One response has been the rise of strategic management, a concern for answering such questions as 'what business are we in?' and 'how will we compete?' Senior managers in many Australian public and private sector organisations have been confronted with the need to review and often reshape their organisation's mission, corporate objectives,
strategies, plans, infor-
mation systems, financing, technology and employee management practices. The ability to review and develop such fundamental aspects of the firm is referred to as a strategic management capability (Houlden 1986). Over the past two decades the development of this strategic management capability has occurred at two levels. Firstiy, the body of knowledge about strategic management was initially built around the concerns of production, marketing, finance and distribution. Implementing strategy in general and deciding whether the firm has, or could recruit or develop, people willing and able to carry it out have more recently become central concerns (Galbraith & Nathanson 1978; Miles & Snow 1978; Fombrun Tichy & Devanna 1984; Hrebiniak & Joyce 1984). Secondly, these developments reflect a fundamental shift at another level: within the firm senior managers have had to enhance their capacity to manage strategically rather than operationally (Collins 1986). This shift necessitates that senior managers develop new competencies and adopt a different way of looking at and thinking about their organisation and its environment. During more stable, less competitive times, senior managers were heavily engaged in managing their organisations operationally. They often developed what I call an 'operational mindset', which is something characterised by short-term horizons and a stabilising and reactive orientation. By contrast, strategic management involves new competencies and a mindset that:
whole rather than the parts and constraints both within and without the oi^nisation characterised by a desire to win, to create or shape the future
•
sees the
•
identifies opportunities
•
is
36 Readings
in strategic
human
resource
management
on just those organisational issues that will make the difference between success and mediocrity or failure enables the manager to move freely between short- and long-term time horizons, and selects and implements configurations in organisational design, resources and
•
focuses
•
•
functioning which ensure that the firm succeeds in
As we now consider the
strategic contributions
its
chosen environment.
of the personnel function to
we will need to adopt a strategic way of looking at and thinking about the management of people. This approach contrasts sharply with the more traditional one which has often failed to consider the management of
organisation performance,
people either as a whole or in relation to other aspects of organisational design
and function
(Collins 1982).
A strategic
approach manages people and their
contributions such that they provide the firm with a distinctive competitive advantage.
What
tew are we
in?
Corporate level strategy In identifying the contributions of the personnel function to organisational success it is
important to distinguish between business and corporate
level strategy.
how a business unit will compete in a particular market strategy is concerned with, among other things, the most
Business strategy deals with
place. Corporate level fundamental question that managers and indeed all employees must ask about their organisation: 'What business are we in?' There is a risk that managers and employees consider that this is a trite question. For example, it would have been
easy for Ansett to consider that
Post could think that
and
it
was in the airline business. Similarly, Australia of receiving, sorting and delivering mail
in the business
parcels. In the relatively stable
Australia in the 1950s as
it is
and
and
less
competitive times that characterised
1960s, these sorts of simplistic answers sufficed. However,
managers of railway systems
in the
United States discovered
in the 1970s,
considering themselves in the railways rather than transportation business proved
many to be a fatal
mistake. For the answer to the question 'what business are we concern for ends rather than means. The selection and development of corporate level strategy is based on establishing a match or alignment between an organisation and its environment such for
in?'
must
reflect a
that the organisation has a distinctive competitive advantage.
The
organisation's
environment presents both opportunities and constraints. Opportunities include expansion by growth, acquisition or diversification; constraints may be in the form of high barriers to entry, aggressive competition, tight labour markets or environ-
mental considerations. For an organisation to be successful, managers must an external fit between these environmental considerations and
establish first
organisational resources fit
and competencies; second they must establish an
between the organisation's design and
return later in this reading.
its
internal
—a point to which we
functioning
will
Strategic perspectives of
In
making decisions which are directed
human
resource
at establishing external
management 37
fit,
managers
have had a tendency to focus on financial and physical/technological resources. People and their current and potential contributions have often been overlooked
number of reasons.
Hilmer (1986) argues, wealth in Australia has which people have not been seen as a key success factor (Ohmae 1982). Our wealth has been derived from low cost production (gold, wheat, wool, minerals, etc) or artificially protected industries (finance, airlines, the media, etc). However Hilmer contends that new wealth can be created primarily in industries in which the employees' contributions are central to the success of the business. These include the service sector (which now employs more than 65% of our workforce) and new high-tech industries. A second consideration which flows on from the first is that many managers have not had the values, skills or information that would enable them to inject people considerations into their strategic decision making formulae. In sum, employees were not considered as either important opportunities or constraints in the formulation of corporate strategy. The consequences have often been very cosdy. Attempts by some Australian manufacturing organisations to diversify, for example into mining and oil, and some financial institutions to diversify into new businesses have been marred in part by the failure of senior management to consider whether they had or could attract managers and employees who understood the new businesses. By contrast, strategic initiatives to turn around the Rod and Bar Division of BHP Steel International Group at Newcasde have been characterised by a concern for the people element in the very first stages of corporate for a
been created
First, as
in industries in
strategy reformulation
and implementation.
Corporate level strategy and the personnel function
The
specific contributions of the
strategy therefore centre nities
on the
personnel function to issues of corporate level and management of the opportu-
identification
and constraints presented by the organisation's workforce, and by related
personnel issues inside and external to the organisation. Let us issues in
more
now consider these
detail.
Opportunities can be created by the workforce or a strategically critical workforce segment that offer the firm a distinctive competitive advantage over its competitors. For the competitive edge of a successful firm that is most difficult to copy is that provided by its people. Examples of such workforce segments include the investment advisers and foreign exchange dealers in financial institutions, and the customer contact staff in service industries. A powerful example is Scandinavian Airlines. In this organisation the chief executive, Jan Carlsson, has been able to differentiate SAS on the basis of service to a specific customer segment: business passengers. Given the current and projected growth in the service sector in Australia, a strategic approach to the management of people represents a unique opportunity for managers and personnel specialists to develop a competitive edge through their employees' behaviour and contributions. For in the service sector people are the product, in contrast to the manufacturing sector in which people maheXhs. product (Saul 1987).
38 Readings
An
in strategic
human
resource
management
organisation's workforce can also present major constraints to an existing
strategy or a
proposed
strategic initiative.
At the
collective level
such constraints can
be illustrated by the issues of industrial relations and corporate culture. Unions can resist
changes that affect their members'
interests. Australia Post in its
recent attempts
to decentralise mail sorting from Redfern Central Mail Exchange to regional sorting
centres represents a case in point. Qantas Airways experienced considerable
from cabin crew to the introduction of non-stop flights from Los Angeles However, an organisation's culture perhaps presents a more pervasive and elusive source of potential resistance to the implementation of strategy. For example, in the airline and finance industries there has been, and will continue to be, a need to balance the new values of customer service and responsiveness with the more traditional values of prudence, technical excellence and conformity if resistance
to Sydney.
are to be implemented successfully and corporate objectives met. At the level of special groups of employees and individuals, constraints may derive from their inability and/or unwillingness to learn new skills or adopt new attitudes and work practices that enable, for example, a service oriented strategy to be implemented. These issues represent major concerns for the finance industry which in the medium term will undergo major rationalisation and restructuring
new strategies
of its service delivery systems. In
summary, organisational success
is
in part a function of the
degree of
alignment of the organisation's capabilities with the opportimities and constraints that characterise
its
environment. Increasingly people issues represent a funda-
mental input into the quest for alignment Successful alignment depends in part
on management's
ability to attract, retain
and develop people who are willing and
capable of capitalising on environmental opportimities. Workforce competencies and values must fit the corporate strategy. Furthermore, it is necessary to recognise that people individually and collectively can present constraints that must be considered in the formulation and implementation of corporate strategy. To take these factors into account senior managers may need to change their own values and skills to accept that, along with finance marketing production and distribution, personnel management can be a key factor of success. Furthermore, these managers will need access to personnel related information from their environment (for example, impending changes in legislation), and information about their organisation's culture and the competencies, attitudes and potential of their people. Such a shift in the strategic behaviour of our senior managers will not be achieved without a commensurate change in the competencies, priorities and activities of personnel practitioners (Collins 1985).
What business
are a;e in?
Finally, the issues
introduced in
this section raise for
personnel practitioners the
question: 'What business are ive\n?' Unless we are able to formulate a valid response to this question, then
than ends.
our
efforts
may be misdirected
as
we
focus
on means rather
Strategic perspectives of
One way of defining our business We
human
resource
management 39
is:
and
are in the business of contributing to the development, implementation
evaluation o/'influence processes, to shape individual anrf collective behaviour
and outputs
that contribute to the attainment of our organisation
's
objectives.
need to be highlighted. Firstiy, that we contribute and evaluation of influence processes recognises that as personnel specialists we have shared accountability with all managers for the management of people rather than some exclusive right. Secondly, we are in the influence business, not in that of producing manuals or running training programs. Thirdly, we need to recognise that there are multiple ways of influencing behaviour and outputs and more often than not we will need to use multiple mechanisms or leverage points to shape behaviour. Thus we need managers and specialists who can integrate training, appraisal and recognition, so that systematically, they signal desired behaviours and outputs, and help shape and reinforce these outcomes. Finally, we are in the business of shaping both individual and collective behaviour. This implies that we should not only use traditional micro influence mechanisms such as training and position descriptions, but we should also seek to influence collective behaviour through careful development of such macro influence mechanisms as the organisation's mission statement, structure and culture (Schein 1985) and its corporate leadership (Tichy & Ulrich 1984). Effective influence can be exercised when each of these mechanisms is carefully aligned on the basis of a widely accepted set of objectives and performance indicators. This alignment ensures congruence and therefore synergy between the Several aspects of this statement
to development, implementation
informational cues that their behaviour
and
we provide
for
our employees in our attempts
to
shape
outputs.
we now turn our attention. Firstiy, we will consider the and the need to ensure tight fit between corporate objectives, strategies, structure and culture. Secondly, we will focus on the fit that can be achieved between all of an organisation's personnel policies and It is
broad
to these issues that
issues of organisation design
practices so as to ensure consistency in the signals that employees receive as to
how
they are expected to behave and/or what they are expected to contribute.
Business level Strategy Business level strategy focuses on the question: at this level
is
capital resources with the strategy in fully. Firstly,
How will we compete? The concern
with developing the organisation's capacity to match
such a way that
it
its
human and
can be implemented success-
the major strategic options available to an organisation will be
considered. Secondly, the need for alignment between the preferred strategy and the capacity of the organisation's workforce to implement at collective
and
and sustain the
strategy
individual levels will be considered in detail.
Strategic Options Miller (1986), on the basis of an extensive review of the literature, identified four broad categories or dimensions that reflect important competitive strategies. His
40 Readings
in strategic
human
resource
management
four types of strategic orientation are: differentiation, cost leadership, focus, and asset parsimony. Differentiators aim to deliver a product or service that is uniquely
performance of organisations that two subtypes. Innovating differentiators continually create new products and technologies; they emphasise research and development and entrepreneurship, can charge premium prices and out-compete attractive. Successful
adopt
marketing
is
central to the
this strategy. Miller identifies
other firms through their responsiveness and rapid innovation. The publishing CCH Australia Limited is an example of a firm that has successfully
company
implemented this strategy. Marketing differentiators offer attractive packages, good service, convenient locations and high reliability. They are forceful marketers but are rarely the first out with new products or service. IBM Australia Limited and Dick Smith Electronics
illustrate the application
of this
strategy.
produce goods or services more cheaply than their competitors. Emphasis is on process research and development (R & D), backward vertical integration and automation rather than on product R&D, services, selling and advertising. The food chains Franklins and Jewel and the electrical welding products company Lincoln Electric have successfully pursued this strategy. Organisations \h2^. focus use a niche strategy that concentrates on a specific type of customer, product or geographic area. They rely on cost leadership or differentiation, or some combination of both and focus on a specialised part of the industry. The cosmetics firm Avon Products illustrates this strategy, having been particularly successftil in the direct marketing of its merchandise to people in their homes. The fourth dimension is asset parsimony. At one extreme is the organisation that is extremely capital intensive. This presents high barriers to entry and may enable high levels of efficiency, but it does reduce flexibility to respond to changes in technology and the market place. The Steel International Division of BHP illustrates this position. At the other extreme is the organisation that uses few assets or has asset flexibility to produce considerable outputs. Merchant banks provide an example of this strategy. Cost leaders strive to
The concept of organisational
fit
In the search for explanations of organisational success, the concept of
emerged (Miles
as a key factor in
many organisation and management research
fit
has
findings
& Snow 1984). These findings indicate that successful organisations are not
only matched to or closely aligned with the opportunities and constraints in their
environment, but also support their strategies with internal configurations in organisational design and management systems that are highly congruent and synergistic. These configurations comprise patterns in an organisation's strategy, structure, technology, culture, size and dispersion, products and services, management systems and workforce characteristics. None of these features by themselves can be used to explain success. Rather, organisational success is a function of careful design of each element and the integration of these elements into a purposeful and mutually reinforcing whole which equips and motivates people to work toward common and agreed objectives. The implication of the concept of fit
Strategic perspectives of
human
resource
management 41
that there are only a limited number of compatible configurations between the elements that can produce tight fit within the configuration. is
The design of the organisation's structure, its culture, the definition of its mission and objectives, its personnel policies and practices and managerial behaviour all serve to signal to employees how they are expected to behave and what they are expected to contribute. Unless all these components are thought through and interemployees receive informational cues that are at best confusing Tight fit can be established only when senior managers have a clear and shared understanding of where they want to lead the organisation and how they will achieve their objectives. This enables the configurations to be nally congruent,
and
at worst contradictory.
developed, communicated and implemented in ways that influence individual and
behaviour toward the accomplishment of corporate objectives. Furthermore, within the personnel function there is a need to ensure tight fit or congruence between all of the organisation's management and personnel collective
and practices. For these are implemented with the purpose of influencing and collective behaviour to support strategy. Thus within the personnel function we need to establish a clear vision and logic that guides the development and implementation of each personnel policy and practice so as to ensure congruence in the cues that employees receive. In summary, we need to understand the need for establishing fit at three levels: policies
individual
between the organisation's capabilities and opportunities and constraints in its environment (external fit) 2 between the macro features of the organisation: its mission, strategy, structure, technology, products and services, culture and workforce characteristics 1
(internal
3
fit),
and
between the various components of the personnel function, eg recruitment and selection criteria, induction, training, appraisal and rewards such that they all influence behaviour in mutually consistent ways that enable the strategy to be
implemented
The
(a
component of internal
fit).
components that make up the configuration that will be used in this and the relationship between these and the organisation's environment and performance are illustrated in Figure 2.1. Previous attempts to conceptualise these configurations have focused on the relationships between strategy structure and management systems (eg Chandler 1962; Mintzberg 1979 8c Miller 1986). Wliile these approaches have been useful, they omit such considerations as the organisation's culture and workforce characteristics. Thus they have limited utility for managers charged with developing personnel policies and systems that will equip and motivate employees to successfully implement their organisation's strategy. basic
reading,
Business strategy, the personnel function and internal
Our understanding stage
and
fit
of organisations and their performance has
where we can begin
to
draw out links between
now reached
a
specific business level strategies
tight fitting configurations in the organisation's structure, technology, culture.
42 Readings
Figure
in strategic
A
2.1
human
management
resource
framework depicting selected aspects of organisation
design, the
personnel function and organisational performance
THE ENVIRONMENT •
Opportunities
•
Constraints
^ r
PERSONNEL
MISSION i
Corporate objeaives
ORGANISATIONAL POLICIES
POLICIES
1
1
1
and
and
PRACTICES
PRACTICES
1
1
•^
•
'' 1
.r
Recruitment
•
Profitability
•
Market share
•
Product quality
and selection
STRATEGY
^— •
k
•
^-^
Induction Training and
development
-
•
Workforce r-i
*
Corporate image, and
characteristics
•
l-n
Performance
innovation
^
appraisal • •
Productivity
Recognition
morale,
and rewards
turnover
etc
etc
•^
STRUCTURE
i
— A
CULTURE
4-
k
Feeidb.ick
-4-
workforce characteristics and management and personnel systems.
Two of Miller's
mil be used to broad terms the concept of internal fit and the contribution of the personnel function to organisational performance. (1986) strategic types, innovative
differentiators SLnd low cost producers
illustrate in
The
innovative differentiator
The
success of this strategy depends
create
new products or services
for
on the organisadon's capacity to continually is a need or for which a need can
which there
Strategic perspectives of
human
resource
management 43
be created. Senior managers must have competencies (for example, planning and marketing) and values (for example, risk taking) consistent with entrepreneurship
and constant innovation.
Miller (1986,
pp 245-6)
describes the major features
and dynamics of these
firms:
Typically,
groups of highly trained specialists from a variety of areas work together and produce complex and rapidly changing products.
intensively to design
Representativesfrom to face,
R (^ D marketing and production departments collaborateface
via mutual adjustment.
.
.
in order to co-ordinate their contributions.
degree of differentiation prevails as people luith different
work
together. .Frequent meetings, integrating personnel, .
liaison devices are used to ensure effective collaboration.
much
of it resides with the technocrats
Authority
is
thus situational
and scientists
and based on
.
A high
and time horizons committees, and other
goals
skills,
.Power is decentralised as
responsible for innovation.
expertise.
.
.
There are feio bureau-
cratic rules or standard procedures since these are too confining
and would in any
event rapidly become obsolete. Sensitive information gathering systems are developed
for analysing the environment,
and
vertical
open and frequent. ..The environment
is
and
horizontal communications are
dynamic, uncertain and moderately
competitive.
The
innovative differentiator strategy requires a responsive
structure.
The
and
organisational structure would be typical of Burns
differentiated
and
(1961) organic form, or Mintzberg's (1979) Simple Structure,
when
firm
adhocracy
is
small. In larger innovative differentiators, Mintzberg's
Stalker's
the size of the is
a
more
appropriate way of describing the organisational structure. In these organisations culture will also play a critical part in successful perfor-
mance. In
fact
it
may be
that the organisation's culture
is
more important than
its
formal structure as an influence on employee behaviour because of its pervasiveness
and subdety. Most of the organisation's workforce may prefer low
levels
of
formal structure and be attracted to the organisation because of the nature of its
espoused values. Values that will be emphasised include: teamwork, information sharing, risk taking, experimentation and tolerance of non-critical mistakes, tolerance of ambiguity and uncertainty, and a strong orientation towards the
market place and clients. Thus the culture must encourage and support individual and collective behaviour that maintains innovation, sustains differentiation and ensures strong integration.
Production technology may vary from high levels of automation (in the custom manufacture (in the aerospace industry). Products and services may be diverse; their dominant characteristic is the short length of their product life-cycles. Once these contextual features and organisational dynamics are understood, it is easier to specify the characteristics of the workforce that match the desired design and functioning of this type of firm. Some segments of the workforce will be more critical to the successful implementation of the strategy than others. These critical electronics industry) to
44 Readings
in strategic
human
resource
management
workforce groups include: the top management team (which provides leadership and ensures adequate integration), marketers (who create or sense opportunities
and ensure
development and
successful product
ment groups, and
integrators, such as
delivery), research
and develop-
who strive
to create the
product managers,
and meets deadlines, need to be focused on the
integration that balances the high levels of differentiation
budgets and customer needs. Special attention will management of these strategically critical workforce segments. Employees in the primary operating areas of these firms will have to have a relatively high tolerance for ambiguity and uncertainty as task priorities change
They are more likely to have relatively lower needs for structure and stability and higher needs for challenge and autonomy (Hunt 1981 These characteristics make them more typical of Gouldner's (1958) 'cosmopolitans' rather than 'locals'. rapidly.
).
Initially, at least,
their loyalty will
be to themselves rather than their employer.
New recruits to the innovative differentiator will be drawn from universities and other competitors. Selection
will
emphasise exposure
to the organisation,
its
and multiple interviews with current managers and specialists), and strong reliance on self-selection. Induction will focus on internalising corporate objectives and values which will enable the employees to be more self-directed in their work. These firms place strong reliance on internal and external technical/professional training to maintain the relevance of their highly skilled workforce. The managerial demands of this type of organisation are high, and on and off the job development is a critical factor in mainfunctioning and values (perhaps through
visits
taining the quality of these managers.
Appraisal and performance
management
are
more
likely to
processes rather than annual events. Performance reviews
be considered
may be
linked to the
and the end of, specific projects; team performance reviews may better serve the need to review the performance of work groups as well as individuals. Performance appraisal will focus on those competencies that will facilitate implementation of the organisation's chosen strategy: teamwork, meeting client needs, experimentation and innovation, and responsiveness to rapid changes in turning points
in,
priorities. critical aspect of performance managewhich use an innovative differentiator strategy. All three aspects of remuneration market competitiveness, internal equity and reward for contribution need to be carefully managed. In many areas recognition and rewards need to be linked to critical behaviours and competencies, for example teamwork and information sharing, as well as performance outputs. The organisation's human resource data base also has an important role for it provides the information which enables managers to link their production needs
Recognition and reward systems are a
ment
in organisations
—
—
to the best available people.
In these organisations the personnel specialist plays an innovative develop-
mental
role,
enabling line managers to manage their
own
people.
The
critical
contributions of line managers involve attracting, retaining and developing the best available people, as people are widely recognised as a key success factor in
these dynamic organisations.
The Lend Lease Corporation provides
a very
Strategic perspectives of
human
resource
management 45
and the
successful illustration of an organisation that has used this strategy
good
associated personnel practices to
The low
effect.
cost producer
Organisations that adopt cost leadership strategies are in sharp contrast with our preceding description of the innovative differentiator. Miller (1986, pp 239-43) describes the major features and dynamics of these firms:
produce goods and services more cheaply than competitors.
this firm. ..strives to
stresses efficient scale facilities, the
R
expenses of product
supply a standard, innovation.
.
.
&' D
.
services, selling
The structures are extremely
information systems are well developed output. is
.
.
the structure
behaviour
The
is fairly
.
.
There
form in
& his
.
do very
they
—but mainly for
little
product
to efficiency.
reporting on cost
.
.
the
and
is
hands of the top
very
little
is
effected
executives
mainly through these
and
the designers of
uncertainty since competition
and customer
predictable.
more mechanistic form of organisaand Mintzberg (1979) provides the best analysis of description of the machine bureaucracy. A divisional form is often
cost leader strategy
tion (Burns
.
and geared
only moderately differentiated as the emphasis throughout
rests in the
workflow processes.
advertising. Cost leaders try to
inflexible
on following programs and plans. Integration
programs. Power
this
is
and
high volume product.
no-frills
It
pursuit of cost reductions. .minimisation of
is
best suited to a
Stalker 1961),
used to group several of these businesses together. hi these organisations the culture can play a powerful supporting role to the
form of organisation the culture has become and few can articulate the elements of the culture or why it has developed this way. Strong emphasis is often placed on conformity, predictability, authority, productivity and careful innovation in processes rather than products. These values fit the demands of its routinised,
structure (Schein 1985). As a mature
institutionalised into formal systems
unsophisticated technology (Mintzberg 1979).
The dominant
feature of the workforce
more
closely resembles Gouldner's
and dependence on the organisation. The workforce is characterised by higher needs for structure and stability and relatively lower needs for autonomy and challenge (Hunt 1981). Recruits are sought from local schools and universities, are selected and inducted into long career paths, and often have a lifetime commitment to the organisation. Rail authorities, large retail stores, the taxation office, soap and detergent manufacturers, and airlines often represent this organisational form. McDonald's Family Restaurants understands and uses this strategy and many of the related manage(1958)
'local'
employee: stronger
loyalty to,
ment practices very successfully. Induction plays an important part in mentally programming the employee into is used to skill people, to
the organisation's way of doing things. Internal training
46 Readings
in strategic
human
resource
management
predictability into their behaviour, and to reinforce corporate values and norms. Appraisal and rewards are more mechanistic and in these organisations highly structured remuneration systems such as that developed by Hay Associates have been effective. Rewards in these organisations have traditionally comprised security of tenure, slow but sure promotion and superannuation; recognition often instil
takes the
form of tides and
extrinsic symbols.
Given top management's choice of strategy technology and structure, work is likely to be routinised; consequendy behavioural and industrial relations problems
may lock personnel specialists into curative fire fighting roles aimed at maintaining the status
quo rather than
initiating
widespread and constant change.
In sum, the low cost producer represents the traditional personnel function: a clear distinction role, relatively
between
line
and
staff,
a maintenance rather than developmental
lower status and positive influence for the personnel
specialist,
culture in which people are subordinate to the organisation's structure
technology.
The challenge
in these organisations
is
to
and and
counterbalance the
behavioural effects of their structure and technology in ways that humanise the
workplace and build in commitment to the high
levels
of productivity that can
ensure the success of the strategic choice.
Conclusion
Over the past two decades we have observed the rise of strategic management, a managerial response to a more turbulent and competitive world. Our consideration of people as both a key factor in strategic decision-making and the recipients of the impact of these major changes has arisen more from trial and error than an understanding of the complexity of the issues involved. Notwithstanding, growing recognition that the future of Australia's organisations depends more heavily than ever before on the quality of the management of our people. In this reading we have addressed the need to establish alignment between an organisation's mission, strategy, structure, culture, workforce characteristics and personnel policies and practices. The attainment of tight fit is very difficult in a dynamic world. However, many Australian organisations are under-performing because of incongruencies between their strategies and structure, and particularly between their culture and workforce competencies and attitudes. To remedy this situation senior managers and personnel specialists need to adopt a strategic view in order to conceptualise the issues and to identify appropriate action. The remedies are not in the 'quick fix' category. Improvements in the strategic management of people in many Australian organisations require a commitment to sustained long-term action. Our current difficulties are the result of decades rather than years of neglect. Therefore skill, patience, and courage will be required to hold in place the necessary initiatives which will improve the contribution of the personnel function to organisational and national success. insightful
there
is
Strategic perspectives of
human
resource
management 47
References Burns,
T 8c Stalker, G W 1 96 1
,
The Management ofInnovation, Tavistock Publications,
London Chandler,
A 1962, Strategy and Structure: Chapters in the History ofAmerican Industrial
Enterprise,
Collins,
RR
MIT
Management Collins,
Press,
Cambridge, Massachusetts
1982, 'Resuscitating personnel management', Australian Personnel
R R
,
CCH Australia Limited, Sydney, ff 35, 068-35, 079 A case for the occupational
1985, 'Evolution of the species:
development of personnel practitioners through education'. Management Australia, vol 23, no 2, 1985: pp 14—22 Collins,
RR
Human Resource
1986, 'The strategic contributions of human resources development',
Unpublished paper delivered to the Australian Institute of Training and Development National Conference, Hobart, April Easterby-Smith, M & Davies, J 1983, 'Developing strategic thinking', Long Range Planning, vol 16, no 4, pp 39-48 Fombrun, C J, Tichy, N M & Devanna, M A 1984, Strategic Human Resource Managem£nt, ]ohn Wiley & Sons, New York Galbraith, J 8c Nathanson, D 1978, Strategy Implementation: The Role of Structure and Process, West Publishing, St Paul Gouldner, A 1958, 'Cosmopolitans and locals: Toward an analysis of latent social roles', Administrative Science Quarterly, vol 2, March, pp 444—80 Hilmer, F G 1985, When the Luck Runs Out, Harper 8c Row, Sydney Hilmer, F G 1986, 'The new wealth', Unpublished paper, McKinsey 8c Co Inc,
W
Sydney, 1986 Houlden, B T 1986, 'Developing a company's strategic management capability'. Long Range Planning, vol 19, no 5, pp 89-93 Hrebiniak, L G & Joyce, 1984, Implementing Strategy, Macmillan Publishers, New York Hunt, J 1981, Managing People at Work, Pan Macmillan, London Johnson, G & Scholes, K 1984, Exploring Corporate Strategy, Prentice Hall, NewJersey Miles, R E & Snow, C C 1984, 'Designing strategic human resource systems' Organisational Dynamics, Summer, pp 36-52 Miles, R E & Snow, C C 1978, Organisational Strategy, Structure and Process, McGrawHill Inc, Tokyo Miller, D 1986, 'Configurations of strategy and structure: Towards a synthesis'. Strategic Management fournal, vol 7, no 2, pp 233—49
WF
W
Mintzberg,
H
Ohmae, K
1982, The
Porter, Porter,
New Jersey New York
1979, The Structuring of Organisations, Prentice Hall,
Mind of the Strategist, McGraw-Hill
Inc,
M 1980, Competitive Strategy, Free Press, New York M 1985, Competitive Advantage: Creating and Sustaining Superior Performance,
Free Press,
New York
P 1987, 'Change: The strategic human resource management challenges'. Human Resource Management Australia, vol 25, no 1, pp 80-9 Schein, E H 1985, Organizational Culture and Leadership, Jossey-Bsiss Inc Publishers, San Francisco Saul,
Reading 3 Managerial strategic choice and the management of
human
resom-ces
YmDM htroduction It is
now fairly clear
environments
to
that
managers need
to
be more aware of their organisational
enable them to determine the opportunities and threats facing
their organisations
and
to find out
whether the surrounding developments match
the planned strategy. In this respect, environmental scanning can play an
important role in formulating an organisation's strategic choice. In order to be able to formulate strategies, however, managers need to understand the concepts of managerial strategy and strategic choice and how to apply them, in particular to the management of human resources.
This reading, thus, focuses on three main
issues.
Section one presents a review
of the concept of strategy and strategic choice as they have been used in the
human
management (HRM) literature. The discussion in section two emphasises in particular Kochan, Katz and McKersies' (1986) strategic choice framework for managing human resources in an organisation, and section three discusses the resource
significance of the strategic choice framework.
The concept of Strategy In recent years,
human
some
HRM researchers have focused on managerial strategy and
resource policy. These writers have considered the various mianagerial
approaches to strategies
HRM. Some
and
have traced the development of various managerial employees and have subsequently
strategic choices towards
developed frameworks for explaining management's approach to HRM. Similarly, a number of writers have argued for the need to study the links between managerial strategies and HRM practices (see Kochan, McKersie &: Cappelli 1984;
Gospel 1983a; 1983b; Thurley 1983). As indicated earlier, in order to understand the effects of strategic managerial decisions on HRM there is a need to explain the concepts of strategy and strategic choice. In spite of the amount of literature on managerial strategy, the concept of strategy is still vaguely defined and remains ambiguous. According to Hyman (1987), the notion of strategy has become increasingly popular in the management literature but
its
meaning
is
often elusive and imprecise.
What, then, is meant by the concept of strategy? The term is derived from the Greek word strategia, which denotes the role of a military commander or general. However, as Hyman humorously puts it, the word is used to imply the planning
50 Readings
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resource
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and organisation of a campaign; therefore, it is contrasted with tactics, which means, literally, the arrangement of forces of a single batde. Hyman raises the question of
how
the categories of ancient warfare are to be translated into the
context of modem business management.
A translation is provided in the work of Chandler (1962). Chandler, in acknowledging the importance of strategy in the management of the modern business enterprise, differentiates between strategic decision and tactical decision. The former is concerned with the long-term health of the enterprise, while the latter deals with the day-to-day activities necessary for its efficient (1962, p 16), thus, defines strategy
the determination of the basic long-run
the adoption of courses of action
and smooth operation. Chandler
as:
and
^als and
objectives
of an enterprise,
and
the allocation of resources necessary for
carrying out these goals.
In their discussion of strategy, Thurley and Wood (1983) make passing reference to the military origins of the concept. According to them, many writers dealing with managerial business decision-making have used the term strategy to describe a particular set of choices made over time for a given objective. In an organisational setting, this implies that there
is
a hierarchy of choices, so that one
memorandum of guidelines laying down policy to direct the decisions taken by operational managers who have to deal with a
decision will result in a
more
specific
myriad of short-term problems and issues. A strategy means a consistent approach over time which is intended to yield results in the medium and long term for a specific problem. According to this perspective a strategic approach assumes that it is possible to review the overall situation facing decision-makers in the way that a general reviews a battle situation before actual hostilities break out. tactical decisions will
that decisions
on
have to be
made
When
they do break out,
for temporary advantage, but
overall strategy will help prevent short-term decisions
it is
hoped
made in
the
heat of the batde fi-om determining the course of the battie. Thurley and Wood explain that the idea of a strategy does seem to imply an external force or forces which must be anticipated and dealt with; strategic thinking thus arises from the need to cope with such pressures.
HRM strategies
are also developed as an integral part of corporate strategy to cope with external pressures.
Kochan, McKersie and Cappelli (1984), among others, view strategy and consciously articulated plan. According to this view, all organisations consciously develop strategies to deal with external forces and come to terms with them. That is, instead of adopting a reactive short-term approach to environmental factors, managers adopt a strategic long-term approach. In view of the often overwhelming effects of environmental or external factors on organisations, one is tempted to ask: What is the relevance of managerial strategy Similarly,
as a rationally
when the direction of the organisation is constrained by its environment? Those who downplay the importance of managerial strategy argue that management has
Strategic perspectives of
no choice and cannot formulate
strategies
human
resource
management 51
when economic
minants of organisational direction. This view
is
laws are prime deterespoused by the contingency
theorists.
There is a contrary view, however, that strategy can play an important role in determining the course of action in organisations. The exponents of this view are the managerial strategy theorists such as Child (1985). These theorists have incorporated the concept of strategic choice in their analysis. Aldrich (1979), in tracing the entry of strategic choice into managerial strategy literature, maintains that: Organization theorizing and research in the past decade has, more or less by default, gradually reduced the role of persons as significant decision makers in organizations.
Various external constraints have been identified as sharply limiting the role
that participants play in selecting organizational structures
Organization
size
and
and
activities.
technology treated as imposing structural imperatives on
organizations, joined environmental constraints as a trilogy offorces hypothesized to
circumscribe prospects for purposively directed change. Child's (1972) ringing
rebuttal to these pessimistic arguments, drafted in 1 970, defended the concept of
choice
and
According
introduced a
new term
—
—
strategic choice
into the literature.
major arguments to counter an overwhelming constraint on the ability of participants to influence the course of organisational change. These arguments are:(l) decision-makers have more autonomy than inferred by those arguing for dominance of environmental, technological or other forces, (2) organisations occasionally have the power to manipulate and control their environments; and (3) perceptions and evaluations of events are an important intervening link between environments and organisational actions (Aldrich 1979, to this view, strategic choice raises three
the claim that environmental influence
p
is
138).
In Child's (1985) view then, strategic choice stresses
may be
an element of choice that
management in shaping organisational objectives and policies and in adapting to external forces. Child focuses on the decision-making within organisations that has determined why a particular structure was adopted. He also available to
examines patterns of association among contextual and organisational According to Child (1985), models which have been derived from this association depict organisational structure as determined primarily by economic constraints which contextual variables impose. He argues that such models lack adequate explanations since they do not take into consideration the process by which managers within organisations decide upon courses of strategic action. Similarly, Chandler (1962) uses the concept of strategy to refer to the exercise of choice by a dominant coalition as the major source of organisational variation. critically
variables.
Strategic choice
is
thus a critical variable in organisation theory.
Sethi (1986) similarly view strategic choice as the process
Dimmock and
whereby a decision-maker
proceeds to plan, shape and/or exploit (either systematically or opportunistically) circumstances or events within the organisation's environment in ways that are perceived as bringing the organisation nearer to its aim. The element of choice
52 Readings
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determining what circumstances or events to exploit. Thus the shifting of HRM behaviour by reference to its source rather than its supposed consequences. The notion of strategy as a conscious managerial activity also implies the lies in
attention towards the role of choice leads to the explanation of
systematic planning of
HRM in organisations and the injecting of HRM concerns
into executive managerial decisions covering
organisational decisions are often
made
all
aspects of the organisation.
Such
within the overall framework of the
organisation's corporate strategy. According to this view, corporate strategy rationally
connected
and the prevailing
enterprise.
The
social, political,
HRM.
organisation's overall strategy often incorporates a policy stating the
strategy
which guides management
in the operation of the organisation. This
strategy defines the organisation's long-term objectives with regard to
resource issues. its
It
forms an integral part of the
business objectives.
The
mentation of this strategy Katz 8c McKersie 1986).
The
is
such as product or market
latter includes
sub-strategies such as
An
factors,
and economic pressures on the government policy and legislation. The environoften influence the link between corporate strategy and other
objectives,
mental factors
environmental
to certain
strategic choice
role of
is
shown
total strategy
management
with which
it
HR HR
human pursues
and impleframework (Kochan,
in the formulation
in the strategic choice
framework
and McKersie (1986) observe that a more realistic model of HRM should recognise the active role played by management in shaping HRM, as opposed to the traditional view which sees management as reactive, responding to trade union and other environmental pressures. They report on changes in managerial values and strategies in the US which have in turn resulted In this framework, Kochan, Katz
in
changes in the
The
HR function.
framework (see Figure 3.1) is considered as a new framework which focuses primarily on management, and which in recent years has made the most important strategic decisions. The framework incorporates the roles of government, values, business strategies, institutional structures, and the history of the organisation in the analysis of HRM processes and outcomes. The essence of the framework is to help managers gain a better strategic choice
theoretical
understanding of institutional interaction in formulating policies at various levels an organisation. According to this framework, external (environmental) factors exert pressures
in
HR in the organisation. It is suggested that in order to prevent these pressures from determining the course of the organisation, managers should anticipate them by taking into consideration the history, current on the management of
and managerial values of the organisation to develop an overall longterm organisational strategy. Once the overall strategy is developed, there is a need to develop the organisational HR strategy. Effective and efficient HRM requires the integration of the two strategies.
structures
Strategic perspectives of
Figure
3.1
A modified Kochan, Katz and McKersie HRM issues in an organisation
human
resource
framework for
management 53
analysing
interaction of
Environmental 1
for
HR
Government (public) policies
Managerial
strategy
values
2 Technology 3
Outcomes
corporate strategy and human resource strategy
External
Labour markets
1
Management
2 Employees
i
3 Trade unions
4 Workforce
T
characteristics
4
HR functions
History
and values
Corporate
and 5 Product markets
current stuctures
strategy
The following quotation from Kochan, Katz and McKersie
(1986,
p
12) captures
the essence of their model:
Our model
starts xvith consideration of the relevant forces in the external
environment that
affect
employment relationships. Changes in the external
environment induce employers strategies.
and
to
make adjustments
in their competitive business
In making these adjustynents, the range of options considered
constrained so as to be consistent with the values,
beliefs,
is filtered
or philosophies
ingrained in the minds of key decision makers.
Just as managerial strategic choice plays an important role in explaining HRM outcomes, so too do the values and strategies that influence the behaviour and policies of unions and governments. The framework shows that HRM processes and outcomes are determined by a continuously evolving interaction of environ(ie choice and discretion) of employers, unions, and governments. This interaction influences management's strategic choice in the management of HR.
mental pressures and the response
The
significance of the managerial strategic choice
framework
Thurley and Wood (1983) have noted the importance of the concept of managerial strategy in management research. Firstly, the introduction of the managerial strategic choice framework organises people's perception and understanding of HRM processes and outcomes. Secondly, it points to a new perspective
54 Readings
in
in strategic
human
resource
management
HRM by indicating that management has a choice in making changes in HRM
practices in organisations.
The framework
play a crucial role in the formulation to
changes
and
in the organisation's
constraints of the external
points out that managerial initiatives
and implementation of strategies
in response environment; so as to cope with the opportunities
emironment.
The managerial strategic choice approach poses a challenge that management reacts to environmental pressures. In a sense,
to the it
argument
points out that
perhaps organisations do notjust respond to en\ironmental pressures, but rather that HRM practices and outcomes are influenced by the interaction of environmental pressure with managerial values and strategies. Seen along these lines, choice and discretion on the part of management affect the practice of HRM. Thirdly, the framework shows the necessity to link organisational strategies with
HR strategies in order to achieve desirable HRM outcomes at the workplace. Such an approach can change the practice of HRM in organisations and also create a conducive atmosphere for the gro\vth of HRM initiatives, such as quality circles and other employee commitment programs. Fourthly, the strategic choice framework makes it possible to compare the different strategies developed by different firms in the same industry in response to similar en\ironmental constraints.
Strategic choice involves
an element of choice exercised by the management of an and implementing decisions to cope with environ-
organisation in formulating
mental pressures. Strategic choice theorists argue that in the face of environmental constraints there is often a diversity of possible strategies for an organisation at any particular point in time. The element of choice lies in managers determining which circumstances or events to exploit.
The advocates of the strategic choice perspective
emphasise the element of choice that may be at the disposal of the management in shaping organisational objectives and policies and in adapting to external pressures. The successful manipulation and control of the external pressures depend on the manager's perception and evaluation of events. Managerial strategy
and
strategic choice, then, essentiallv carry the
managers
to formulate
and implement
same message: the power of
strategic decisions in the face of environ-
mental constraints.
References Aldrich,
H E,
1979, Organizations
and Environment, Prentice Hall, Englewood Cliffs,
New Jersey Chandler,
AD
and Structure, Anchor Books, New York and performance: The role Sociology, vol 6, no 1 pp 1-22
1962, Strategy
Child, J 1985, 'Organizational structure, environment
of strategic choice'.
Dimmock, SJ & theory:
Sethi,
,
A
S,
1986, 'The role of ideology
Some fundamental
Relations, vol 41,
no
4,
and power
in systems
shortcomings'. Relations Industrielles/Industrial
pp 738-55
Strategic perspectives of human resource
management 55
H 1983a, 'New managerial approaches to industrial relations: Major paradigms and historical perspectives', /owmaZ of Industrial Relations, vol 25, no 2, June, pp 162-76
Gospel,
Gospel,
H
1983b, 'Managerial Structure and Strategies:
Gospel,
H
8c Littler,
CR
eds. Managerial Strategies
An
and
Introduction', in
Industrial Relations,
Heinemann, London, pp 1-24, Hyman, R 1987, 'Strategy or structure: Capital, labour and Employment and Society, vol 1, no 1, March, pp 25—55 Kochan,
T A,
Katz,
HC&
Kochan,
T A,
McKersie,
R B, 1986, New York
McKersie,
Industrial Relations, Basic Books,
RB&
Cappelli,
P,
Work,
The Transformation of American
and industrial pp 16-39
1984, 'Strategic choice
no and
relations theory'. Industrial Relations, vol 23,
Thurley,
control'
1,
Winter,
K & Wood, S 1983, 'Business Strategy Industrial Relations Strategy', K & Wood, S eds. Industrial Relations and Management Strategy,
in Thurley,
Cambridge University Press, London, pp 195-224
Reading 4
The impact of corporate
strategy
on human resource management jokPurci
The particular concern of this reading is the impact of corporate strategy on the management of human resources. The focus is the large multi-divisional company. Such enterprises often trade in a number of markets, are multi-product and multiplant, usually own many subsidiary companies and increasingly are multinational. The corporate office of such firms is usually powerful. The development of internal capital markets gives substantial choice to corporate executives in the
they expose subsidiary companies to capital demands.
production or operations from one
site to
The
another, and the very size of the
corporation provides considerable power in the labour market. nature of the firm and
its
way
ability to switch
portfolio of business allows
it
to exit
The
diversified
and enter
certain
The ability to dominate some product markets in terms of market share and through segmentation and niche strategies allows it to manage some of the variations in the product market and, to a degree, to determine price markets with
relative ease.
structures in an oligopolistic or monopolistic way.
The economic power of these companies is associated with political and social power such that business leaders are, to a degree, able to influence the external environment by supporting political parties, lobbying federal, central and local governments and courting political favour through investment strategies. The very largest companies have sales revenues in excess of the GNP of many nation states in Europe as well as the third world (Morgan 1986, p 300). In short, they are capable of exercising strategic choices over a much greater range of issues and with considerably more discretion and power than traditional firms. It seems sensible to ask how the behaviour of these firms influences the management of people at work by the corporate strategies they adopt, and by the controls they exercise on the behaviour of business units and subsidiary companies. The corporate office in many enterprises has four major roles: (1) the development and execution of corporate strategies; (2) the monitoring of divisional and operational subsidiaries performance; (3) the allocation of internal capital; and (4) the treasury function managing relations with the external capital and money markets. All four to a greater or lesser extent, impact on the management of human
resources, as this reading seeks to illustrate. In the
section consideration
given to the position of large enterprises in the British
is
first
economy, indicating a concentration of economic power in excess of that found in many other industrialised nations. A model of corporate strategy is developed in the second section derived from the well-known distinction between strategy
58 Readings
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human
resource
management
structure developed by Chandler (1962). Here, three levels of strategy are
and the scope of activities constitute ^n< model, direcdy affect and lead to decisions order strategy. These, in the normative achieve its goals structured to what is termed second on the way the enterprise is second order strategy provide the critical context Both first order and order strategy. identified. Decisions
on long-run
goals
—
in
which functional
human
strategies are developed.
Our concern is with
those to
do with
resource management, what are termed third order strategies.
The term
used throughout to indicate that the focus is on those on the behaviour of the firm (Hickson et al 1986) as opposed to day-to-day operating decisions. The rest of the chapter attempts to trace the effect first and second order strategies have on human resource management. In first order strategies, attention is focused on portfolio planning methods and their derivatives. Second order strategies are closely influenced by the adoption of these methods of corporate analysis and strategy is
decisions which have a major long-term effect
control, as discussed in the fourth section. Here, attention
is
focused on internal
operating procedures.
The term
multi-divisional
company
examined
is
generic and considerable variations exist
by looking at variations in the way the activities of subsidiaries following the work of Goold and Campbell (1987). The influence of the capital market is noted here. The chapter ends by observing that the extent of diversification also within this tide. This
is
first
corporate office seeks to influence the
varies
and
this in
turn influences the type of control structures utilised and the
parameters in which decisions on
The term human
resource
human resource management are (HRM) is used throughout
management
alongside other descriptive terms such as employee relations
taken.
the chapter
personnel and industrial
relations,
management.
A critical question, which is sometimes overlooked is the category of employee receiving the benefit of human resource that
human
and
professional
staff.
when
the prime function of human resource
main concern of
management. There
growing evidence managers Some authorities on corporate strategy consider this to be
resource management,
this reading,
it is
applied,
management
however,
is
with the
is
is
restricted to
(Porter 1985, pp 405-9). The management of subordinate
non-managerial employees. Here, as the chapter seeks to argue, the evidence for human resource management, if that means a long-rtm strategic view of the role
and place of employees
The
in the firm as a critical resource,
is
much harder to
find.
multi-divisional firm in Britain
Estimates of the size of diversified companies are surprisingly difficult to obtain,
on the British manufacturing 1985 half of the employed workforce in the sector worked for 560 enterprises, each with 1000 or more employees; a third worked for 104 enterprises with 5000 or more people; and a quarter in the 48 firms of 10 000 or more employees. These enterprises were even more important in the sector when their contribution to gross output was examined and especially when one looked at their especially in the service sector. Table 4.1 focuses sector. In
2
Strategic perspectives of human resource
proportion of the
total
wages and
salaries bill in
lishment nature of these large firms
on
average, the
is
clearly
number of employees per
manufacturing.
shown
in the table,
management 59
The
multi-estab-
and the fact that,
establishment increases as enterprises
economic importance of large firms and franchising. In the late 1970s, before the major recession of the early 1980s, there were more large firms in manufacturing and their share of employment was even greater. The substantial decline in manufacturing employment, of around 40% between 1978 and 1986, was especially marked in large enterprises and large grow in size. Even these
figures understate the
given the growth in joint ventures, sub-contracting
establishments. Table 4.2 shows, however, that the average
ments owned employed have
number of establishnumbers
by large firms has continued to increase so that, while fallen, the accumulation of establishments
enterprises has continued
to rise.
This
is
owned by
pace of mergers and acquisitions and the investment in greenfield
Table
4.
1
Enterprise size
in
UK
over
2000 and over
5000 and over
560
273
7101
Enterprise size
1000
and
of enterprises
Number owned
of establishments
sites.
manufacturing
(number of employees)
Number
large
probably a reflection of the increasing
10 000
20 000
and
and
over
over
104
48
24
5546
3860
2247
1446
356
383
422
735
616
52
44
34
25
18
60
51
39
30
22
55
51
38
27
19
Average number of employees per establishment Percentage of employees
manufacturing working
in
in
these enterprises
Percentage of wages and salaries paid in
manufacturing
by these enterprises Percentage of gross output in
manufacturing contributed
by these enterprises Source Report of the
1
985 Census of Production, Her Majesty's Stationery Office, Table
1
2
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human
resource
management
Table 4.2 Average number of establishments owned by in UK manufacturing 1958-1985 2000 and over
Enterprise size
(number of employees)
5000 and over
%
%
1958
12
1978
19
1985
20
Source 1958
Historical
large enterprises
10 000 and over
20 000 and over
%
%
21
30
44
29
42
56
37
40
60
Record of Census of Production 1907-1970
Report of the 1978 Census of Production, Her Majesty's
1978
Stationery Office 1981, Table 12
Report of the 1985 Census of Production, Her Majesty's
1985
Stationery Office
1
988, Table
1
The concentration of employment in manufacturing is not yet the whole story. Table 4.3 shows the changing sectorial composition of the workplace in Britain including projections for 1995. The decline in manufacturing from 34.7% in 1954 an expected share of 19.2% by 1995 is especially marked. It is not surprising to many firms in the manufacturing sector have been diversifying into the service sector Table 4.1 showed there to be 24 enterprises with 20 000 or more employees in manufacturing. The Times list of the largest 100 industrial companies in Britain, according to company annual reports in 1986, revealed that 79 employed over 20 000 people. Not all of these employees worked in the UK but we can assume that well over half, and probably over three-quarters did so. The Times 100 list excludes the banking, insurance and finance sector where the dominance of a few large firms is evident in any High street. to
find that
Table 4.3 Employment by sector
in
the
UK
1954
1954-1995 1975
1986
1995 (forecast)
%
%
%
%
Manufacturing
34.7
30.5
22.2
(19.2)
Distribution, transport etc
24.7
24.9
27.1
(27.0)
Non-marketed services
14.9
19.6
20.2
(19.6)
Primary and
10.6
5.5
4.6
miscellaneous services
9.1
12.8
19.7
Construction
6.1
6.5
6.1
utilities
(
3.9)
Business and
Source Institute of
Employment Research 1987
(23.9) (
6.4)
Strategic perspectives of human resource
management 61
Table 4.4 gives further detaik of the largest industrial companies in the UK. The 5.3 million
employees working for the top 100
is
equivalent to approximately
25%
of the working population in employment in the UK, while the top 20 companies
10% of the employed and concentration are difficult to
have nearly two million employees (equivalent to just under population). Comparisons of industrial structure
make but it has often been noted
that concentration of ownership
UK than in other mjijor industrialised nations Table 4.4 Top
UK
industrial
(George
of employees
Top 20 enterprises Top 50 enterprises Top 00 enterprises 1
The Times
UK
1
1
986
(£ billion)
1.98
17.97
3.78
26.53
5.30
34.22
987
registered companies includes public sector trading companies (post, steel,
coal and gas) and excludes banking, insurance, finance and
Employment
management
services.
includes overseas employees. Billion equals thousand million.
Not all of these large enterprises are divisional structure
tion have
greater in the
Turnover
(million)
Notes
is
1975).
companies: employment and turnover
Number
Source
Ward
&:
but the evidence
is
diversified
and not all of them have a multiand divisionalisa-
clear that diversification
been growing rapidly and are likely to continue
the changing structure of the top 200
and conglomerate most noticeable.
enterprises
to grow. Figure 4.1
shows
UK enterprises. The rise of 'related' business
and the concomitant decline
in single businesses
is
Since the collection of these data the substantial merger and acquisition wave
of the mid-1980s is likely to have altered the picture with a probable further growth in 'related'
and
especially 'conglomerate businesses' seen in the rapid
of firms like Hanson with the acquisition of the Imperial Group,
and the
emergence
London
Brick
UDS Group.
The more
diversified the enterprise the
more
likely
it is
that the internal
change and a form of multi-divisional structure will be adopted. Functionally organised firms are inevitably centralised and experience difficulty in developing decision-making in increasingly diverse and complex businesses. One solution has been the development of the holding company where the centre plays the role of friendly banker leaving wholly-owned businesses free to determine their own strategy, retain profits and control investments and performance. This loose relationship sheltered subsidiaries from the rigours of the capital market and, if supported in loss making, from the consequences of poor performances in the product market. It did litde to spur improved performance; monitoring and control proved difficult, and the reallocation of resources between subsidiaries was hard to achieve. operating procedures
will
62 Readings
Figure
4.
human
in strategic
1
resource
management
Diversification strategy of top
200
UK
corporations
(% distribution by number of companies)
Conglomerate business
1950
I960 Single business
'
95%
than
less
from one
1970
- not
Related business - sales
of sales
distributed
than
95%
but
a series
Conglomerate business - sales distributed amongst a series of unrelated conglomerate businesses such that no one accounts for
more
70% of sales from one major business than
70% Source
amongst
of related businesses such that no one accounts 70% of sales
basic business
Dominant business less
1980
of sales
Channon 1982
The
multi-divisional firm
managing
emerged
diversified business,
in the
combining
USA
as the
most
effective
way of
tight control over the financial perfor-
mance of subsidiaries,
restructuring of the firm to meet product market needs through the creation of product market related divisions, and the centralisation of
resource allocation and strategic planning.
commonly seen
as 'a superior organisational
The
multi-divisional structure
form since
it
is
separates strategic from
It makes visible the contribution of each division to profitability and hence increases the probability of optimising resource allocation within the
operating decisions.
organisation' (Hill 8c Pickering 1986).
The authors cite a variety of studies, all finding
that multi-divisionals are generally associated with superior profitability in the
While the picture
is
more mixed in
and Thompson (1981)
82%
USA.
the UK, recent studies by Steer and Cable (1978)
give evidence of better
performance
in profit terms.
of the 144 large enterprises studied by Hill and Pickering in 1982 were
organised along multi-division
lines.
They observed, however,
that there
were a
Strategic perspectives of
human
resource
management 63
and practices within the generic descriptive term. Multican have quite complex structures with each division organised into strategic business units (SBUs) and with a number of operating subsidiaries,
variety of structures divisional firms
wholly-owned companies and establishments. The extent to which head offices and divisional headquarters are involved in operational management varies considerably. This variety within the multi-divisional firm will be discussed at the
end of the reading since importance
management of human term
and styles are of substantial impact of the multi-divisional company on the relations, but first we must consider the meaning of the variations in structures
in assessing the
strategy,
especially in relation to the role of the corporate office.
Strategy
The terms
and strategic management are widely used in descriptive and management texts. Strategy presupposes importance and, in the words of the Oxford dictionary, 'generalship'. Thus strategy is associated with the longrun decision-taking and is distinguished from operational activities. While it is strategy
prescriptive
generally true in multi-divisional companies that the corporate office
is
concerned
with strategy and business units with operations, this can be misleading.
An
important part of the activity of head office is the control and monitoring of business unit performance, ensuring that budgets and performance standards are met. This can lead to a situation where corporate managers are actively involved in operational day-to-day activities. At the same time, divisions and business units may be given responsibility for the formulation of their own business strategies, such as new product development, major investment proposals and even takeovers,
and disposals. A simple hierarchical view of strategy is thus unhelpful. A more fruitful approach is to look at the attributes of management decisions
acquisitions
terms of importance or 'bigness' and the different nature of the decisionmaking process in terms of complexity or simplicity. In reviewing the literature on strategic decisions in management, Johnson (1987, p 4) suggests that they are likely to be concerned with some of the following: in
1
long-term direction of the organisation
2
scope of the organisation's
activities
matching of organisational activities to the environment 4 matching of the organisation's activities to its resource capability. 3
Strategic decisions are thus 'likely to have
major resource implications for an
organisation'.
The
distinctive feature
of multi-divisional firms
is
that their internal operating
procedures are more refined and differentiated than those found in fimctional or holding companies.
The decision
to
move
to a multi-divisional structure, firom say, a
centralised functional firm, or to adapt the configuration to emphasise local profit centres,
is
employee
a strategic decision of substantial importance in relations.
The
its
consequences for
decision to reorganise might have been triggered by
strategic decisions taken earlier, for
example, to
guishing between types of strategic decisions
is
diversify.
One
way of distinand downstream.
useful
in terms of upstream
64 Readings
human
in strategic
Upstream, first
resource
management
decisions are concerned with the long-term direction of the
order,
enterprise or the scope of its
activities.
Clearly these decisions will have implications
for the type of people employed, the size of the firm,
and technology required.
If an
upstream decision is made to acquire a going concern, a second set of considerations apply concerning the extent to which the new firm is to be kept apart from, or
and about the nature of the acquired firm's new owner. These can be classified as more downstream, or second
integrated with, existing operations, relationship with
its
decisions. This is similar to Chandler's (1962) distinction between and structuredcad his often quoted dictum that follows (ie is downstream from) strategy. The difference here is that decisions on strategy (the type of business undertaken now and in the future) and on structures (how the firm is organised to meet its order, strategic
strategy
goals) are
both of strategic importance
in that they
have long-run implications for
and commit and money to their attainment. It is in the context of downstream strategic decisions on organisational structure that choices on human resource structures and approaches come to be made. These choices are strategic since they establish the basic parameters of employee relations management in the firm, but are likely to be deeply influenced by first order and second order decisions as well as by environmental factors of law, trade and external labour markets. Choices on human resource structures and approaches are termed organisational behaviour, are taken in conditions of uncertainty,
resources of people, time
third orcfer strategic decisions.
Figure
4.2.
strategies,
The concern of
Therefore, three levels of strategy are evident as seen in this
reading primarily
is
with
not with strategies luithin^WM. (see Ahlstrand
first
and second order
& Purcell 1988)
or with
tlie
outcomes, or the environmental forces which provide the context in which strategies are formulated
and implemented. The actual conduct of HRM, let alone employee is influenced by an enormous variety of environmental forces
relations behaviour,
Figure 4.2 Three
levels of strategic
decision-making
Upstream First
order
1
2
E
Capital
N
Product market
Scope of
V
Technology
activities,
markets, locations, etc
Second order
Internal operating procedures,
relationship
Third order
market
Long-term direction of the firm of the firm
between parts
1
R
O
of the firm
N M
human resource management
E
Strategic choice in
N T
Downstream Outcomes:
style, structure,
conduct of human resource
management
Labour markets
Workforce Characteristics
and values Public policy law
Strategic perspectives of
interacting in a
complex and dynamic
way.
human
resource
The purpose of the
management 65
character
is
to
draw
attention to the impact of corporate strategies which, with a few exceptions (Thurley
& Wood 1983; Batstone, Femer & Terry 1984)
have been largely ignored.
HRM is determined in order long-run decisions on the direction and scope of the and purpose (location, technology, skill requirements, etc). Second
In theory in this idealised, normative model, strategy in
the context of firms activities
first
order decisions are
made on
procedures
of authority, control systems, profit centres,
(levels
the structure of the firm seen in
its
internal operating etc).
What actually
happens in employee relations will be determined by decisions at all three levels, and by the willingness and ability of local management to do what is intended in the context of specific environmental conditions and forces. One principle objection needs to be raised on the nature of the model. Like many such models it implies rationally in the process of decision-making: a carefully planned series of decisions where HRM is designed to mesh with organisational structures which, in turn, derive from first order strategy. But strategic decisions are characterised by the need to cope with uncertainty, to integrate management activity in various fields, and are concerned with change. A political process model to strategic decisions
is
more appropriate.
'Strategic decisions',
writes Johnson, 'are characterised by the political hurly-burly of organisational
life
with a high incidence of bargaining, a trading off of costs and benefits of one
group against another, all within a notable lack of clarit)' in terms of environmental influences and objectives' (Johnson 1987, p 21). The process is especially complicated in the area of HRM. What is the purpose of HRM? Since it is difficult to determine the ends and the means to achieve these uncertain ends, it is also difficult to measure whether the firm is successful in its personnel or interest
human resources policies. One of the problems with
the rational, normative model of strategy formulation and prescribed by many books on corporate strategy is that it tends to depersonalise and reduce analysis to a common currency of figures and hard data of markets, shares, discounted cash flows and rates of return. Questions of values or purpose beyond the 'bottom line' are acutely uncomfortable to strategic decision-makers. In the rational model, phenomena which cannot be reduced to as described
figures suck as 'motivation', 'good industrial relations' or 'good
employment
discounted or ignored. If it were possible to prove that 'enlightened' or 'progressive' approaches to the management of people at work were invariably associated with higher productivity, lower unit costs and improved standards'
profit,
and
is
easily
that exploitative, coercive systems failed,
researcher and
human
life
for the social science
resource executive would be easier. As
it is, little
can be
and the impossibility the relevant dynamics and relations. If some
conclusively proved because of the complexity of variables
of monitoring and measuring
'proof
is
all
obtained over a short period of time in specific circumstances,
it is
often
ambiguity in HRM, and the relative weakness of the function in the corporate corridor of power (Hegarty &: Hoffman 1987), often leads to a situation where decisions on first and second order strategy are taken without consideration of their effects on the conduct of HRM. Third
found
to
be impossible
to replicate. This
66 Readings
in strategic
human
resource
management
order strategy concerned with the management of people
is
increasingly required
and structures of the firm, especially as countervailing requirements in the en\dronment (trade union power, industrial democracy proposals, income policy and labour law) appear to have receded in the 1980s. It is more than it was a decade ago. difficult to argue 'we can't do that because. We need now to consider how trends in first order and second order strategy, especially toward diversification and decentralisation, affect the management of human resources. Firsdy, our concern is to trace the logical consequence which flow from first order strategies on the scope of the enterprise activities for employee relations. This \vi\\ entail an examination of portfolio planning to
fit
the strategies
.
.
'
techniques. Secondly, within the multi-divisional firm, the critical question
is
second order strategy concerning the relationship between parts of the business
and the management of interrelationships. This will take us into a discussion on different types of multi-divisional companies seen in terms of integration or separation of divisions and centralisation or decentralisation within divisions. We will also consider the evidence for profitability and effectiveness and the link with employee relations. Thirdly, there is a need to consider the relationship between the corporate office and business units. How are different styles and approaches likely to impact on HRM?
First
order strategy: portfolio planning
We noted earlier the growing tendency for large companies to become diversified. One of the critical issues facing the corporate office, especially the chief executive officer
(CEO)
is
and and outside for possible developed as a means of identifying
the allocation of capital to the various parts of the business
the identification of growth areas within the portfolio acquisition.
The use of portfolio planning w2ls
the attractiveness of various parts of the portfolio of business as an aid to capital allocation
and
to
determine the appropriate mix of business held by the enterprise. is based on two premises.
Portfolio planning
Firstly, there is an experience curve: 'average costs will decline as the accumulated experience associated with selling, producing, engineering and financing (a) product increases' (Hamermesh 1986, p 10). Among the most common reasons for this proven relationship are
and and process improvements.
economies of scales (or scope) in manufacturing, marketing, engineering financing; labour efficiencies; product standardisation
The
strategic implications.
.
.
are that the
experience can have the lower costs
and early
to
and
company with the most accumulated a company should invest rapidly
therefore
accumulate experience.
(plO)
The experience curve
is
associated with market share. In theory, the
with the highest market share the lowest cost
will
company
have the greatest accumulated experience and
and therefore generate the most
profit.
Strategic perspectives of
Secondly, market growth
is
human
resource
management 67
not constant. Eventually, and the time scale can vary state of slow growth
enormously, most markets for a given product reach a mature
and may then decline. Firms with a dominant share of a mature market are likely to want to diversify by switching cash from the mature business into new markets with growth potential and gain early experience to build market share and invest heavily to
keep
it.
Portfolio planning
is
defined by
Hamermesh
as
those analytic techniques that aid in the classification of a firm's businesses for resource allocation purposes
and for selecting a
competitive strategy on the basis of
the growth potential of each business and of the financial resources that mill be either
consum£d or produced by
the business.
(plO)
It
was estimated in 1982 that half of the Fortune 500 companies in the
USA use
Goold and Campbell (1987) in their study of 16 major British diversified companies showed that while the formal statistical use of the techniques was not widespread, the thinking behind
some form of portfolio planning(Haspeslagh
1982).
portfolio planning was often employed.
The most well known system (1970; Hedley 1977)
if only
is
Group mnemonic qualities: cash cow, star, dog and
that developed by the Boston Consulting
because of its
Figure 4.3 Portfolio planning grovvth-share matrix Market share (relative
High
High
Market growth (business
growth
rate)
Low
competition postion)
Low
68 Readings
in strategic
human
resource
wild cat (or question mark) as
management
shown
in Figure 4.3.
The purpose of the model
is
to
help the strategic planners classify the various business units in the portfolio in terms of their potential for cash generation or cash usage. High market share businesses,
assuming the experience curve,
will
have lower costs than their competitors with more profit. Market growth indicates
smaller shares and should be able to generate
demands for investment. When there is high growth there will be demands for investment in terms of new plant equipment and technical innovation. Low growth markets require less investment. The model combines the two axes and leads to generalisation about corporate and business strategy. the likely
substantial
Stars (high share,
high growth) are in an advantageous position. While they
reqiure high levels of investment their dominant position in the market often allows
them
produce
to
sufficient profits to finance further growth.
Cash cows (high share, low growth) produce large profits and positive cash flows. They require modest amounts of capital to maintain their market share, renewal of equipment and keep in step with technological change. to finance the stars
where necessary and
The
cash surplus
particularly to help develop
ventures in growth markets; the wild cat or question
mark
used
is
new business
business.
Wild cat/question mark (low share, high growth) businesses compete in rapidly
growing markets with the aim of moving up the experience curve ahead of the competition. Market growth in new market is difficult to predict and the gaining of expeiience and efficiency in siaiations of uncertainty also can be difficult. These businesses are therefore uncertain and require substantial investment in excess of their
own
profitability.
much profit and are not worth Two options exist; either divest the business or act to pair costs down minimum to squeeze out the surplus value.
Dogs (low share, low growth) do not produce investing in. to the
A slighdy more sophisticated version of the portfolio planning model is the nine Company in the USA. Industry attractiveness includes market growth by covering other factors such as industry profitability and market potential and size. Market share is included as box ynatrix originally developed by the General Electric
one of the
factors in business unit position but this will include
the unit's technological base, actual profitability
& Majluf 1983).
and
size (for
an assessment of
more details see Hax
Figure 4.4 indicates what are called the strategic mandates which
flow from the nine
box
matrix. In both
the purpose of the strategic
mandates
models is to
whereby a business receives funding early in
create its life
a pattern of capital spending so that it achieves a strong (ie
profitable) competitive position. Then, as its market matures, the business luill
produce the cashfloxu that luillfund facilitate the creation
funds are
yiearly
other,
more rapidly groxuing businesses.
of a portfolio of businesses in which the sources
and
.
.
(and)
uses of
balanced.
(Hamermesh 1986, p 16) It is not our concern to debate the strengths and weaknesses of portfolio planning for strategic management (see Hamermesh 1986 for a useful analysis and
Strategic perspectives of human resource
Figure 4.4 Portfolio planning
strategic mandates:
management 69
company
position/industry attractiveness screen
Strategic
Build
mandates
Hold
Harvest
The question of concern here is the implications that second order strategies and third order human resource matters. At a general level the most important implication is that the enterprise is seen not as a unified business but a collection of businesses. Portfolio planning says nothing about long-term aims or purpose of the firm and by its analytical methods finds no place for history, tradition or cultures. Firms excessively committed to portfolio planning tend to ignore or find difficulty with that aspect of corporate strategy which determines 'the kind of economic and human organisation it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities' more recently, Porter flow from
it
1987a).
in terms of
(Andrews 1980, p 18). Hamermesh refers to this as institutional strategy, others use terms such as goals, values and missions. In employee relations we refer to it as management sty leheing the preferred way of managing employees, seen for example, in corporate philosophy statements (Purcell 1987). Portfolio planning tends to
70 Readings
in strategic
human
resource
management
down, questions of st\'le and non-economic issues and encourages different approaches to employee relations in different segmentsof the business. (Schuler & Jackson 1987). This comes about in two ways. Firsdy, the identification of business units as the prime unit of analysis (sometimes referred to as SBUs) is a critical feature in the drive out, or at least drive positively
creation of the multi-di\isional company. Secondly, business unit managers are
given responsibilit)' for the determination of their success within the confines of
the strategic mandate. Corporate office rules
and regulations which
limit unit
managers' freedom of action come to be resented, are seen as an unnecessary cost and are often too general to be applied in detail in each unit. Thus, what may be
termed the
administrative control system of
head
office rules
and
regulations,
HRM by the personnel manual, can tend to be out of place, and be
svTnbolised in
resented or ignored by profit-responsible unit managers facing different circumstances. If centralised rules
cannot be applied and
if,
in their place, there
is
no
guiding logic or set of standards on appropriate employee relations management,
than the requirements of the financial targets set by corporate headquarters
will
dominate unit management behariour. This performance control system (Mintzberg 1979) establishes, through annual budgeting and monthly reporting (often reinforced by incentive pay and stock options for unit managers), appropriate financial targets for the unit within an agreed mandate for capital expenditure.
How the
unit
manager achieves
this
is
up
to
him or
her.
We will
look at the effect
Here we note the implication of separating tiie enteiprise into quasi-independent units and a tendency' for central standards on non-economic conduct to be weakened or abandoned altogether There is nothing inherentiy wrong in separation and decentralisation and there are many advantages to be gained from avoiding over-centralised, bureaucratic systems, allo\ving unit managers to design their own employee relations strategies for their circimistances. There are two difficulties however Firsdy, the implication is that inter-unit comparisons drawn by trade unions and employees themselves are to be avoided or minimised. Secondly, employee involvement in strategic affairs through corpoi~ate consultative committees and colIecti\'e bargaining, employee U'ustees in pension funds, and employee share ownership schemes are out of place. of different tvpes of performance control systems
If
the logic of portfolio planning
is
later.
a separation of business units (second order
employee relations similarly needs to be separated and decentralised. Employees and the unions which represent them must, from a management point of view, adopt a unit perspective and be concerned with the parochial needs of the imit, not the su~ategic thrust of the enteiprise. This in turn will form a distinctive approach in the way industrial relations is structured in the enteiprise. The need for boundary maintenance becomes critical if the enterprise seeks to implement the logical consequences of portfolio planning for its human resource strategies. This is not simply because unit managers are given responsibility for profit generation and business strategies in their unit but because the type of employee relations needs are likelv to differ substantiallv between different segments of the matrix. This is hardly ever discussed in die analysis of portfolio planning methods. One small exception came from Arthur D Litde, the major
strategy) then
Strategic perspectives of
human
resource
management 71
American consulting firm in their development of the concept of strategy centres. They suggest that the wild cat requires an 'entrepreneur' with a free form or task force structure and an informal or tailor-made communication system. Stars need a sophisticated manager, managing a semi-permanent task force or product divisional structure with more formal, tailor-made communication systems. Cash Cows place emphasis on administration within a business divisional structure and with a formal or uniform communication system. The dog has a manager who is an 'opportunist milker' in a paired-down division. The communication system is 'litde or none, command system' (Brown &: O'Connor 1974, p 21 ). In their review of corporate planning. Brown and O'Connor are even more explicit, suggesting that 'dog businesses should be run by tough, hard-bitter individuals who are prepared to liquidate people and facilities' (p 16). This might seem the ultimate self-sacrifice for the manager if his or her job is to go also. However, 'as a practical matter, it takes some time, perhaps two or three years to liquidate a dog business. At the end of this period there will undoubtedly be other opportunities in the organisation for its manager and his staff (p 16). That's alright then. of
Clearly, the type if,
as
is
HRM
v\ill
vary considerably. This variety
is
likely to
be greater
probable, the size of the business units varies according to the product
market life-cv'cle and the
unit's share
stable units; wild cats small
of the market. Cash cows are
and experimental;
stars
medium
likely to
to large
be large
and growing;
dogs medium-sized and declining. It is likely
that
luild cat business
units will wish to avoid
associated with larger, stable firms. WTiat
is
required
is
most of the
rigidities
a flexible operation v\ith
v\illing and able to work in a variety of areas and with broad skills. Overhead costs associated with personnel departments, formal job grading schemes and work study are expensive for small units in growing markets when change is likely to be both continuous and unpredictable. (For a further exploration of these issues in high technology firms see Kochan & ChalykofF 1987.) Star businesses fzce the problem of managing larger and growing units. It is likely
employees
that there will
be a growth
clerical, technical
in occupational differentiation with skilled, semi-skilled,
and professional
staff,
because of the adoption in some
businesses of sophisticated, technically advanced dedicated technolog)'. At the
same time the high rates of investment and technical change require continued flexibility and co-operation in the management of change. As demand grows the need for continuous operations is likely to develop in order both to meet market need and to utilise capital equipment as effectively as possible. The free form structure of the wild cat is likely to be replaced with more formal strucmred systems with the growth of sophisticated HRM designed by professional staff, implemented and managed by line managers. If
there
is
strategic thinking in HRA'I these units are likely to wish to
develop
on high individualism paying above market rates to recruit and retain the best labour, careful selection and recruitment systems to ensure high quality and skill potential. Emphasis will be placed on internal training schemes to develop potential for further growth, payment systems designed to reward individual performance and co-operation, performance and appraisal employee
relations policies based
72 Readings
reviews,
in strategic
human
resource
management
and on team work and communications. As
in
many
greenfield
sites,
and it is here in new plants (implying heavy capital investment typical of stars) that we might find single union deals, pendulum arbitration and new forms of employee representation. In short, technical and capital investment is matched by human resource careful consideration will be given to questions of unionisation
investments, at times reaching near the ideals of HRM.
future
is
The assumption is
good for star businesses provided the market continues
to
that the
grow and
their
share of it continues to be high.
Market maturity and the management of cash cows brings a need for order, and predictability: in short, structured systems of collective bargaining, job evaluation, work study and the adoption of a modem sophisticated method of managing a highly unionised workforce. Effective management will ensure continued high rates of return on investment sufficient to meet the corporate need stability
Depending on the performance control system and profit requirements of head office, cash cows can, however, sometimes slip into forms of indulgency patterns (Gouldner 1954) or management slack in discretionary behaviour (Williamson 1975). Here there is tolerance of over staffing, restrictive practices and general inefficiency, and since the unit is profitable, there is litde pressure for change. Costs associated with removing these customs and practices might also be deemed too high. Given the size of the unit and the fact that it has been in business for a for profit generation for use elsewhere in the enterprise.
tightness of the
number of years or decades, it is also likely that various overhead costs linked to employee relations will exist, such as sports and social clubs, subsidised canteens, employee discount shops and various welfare services. We might expect to find elements of paternalism. Other costs might well be seen in office facilities and time-off arrangements for shop stewards, especially full-time shop stewards and convenors and a sizeable personnel department. These are affordable because of high profits, are likely to have grown up over a period of time and are justified on the grounds of their contribution to labour peace and harmonious labour relations. The requirement is for management to maintain the cash cow, not to be innovative and entrepreneurial, or bring costs down to such an extent that there is a hostile reaction while earning high profits. At the same time, given market maturity, profit improvements are less likely to come from marketing and sales expenditure than from improved efficiency and resource usage, especially labour productivity (Macmillan, Hambrick &: Day 1982). Clearly such business units are vulnerable to the market changes and they may slip into a dog mode. Either they lose market share because of better performance by competitors, perhaps triggered by entry into the market by overseas companies or technical or product innovations developed elsewhere for example Japanese competition or they are caught by a general decline and instability in the market as in the recession of the early 1980s. While 'occasionally it is possible to restore a dog to viability by a creative business segmentation strategy, rationalising and
—
—
specialising into a small niche. .(usually) the only prospect for obtaining a return .
from a dog
is
to
manage
(Hedley 1977, pp 11-12).
it
for cash, cutting off
all
investment in the business'
Strategic perspectives of
Brown and O'Conner are,
again, rather
more
possible such
a dog;
if not,
a business should be sold it
to
to
resource
management 73
explicit:
for dog businesses an early demise in the appropriate
should receive no investment, not even
human
policy. Needless to say, they
repair a leaking roof in the factory. If
an
organisation that does not realise
it is
p
16)
should be abandoned. (1974,
Action
required to 'harvest' as
is
matrix, through a
it is
euphemistically called in the nine box
management acting as an
'opportunist milker', the term used by Arthur D Litde. Since there is litde prospect of increasing market share, attention is turned to the business unit itself to cut costs in order to improved margins. This might require the use of a 'command system' of communications (another Artliur
D
Litde term) where vigorous efforts are made to improve productivity; not through investment but by work intensification, reduction of 'surplus' labour, and cutting overhead costs, like welfare benefits and concession bargaining. Turnaround
management can emphasise employee involvement as a means of achieving productivity
improvements without investment. The
alternative
is
to sell or liquidate the
business (and a hostile reaction by the workforce to cost cutting measures accelerate the closure). This
may in any case be
is
likely to
the obvious course of action, even
and productivity improve, since a better price can be gained for a going concern and rationalisation costs, such as redundancy payments can be offset if profitability
on corporation tax. The most important consideration is to ensure no form of cross-subsidy to the dog from the cash cow either in investment, corporate subsidy in loss making or 'artificially' supported rates of pay. It may well be appropriate to allow earnings to rise in the star and cash cow but dogs need to be treated as an independent, stand alone unit where pay movements are linked to ability to pay, and ability to pay is a function of cost reduction, not price improvement. This separation of units is one way to reduce the size of the exit barrier (Harrigan 1980). It has also been noted that 'a sense of obligation to workers in plants which would be closed by liquidation of a dog business may also seem as a barrier to exit' (Christiansen, Cooper & Dekluyver 1982). against profit that there
is
In sum, different businesses in the portfolio require different types of employee
and must thus be treated as separate units. This differentiation and the emphasis on market share tends to drive out corporate institutional strategies concerned with non-economic matters such as values, standards and social responrelations
sibility.
The management of human resources becomes an operational responsibility
and brings with union
Second order
The
it
the
need
interest in strategic
to
weaken or
inhibit cross-unit
strategy: internal operating
procedures
firstly in the need to develop a segments of the product market life-cycles and the need to manage these differentiy, according to market need and
implication of portfolio planning was seen
variety of businesses in different
secondly, in
comparisons and trade
management while developing local, unit based loyalties.
74 Readings
in strategic
human
resource
management
on second order strategies concerning the structuring of the enterprise, in the preference for performance control systems and difficulty in imposing administrative controls and institutional strategy. One of the difficulties associated with product portfolio systems is the position. Portfolio planning has considerable influence
definition of the business unit.
serve?
The term
What exactiy is the market the unit is designed to company portrays an image of relatively large
multi-divisional
organisational structures designed to trade in general markets. Hill
noted
divisional form, the
Each per
and Pickering
144 British companies that while most had opted for the
in their study of
tendency was for the number of divisions to be relatively small. number of operating subsidiaries (on average 10.4
division was likely to have a
division). It
was therefore by no means valid to assume that there was a 'direct
one-to-one relationship between a division, one distinct business and one end market' (1986, p 31). They go on to note that 'as companies have become more diverse, rather than increasing the
number of
activities
existence of large,
number of divisions
within each division' (p 33).
complex
It
they have increased the
could be argued that the
divisional structures inhibits the full logic of portfolio
planning, since within each division there are likely to be a variety of businesses within the various segments of the portfolio grid.
A further difficulty
that these large divisions were liable, by their very size, to
is
and economic power at the corporate level. They 'had become so powerful that they restricted the power of head office, limiting its ability to impose exert political
&
strict financial discipline' (Hill
advantages of portfolio planning generally,
were not being
Pickering 1986, specifically,
fully realised either in
pp
and
35-6). Thus, the critical
multi-divisional
companies
the structuring of business units
management
(especially capital allocation and from operational management at unit level. A growing response to these difficulties discussed by Hill and Pickering has been a further twist in the internal operating procedures to decentralise and reduce the power of the divisional tier.
or in the separation of strategic financial control) at
Several companies
mattered as a
head
office
had moved away from a
mnnagement unit.
.
.
structure where the divisional tier
towards one where
(it)
only
had a minor role. This
downgrading of the divisional tier xoas accompanied by a further decentralisation of short-run decision-making power strate^c functions
to subsidiaries xvithin divisions. ..ivhile
(Hill
Hill
long-term
and financial controlfunctions were centralised at head office.
and Pickering asked
&> Pickering 1986, pp 35-6)
their corporate office respondents to indicate a range
of decisions, and which level in the enterprise had responsibility for decision-
making. At head office ities
level a
reasonably clear picture emerged with responsibil-
for legal functions, relations with financial institutions, long-term planning,
investment decisions and acquisitions largely placed in the corporate offices often
decisions
on
were involved
in,
office.
but shared the responsibility with lower
financial control, public relations,
Head
levels,
management development and
personnel. They were rarely involved in marketing, production, buying or industrial relations matters.
Strategic perspectives of
human
resource
management 75
The responsibilities of operating subsidiaries was the reverse of head offices witii prime responsibiUty for marketing, production, buying and industrial relations and a shared responsibility for personnel and management development, financial development, financial control, public relations and investment. Divisional offices were in a curious position:
No decision
taking area was identified where, overall,
head office had the main
responsibility.
appropriate role of divisional head
design
is
not so
much about
.
.
it
could be said the divisional
This does perhaps raise questions about the
offices.
.
.
and ivhether the issue in organisational
divisionalisation as about decentralisation (Hill
& Pickering 1986, p 39)
The authors go on to note that there is a tendency for divisional head offices to be over-involved in the operating affairs of subsidiary companies and that this is associated with slow decision-making, intraorganisational conflict and a lack of accountability
The
and
control.
implication of Hill
divisionalisation,
strategic
is
and
Pickering's study
is
firsdy,
that decentralisation, not
the key attribute of diversified firms with a clear separation of
from operational
responsibilities. Secondly, strong divisional offices
and rigidity both upward through interference with and downward through involvement in operating subsidiary affairs. Thirdly, and of particular interest here, industrial relations and, to a lesser extent personnel, is defined in most multi-divisional companies as an operational responsibility. This takes on particular significance in looking at the effect of these factors on profits ineasured by rate of return on sales. Companies which allowed a stronger head office involvement in operating decisions tended to be less profitable. Similarly, companies that involved their divisional head office in operating decisions also tended to be less profitable. These appear
to increase complexity
strategy
findings suggest that for
decentralised
down
optimum performance, operating
functions should be
to the level of the operating subsidiaries. This view received
support from the evidence of a positive relationship between the responsibility of operating subsidiaries and profit in the case of buying, industrial relations and personnel decisions but, surprisingly, not in the case of production and marketing
where no
statistically significant
relationship was found, but the sign of the
coefficient in each case was positive, as expected (Hill
The data reported here
& Pickering
1986,
related to the years 1978-80. Since then a
p
47).
number
of
remove or significandy weaken the divisional tier, for example, Tube Investments and GKN (Marginson et al 1988), and restructure into smaller business units and operating subsidiaries. Some centralised firms have moved to create divisional structures and business units like the British Aviation Authority and British Telecom. At the same time there is evidence of further decentralisation in collective bargaining to the local level, the break up of corporate wide job evaluation systems and a reduction in the size and role of corporate personnel departments. If further testing shows Hill and Pickering's findings to be largely correct (some caveats must be noted, such as a response of only 28.8% from the enterprises have reorganised to
76 Readings
in strategic
human
resource
management
sample of The Times 500 companies) then
it is
likely
not only that large firms
will
seek to create a multi-divisional structure, but that further reorganisation and restructuring will proceed to push for decentralisation. This change in second order strategies and the link between decentralised employee relations and profitability has profound implications for third order human resource strategies in large firms.
DiveRitiesmsecond order stntegies we have assumed that multi-divisional firms will be generally similar in and approach. Two further issues need to be addressed indicating variety and choice. The first of these relates to the approach taken by the corporate office in managing business units; what is termed by Goold and Campbell (1987) as strategy and style. The second looks more closely at the relationship between business units. The assumption of portfolio planning is that units can be managed Thus
far
their behaviour
though they are unrelated to each other except in an ownership sense. We saw growth of the multi-divisional firm has been particularly marked in related areas of business and this has been argued by Porter (1987) as a more appropriate growth strategy than a collection of unrelated businesses managed in the portfolio method. Once units are related and are to a greater or lesser extent dependent on each other for the provision of goods and services (ie vertically integrated) then the pure logic of portfolio planning is harder to implement and may well be inappropriate. This in turn will have implications for third order employee relations strategies. as
earlier that the
Corporate office control
The question asked by Goold and Campbell in their study of 16 British owned diversified companies was how does the corporate office manage its relationship is added to the unit's performance. In their model they identified two critical features of the process. First is the extent to which the corporate office had planning influence. This 'concerns the centre's efforts to shape strategies as they emerge and before decisions are taken... It is
with business units to ensure that value research
through planning influence that the centre seeks to improve the quality of thinking that surrounds major decisions' (1987, p 36). The second was the control influence which 'concerns the way in which the centre reacts to results achieved... Control influence arises from the targets that the centre agrees with its business units, the way the centre reacts to poor performance, and the frequency with which the centre monitors results' (p 36). Three t^es of control influence were identified: flexible strategic control, tight strategic control and tight financial control. The critical differences are the amount of attention given to annual budget targets and monthly monitoring of results ie the strength of the performance control system and the extent to which there are penalties for failure and rewards for success in
—
target attainment.
Strategic perspectives of
human
resource
management 77
These two dimensions are combined to produce three main categories which Goold & Campbell (1987, p 10) summarise as follows: Strategic planning companies
push for maximum
competitive advantage in the
businesses in their portfolio. They seek to build their portfolios
around a small
number of 'core' businesses, often with coordinated global strategies. The styles lead to a wide search for the best strategy options, and tenacious pursuit of ambitious long-term goals. But decisions tend to be slower, reaction to poor performance unit
level.
is less
decisive
and there is less ownership of strategy
Financial performance
is
typically strong
at the business
with fast organic growth, but,
from tim£ to tim£, setbacks are encountered. Companies with BP, Cadbury Schweppes, Lex, STC and UB.
this style
were
BOC,
Financial control companies focus more on financial performance than competitive position. They
expand
their portfolios
more through acquisitions than through
market share. The style provides clear success
criteria, timely
reaction to events,
and
strong motivation at the business level resulting in strong profit performance. But it
can cause
risk aversion,
reduce concern for underlying competitive advantage,
and limit investment where the payoff is long-term. Although financial performance in these companies had been excellent, with rapid share price growth, there has been less long-term organic business building. Companies with this style were BTR, Forewent, Hanson Trust and Tarmac. Strategic control companies balance competitive
and financial
ambitions. They
support growth in strategically sound and profitable businesses, but rationalise their portfolios by closing
down
or divesting other businesses. The style focuses on the
quality of thinking about strategy, permits businesses to adopt long-term strategies,
and fuels
the motivation of business unit managers.
But
there
is
a danger that
and bureaucratic, and that ambiguous objectives can cause confusion, risk aversion and political' manoeuvring. Strategic Control companies have achieved profitability improvement and share price recovery, but have seen less groivth and fewer major initiatives. Companies with this style were Courtaulds, ICI, Imperial, Plessey and Vickers.
planning processes can become
superficial
The importance of strategy and style was vividly illustrated in the winter of 1986-7 in the hostile bid by BTR (a financial control company) for Pilkingtons (a strategic planning company). Pilkington is the world's leading glass maker which invented float glass in the 1950s and continues to invest heavily in research and development,
developing global strategies and making investments for strategic reasons even
if
the
might be uncertain: a strategic planning approach. Interestingly, the trade unions, and the St Helens community, the hometown of Pilkington in North West England, were active in defence of Pilkington and eventually, after the share price rose substantially BTR withdrew their bid. What the unions and community feared was that if BTR were successful it would impose its particular management philosophy on Pilkington which would involve reducing costs and pushing up rate of return
'
78 Readings
in strategic
human
.
.
.
resource
.
management
margins for the benefit of the shareholder (BTR outperformed all but two of the quoted UK companies in terms of return to shareholders in the period 1974—86) but at the expense ofjobs, community investment and long-term development^ The critical question is not whether the firm is maximising profit but over what time period profits are expected or required to be achieved, and more contentiously,
who
gains from the profits.
that the only purpose
is
Much
of the literature on corporate strategy assumes
to service the
needs of the shareholder. Other stakeholders;
employees, communities, dependent suppliers and customers are irrelevant. Not all companies take this view. In particular, the strategic planners with long-term aims
and objectives are the firms most likely to have a defined sense of purpose. In Hamermesh's terms these are the firms most likely to have an institutional strategy which includes non-economic values and benefits. This is not to imply that they are soft companies or poorly managed, unable to take firm action when necessary, but their approach to managing unit management is likely to be more benign and their capacity to design and inculcate a management style or corporate culture greater than other companies. Guest has suggested that only strategic planning companies
HRM (1987, p 518). Goold and Campbell, like so many authors in corporate strategy, say virtually nothing about HRM, assuming it to be an operational responsibility of unit managers. But the way these managers are themselves managed and motivated, and the freedom they have within financial targets, is likely to influence their approach to employees and the extent to which they can invest in HR programs. The authors provide some fascinating insights here aided by quotes from their respondents. The two extremes, strategic planning and financial control, are contrasted. have the capacity and commitment to develop
Strategic planning
companies
The centre acts as a
sort
from
of buffer to the capital market, protecting the business units
the need to satisfy the short-term
investor This alloius business
performance
managers
to
criteria
applied by the outside
concentrate on building their business
making half year earnings and clear internal targets. can mean
rather than trimming their sales with a view to targets.
.
.
But lacking both market
that flexibility becomes tolerance
Although
and
.
.
that
managers luho failed
imminent danger of serious
reprisals
.
tolerance becomes looseness
there are ultimate sanctions for
impression.
One
disciplines
.
(pp 198-9)
more non-performers, we did not get the to hit their targets
were in any way in
(p 68)
of the features of these companies
is
their willingness to support subsidiaries
that produce poor performance over long periods (p 160)
Quoting Sir Hector Laing, identify with
CEO of United Biscuits,
management and help them
out.
At
'if things
are going wrongyou
these times control should get
more
friendly not more fierce' (p 68).
UB does
not reward
would jar with individual
UB
effort
's
managers with performance bonuses. Bonuses of that sort culture which values family feeling and workingfor UB above its
(p 68)
.
.
Strategic perspectives of
.
human
resource
management 79
Financial control companies There
no attempt
is
profits.
.
.
to buffer the businesses from the
requirements for short-term
by exposing all individual investments to this
test,
it
much further
goes
than the capital market in applying tough standards (p 207) These companies have no formal planning systems, are concerned mainly with the
financial
results, control only
(2-4 year) pay back
criteria to
against
annual
targets
and
apply
strict
They are willing
to act speedily to exit from the businesses that are
or do not fit (p
26)
1
.
. .
(and) are quicker
pressure through the monitoring process
acclaiming good performance (p 132)
managers
(and
to
no wholly
GEC
not performing
managers, fiercer in applying
and more
Taken
.
effective in recognising
and
extremes the style can encourage
to
and
we peer at
risk aversion,
limit investment
the business through
20 managers who
means of ensuring this does not happen
satisfactory
can cause
style
competitive advantage
are
to replace
milk their businesses by cutting back too far on investments (p 202)
the centre) has
(p 138). The
In
short-term
investment decisions (p 111).
reduce concern for underlying
where the payoff is long-term (p 10)
numbers' (p 118). In any one year there
leave the budget review shaking in their shoes (p 132)
asked Malcolm Bates of GEC budget before expecting
tongue in cheek: 'How
how many
to lose his job.
years a
manager could fail
His response
luas telling
many years ? You mean how many
and
to
We
only partly
He
months.
.
meet his
might
last
for six months or he might not' (p 129)
A
quote from Tarmec: 'A division chief executive can only downwards if he goes through some personal trauma. We can
sional.
.
.
if they
have failed
don
tfiemselves
The authors go on
stand the confes-
deliver they should feel very bad. They should feel that they
't
will feel like winners.
revise his budget 't
and that
life is
On the other hand if they succeed they And they are rewarded. (p 131).
awful.
They will be basking.
to claim that financial control
.
.
companies 'generate high
of motivation and satisfaction in their management' (p 136) but offer no evidence for this. At the heart of this is a fundamental clash of values between long-
levels
term integrated 'family feeling' management teams and aggressive, short-run financially motivated managers (as in 'if you succeed, you are rewarded. If you don't you are out' (p 132)). Presumably 'those who are out' or 'leave a review meeting shaking in their shoes' do not feel highly motivated or rather they feel the motivation of fear. In many ways financial control companies adopt the logic of portfolio planning in that interdependencies between businesses are ignored and each business unit is given substantial independence within the confines of tight financial control. But the management style adopted within the unit is likely to be analogous to that found in the dog companies where cost cutting is emphasised, margins are pushed up and investment avoided unless there are clear
—
paybacks over short periods. It is
understandable that in periods of financial stringency and market
pressure
is
instability
placed on firms to improve performance by decentralising to business
80 Readings
units,
in strategic
human
resource
management
applying demanding performance standards and closing
emphasis
units. In effect,
is
placed more on control and
less
down
loss-making
on planning
(Hill &:
Hoskisson 1987). This in turn encourages further decentralisation, especially in terms of the administrative control system. Strategic shifts toward performance control are associated with structural shifts in internal operating procedures
HRM
toward further decentralisation, leading to similar trends in strategies. But tight financial systems and short-term investment payback requirements also tend to drive
out long-term employee relations investment at the unit level and destroy as part of corporate strategy.
the basis of
HRM
when they gain abundant cash, do not appear to move back to the strategic planning style (Hill & Hoskisson 1987, p 235) and once a financial control style is in place it is applied to all units, irrespective of their market position, and is unlikely to change until forced to by shareholders. However, the capital markets approve strongly of financial control companies for Financial control companies, even
a good reason. They produced the
best all
round financial performance. They
substantially out
perform the industrial average. They have high profitability ratios (achieved by acquisitions). Their asset growth (4 per cent per year)
of strategic planning
main weakness
has been
companies (1
less
is
and growth
in organic growth, where fixed
than inflation and
less
than half that
per cent per year).
(HiU&' Hoskisson 1987, p 161) In short, financial control companies produce excellent results for the share-
and many disposed of through rationalisation and companies with strong sales growth have created more jobs and, by their willingness to support subsidiaries with poor results over long periods, have disposed of fewer jobs in the recession than might have otherwise been the case. The returns to the shareholder, however, have been reduced since 'strategic planning companies have the lowest stock growth... and earnings per share growth has been less satisfactory' (p 160). It is this that makes such firms more liable than others to hostile bids and acquisition battles like Pilkington with BTR. Financial control companies, and increasingly, pure finance companies and merchant banks like Merril Lynch and Morgan Stanly find it easy to raise the equity to engage in leverage buy outs even after the stockmarket crash in the Autumn of holder, but few jobs are created
restructuring. In contrast, strategic planning
1987. According to Fortune mdigazine (February 1988) these financial buyers
have moved into control of corporations because turing isn
't
cost
on
cutting divesting
their
thinking about today. as
an
.
.
.
but.
.
.
and getting
their
money
Growth
the financiers
out, they are expert in
much about the company encouraging innovation and preserving 'core
the financiers seldom care
(and are poor) at Most financiers insist that
institution '. .
record cash flows.
minds and neither are capital expenditures. ..Because
are obsessed with reducing debt
skills
they see opportunities for restruc-
—and for squ£ezing out
the efficiency they
're
injecting into these
Strategic perspectives of
companies utility is
is
not
a
social good.
why
They are generally frank
Money
they got into this business.
to
human
resource
management 81
admit, however, that social
is.
(Fortune 1988, pp 16-32)
Before we leave strategic styles it is worth noting that international comparisons provided by Goold and Campbell indicate that institutional strategy is not inevitably driven out. They argue that the Japanese giant enterprise, Matsushita, is in
most respects a
financial control
finance, personnel exist to
company but
and training are allfrilly
centralised. ..Personnel
create 'harmony '...In other words the central
to help build and maintain
the
Matsushita
culture.
.
.
role
of these
and training
two frnctions
is
(In this enterprise) people are
seen as the critical resource.
(Goold &' Campbell 1987,
p 283)
Looking at all the overseas companies they cite (IBM, Hewlett Packard,
GE and
Matsushita) they conclude, in analysing their success, that perhaps most importantly, there are a
series
of things concerned with corporate
and culture that seem to matter. Agreement on basic directionsfor the longterm development of the business, and on how to treat people within the firm, are perhaps the mx)st essential common features of these companies. objectives
(p281) This is a critical part of first order strategy but for reasons they do not analyse not widespread in Britain or the USA. Here, stockmarket emphasis on shortterm financial results makes the adoption of non-economic values as part of
is
corporate strategy
less likely.
In such circumstances, professional
HRM
comes
under increasing pressure. important to note that the well-known examples of sophisticated HRM in corporate strategy (IBM, Hewlett Packard, Marks and Spencer) are exceptions which prove the rule. In these companies the values and approach of the founders of the company are much in evidence (as is the case in Matsushita) and they tend not to have deviated much from their core businesses. By 'sticking to the knitting' (Peters & Waterman 1982) and growing organically they have been It is
embedded
able to maintain critical
and
articulate core values as part of their strategy. This raises the
question of the distinction between diversified and undiversified, or critical
function firms.
Related businesses, vertical integration and diversification
One factor which makes it more likely that a strategic planning style exists, and for corporate value statements to have meaning, integration
is
and extent of vertical and Hoskisson (1987)
the relatedness
and interdependence of business
units. Hill
82 Readings
in strategic
human
resource
management
and vertical economies in the way multieconomies are found when superior allocative properties of the internal capital market are maximised by choice of style and strategy. These enterprises are likely to diversify into unrelated or loosely related activities and take on the attributes of financially controlled, and to a degree strategically controlled, companies. They are likely, out of choice, to ignore the interdependencies which happen to exist between parts of the enterprise (Goold & Campbell 1987, p 118). For example, subsidiaries are not required to trade with distinguish between financial, synergistic
divisional firms are structured. Financial
other parts of the enterprise, nor to offer preferential terms. Synergistic economies exist where common techniques, skills or market knowledge are utilised across a range of products. These companies are capable of organising around a core activity or critical business and are usually concerned that acquisitions match and enhance their business mission and core philosophies. Vertically integrated is where a closely co-ordinated and integrated chain of activities fi"om raw material sourcing to final distribution allow for vertical economies to be realised. Banking and multiple retailing companies exhibit some of these properties. Computer companies like IBM and Hewlett Packard are also organised around base skills and integration mechanisms. Such companies can emphasise administrative co-ordination. They can be decentralised in the sense of giving substantial responsibility to unit managers for the implementation of strategies
and
policy for profits but in the context of co-ordinated integrating structures.
Internal labour markets can be organised across the firm, not just within the unit
They are more likely to have well organised personnel departments in the corporate office (Sisson 8c Scullion 1985) than others and are capable of emphasising core values in the way in which employees, customers and suppliers are to be treated. In the language of Peters and Waterman (1982) these firms have 'stuck to their knitting'. They are much more capable than others of being 'value driven', of 'respecting the individual', of 'viewing themselves as an extended family' and of following the dictum that 'customer relations simply mirrors employee relations'.
The important point here companies. This
is
This type of firm
Channon and
is
that the potential for strategic
not to imply that the potential is,
is
HRM
is
greater in such
realised.
however, becoming rarer, at least
among large enterprises.
has observed that the pattern of diversification has grown substantially
'today large companies tend in the
main
be highly diversified both by range many of the organisations engaged in related businesses which seemed likely to make them unrelated concerns in the fixture' (1982, p 79). There is some counter evidence to this as some firms like BET, Cadbury Schweppes and Dalgety have sought to divest business which do fit a slimmed down version of the portfolio organised around a broad core business. However, there is littie evidence to suggest that these firms have at the same time changed the nature of their internal control structures. The dominance of performance control systems appears to remain in tact. to
of business and by geography. ..Diversification was continuing amongst
Strategic perspectives of
human
resource
management 83
Conclusion
and Hoskisson have hypothesised 'as firms grow by vertical integration or become increasingly constrained by information processing requirements to focus on attaining financial economies. (And that) under conditions of either high or increasing uncertainty, vertically integrated firms will focus on realising financial economies' (1987, pp 338, 340). The 1980s have been marked by uncertainty in product markets and, as we have seen, shortHill
related diversification, they will
run pressures in the capital market have generated unprecedented uncertainty even for the largest firms. In these conditions, corporate strategy increasingly is focussed on ways of realising financial economies. Firms which emphasise the achievement of financial economies are 'characterised by relatively high degrees of decentralisation of decisions to divisions, decomposition between divisions, and consequendy, high accountability for divisional
profits' (p 334). It
is
these firms
which emphasise the performance control system; which often examine their businesses along the lines suggested by portfolio planning principles, and which tend toward financial control, reducing the emphasis on long-run strategic planning.
These types of first order strategy and second order strategy decisions on the come to exert a strong influence on third order HRM policies. It becomes harder to develop integrated and meaningful institutional strategies or management style at the corporate level, and to the degree that short-run rates of return on investment, emphasis on margin improvement and tight financial controls are imposed on unit managers, harder at the unit level to develop and maintain long-run human resource policies. structuring of internal operating procedures
The pessimistic conclusion
is
difficult to avoid. It
that current trends in corporate strategy in
is
many
the contention of this reading large diversified
companies
render the ideals of HRM, as specified by Guest (1987), unobtainable. There is nothing new in this. Herman, in his study of corporate power concluded that 'The present state of evolution in economic freedom has produced an environment dominated by vast impersonal organisations that pride themselves on their ruthlessness and respond only to material incentives' (1981, p 32). Mintzberg noted that 'the control system of the divisionalised (company) drives it to act, at best, socially unresponsively, at worst socially irresponsibly. Forced to concentrate on the economic consequences of his decisions, the divisional manager comes to ignore their social consequences' (Mintzberg 1979, p 424). The criticism of diversified companies is not restricted to their economic power and damaging social consequences. Porter (1985; 1987a) has attacked portfolio planning and argued forcibly for a renewed emphasis on interrelationships between units and horizontal strategy. Piore and Sabel (1984) have argued that
and their search for multinational had damaging consequences for the US economy. The criticism of diversified, multi-divisional companies on employee relations
the economic consequences of conglomerates diversification has
of the effects
another
presented here
is
wave of interest
in
HRM
of personnel practice
is
twist
of a familiar
story. It
and implies
is
odd, then, that the current
major reconsideration underway. The belief is that corporate executives and line is
so optimistic
that a
84 Readings
in strategic
human
resource
management
managers have discovered die need to encourage employee involvement, team work and integrated rewards systems (ideas which have been around for a long time) as a crucial element of their corporate and business unit strategies. Changes are, of course, taking place and there is much experimentation, some very exciting, as the old order crumbles. But in many diversified firms, in Britain at least, the material conditions for these to be translated into long-run strategic decisions placing HRM as the, or even a, critical function in corporate strategy, do not exist. What ought to happen, as prescribed by the burgeoning literature, is a long way from being realised. I am grateful to Paul Marginson for perceptive and useful comments on the
The
earlier draft.
Purcell
analysis provided here
is
being developed more
fully in John
& Bruce Ahlstrand 1994, Human Resource Management in the Multi-Divisional
Company, Oxford University Press, London.
Notes 1
Hanson
Trust, a very similar
company to BTR, has cut on average 25% of labour
out of acquired companies (Porter 1987b). 2 BTR, through a subsidiary company, acquired the major Australian firm ACI in costs
1988. Within three months the whole of the human resource planning department at head office was closed down. No opportunity was given to the
Director of Human Resource Planning to present a
human
resource strategy.
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January-February Hax, A C & Majlup, N S 1983, 'The use of the industry attractiveness - business strength matrix in strategic planning'. Interfaces, April, pp 54-71 Hedley,
no
B
1977, 'Strategy
and the business
portfolio'.
Long Range Planning,
vol 10,
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W H & Hoffman, R G 1987, 'Who influences strategic decisions?' Long
Hegarty,
Range Planning, vol 20, no 2 Herman, E S 1981, Corporate Control, Corporate Power, Cambridge University
Press,
Cambridge Hickson, DJ, Buder, RJ, Cray, D, Mallory, Strategic Decision
Hill,
CWL&
Making in
Hoskisson,
RE
G R & Wilson D G
Organisations, Blackwell,
1987, 'Strategy
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1986, Top Decisions:
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Johnson, G 1987, Strategic Change and the Management Process, Blackwell, Oxford Kochan, T A & Chalykoff,J B 1987, 'Human Resource Management and Business Life Cycles: Some Preliminary Propositions', in Kleingartner, A & Anderson, C S eds. Human Resource Management in High Technology Firms, Lexington Books, Lexington, Massachusetts
Macmillan,
C, Hamrick, D C & Day, D L 1982, 'The product portfolio and prof- a PIMS based analysis of industrial-product businesses'. Academy of
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itability
Managem£nt fournal, Marginson,
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vol 25,
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no 4
Martin, R, Purcell, J
& Sisson K 1988, Beyond the Workplace,
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Mintzberg,J 1979, The Struxturing of Organisations, Prentice Hall,
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TJ
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Piore,
G
8c
Waterman,
RH
M J & Sabel, C F 1984,
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New Jersey
1986, Images of Organisation, Sage, Beverly Hill
1982, In Search of Excellence, Harper
The Second Industrial Divide:
8c
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New York
Possibilities for Prosperity,
New York
M E 1985, Competitive Advantage: Creating and Sustaining Superior Performance,
The Free Press, New York M E 1987a, 'From competitive advantage to corporate strategy', Harvard Business Review, May-June, pp 43-59 Porter, M E 1987b, 'The Harvard view of Hanson', The Economist
Porter,
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resource
Purcell,J 1987, 'Mapping
Management
management
management
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styles in
employee
relations', /oMTTia/
o/"
no 5
R S & Jackson, S E 1987, 'Organisational strategy and organisational level determinants of human resource management practices', Human Resource
Schuler, as
Planning, vol 10,
no 3
K &: Scullion, H
Sisson,
1985, 'Putting the corporate personnel department in
December, pp 36-9 Cable, J 1978, 'Internal organisation and profit:
its
place'. Personnel Management,
Steer,
P
&
Journal of Industrial Economics, vol 30, no 1 Thompson, R S 1981, 'Internal organisation and proht Economies, vol 30,
pp
An
empirical analysis',
A note', Journal ofIndustrial
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K & Wood, S 1983, 'Business Strategy and Industrial Relations Strategy', Thurley, K & Wood, S eds. Industrial Relations and Management Strategy,
Thurley, in
Cambridge University Press, Cambridge O E 1975, Markets and Hierarchies, Free
Williamson,
Press,
New York
Reading 5
Beyond
traditional paternalistic
to organisational change
Strategic
critical
and human resom'ce
strategies
human resource management:
integrating the hard
A
and developmental approaches
and
soft approaches
determinant of success in the repositioning of an organisation's
corporate and business strategies
implement change through an
is
the internal capability of the organisation to
effective
management process.
Successful strategic
repositioning often requires radical organisational change
and powerful
confrontation of entrenched interest groups. Yet until recentiy,
much
of the
management process literature, particularly in the fields of organisational development (OD) and human resource management (HRM), has been dominated by an ideology of tender-mindedness, advocating incremental and collaborative micro-interventions such as team building, interpersonal skills training and communication strategies. Writers in the OD area representative of this and participative tradition include Golembiewski (1979), Sashkin (1986) and Kanter in her earlier work (1983). More recentiy, writers such as Tushman, Newman and Romanelli (1986), Miller and Friesen (1984) and Nord and Tucker (1987), have developed valuable frameworks for understanding the processes of large scale, transformative change which have been evident in many organisations during the past decade. However, writers on organisational change such as Beer, Eisenstadt and Spector (1989) still appear to espouse an incrementalist, soft version of change. The tender-minded, incremental approach contrasts strongly with the tough-minded strategic orientation of most of those who advocate effective
incrementalist
radical change.
A similar conceptual critical
dichotomy has also recentiy been canvassed in (1989, p 8) has contrasted the hard approaches to HRM. He characterises the hard approach as
reviews of the
and the
soft
hard-soft
HRM literature. Storey
emphasising the quantitative, calculative and strategic aspects of managing personnel numbers in as rational a way as for any other economic factor. By contrast, the soft version emphases communication, motivation and leadership. Other writers make similar distinctions. For example, Legge (1989), citing Barham (1988) and Foulkes (1986), uses the terms tough love2ind soft care, Hendry and Pettigrew (1990) describe and contrast a similar dichotomy in their description of the situational-contingency and the developmental humanist frameworks. The situational contingency framework refers to the hard HRM policies which are advocated in the strategic management and some of the strategic HRM literature;
88 Readings
by contrast the is
human
in strategic
soft
resource
management
HRM policies derive from human
directed primarily to
the
human
relations school
fulfilment rather than productivity
and
which
profit.
A strategic view of management process Our recent research
has shown that these two apparently disparate approaches are not necessarily mutually exclusive. They can be reconciled through a contingency framework which provides guidance on the positioning of an organisation's HR
change strategy, and ultimately its and practices may need to be quite organisations which not only run different business strategies but
strategies as part of the organisation's overall
business strategy. different for
HR
strategy directions
which also effect change by radically different means. For instance, the HR strategy for Rupert Murdoch's News Limited will probably need to be distinct from the HR strategy of a major law partnership, not only because their business strategies are quite distinct, but because their approach to corporate change may be equally distinct. Universalist solutions in HR strategy and practice (whether they be hard or soft) are probably inappropriate: what is needed is a contingency framework of management process, to help in matching management processes to the changing business needs of the organisation. During 1988-89 we conducted a major research study in the Australian service industry sector to explore the links between business strategy repositioning and
management process strategies. The study had several aims:
first,
to see if linkages
between business, change and HR strategies exist in practice; second, to explore whether changes in an organisation's business strategy affect its organisational change strategies and HR strategies; and third, to examine whether the nature of such links affect organisational performance. 13 Australian organisations, five in banking/finance, five in insurance, two in aviation,
and one
in international
telecommunications were included in a compremedium and low performers were included in
hensive field research study. High, the sample, based
market
analysts.
executives
on independent performance rankings by a panel of industry
The
research involved structured interviews with over 450
and managers, 2500 pages of pro-forma
450 pages of typed case
field notes
studies. Executive interviewees
several forced-choice instruments
on change
strategy
and responses, and
were asked
and
to
respond to
HR practices.
A new concept of change strategies The
research provided confirmation and extension of the earlier theoretical contingency model of change developed by the authors (Dunphy & Stace 1988). This model of change strategies (Figure 5.1) sought to develop a situational model of organisational change strategies.
proposed that, in environments undergoing would choose situationally-based rather than universalist, prescriptive change strategies as a means of maintaining their strategic fit with the environment. The implication was that the change strategies It
differing degrees of change, organisations
of participative evolution and charismatic transformation, widely advocated in the
OD
Strategic perspectives of
human
resource
management 89
and HRM literatures, may be appropriate strategies for corporate change for some organisations. However, in a more volatile business environment it was likely that more directive and even coercive change management strategies would increasingly be used at the corporate level. Where radical change is needed to return an organisation to environmental 'fit', there may be major conflicts between external stakeholders and/or internal interest groups which make maintaining an ideology of collaboration and participation in the planning of change impossible. In such situations, directive or coercive change leadership may be essential for the organisation to achieve
ends). In
some
its
business objectives (though
situations
it
may therefore be
it
will
not necessarily achieve these
impossible or inadvisable to use soft
care as an approach to change or even to integrate soft care with tough love. A major organisational restructuring might only be achieved in some situations by a hard approach, utilised for a short, concentrated period to refocus the business. The results of our research demonstrate that, in practice, executives of firms which maintain medium to high levels of corporate performance successfully use
Figure
Typology of change strategies and conditions for their use
5.1
Incremental
Transformative
change strategies
change strategies
Participative evolution
1
2
Charismatic
change strategies Use when organisation Collaborative/ consultative
modes
in
'fit'
is
but needs minor
adjustment, or
but time
is
is
out of 'fit',
available
Use when organisation of 'fit', there
and key
is little
is
support for radical
change within the
change.
organisation.
Forced evolution
out
extensive participation but
there
interest groups factor
3
is
time for
4
Dictatorial
transformation
Use when organisation Directive/
coercive
modes
'fit'
is in
but needs minor
adjustment, or
but time
is
interest groups
change.
is
out of 'fit'
available,
Use when
organisation
out of 'fit', there
but key
oppose
is
is
no time
for extensive participation
and no support within the organisation for radical
change, but radical change vital
is
to organisational survival
and fulfilment of basic mission.
))
90 Readings
in strategic
human
resource
management
OD
approach. a variety of approaches to change, rather than a universalist soft Dunphy &: Stace 1990a and 1990b) also Stace 1989; research evidence (see The proNided the basis on which our original simpler model of organisational change strategies (Figure 5.2) was refined to cover four scales of change, and four styles of change leadership. Scale of change (the characteristics of change): •
Fine tuning
(scale
•
Incremental adjustment
(scale
•
Modular
(scale
•
Corporate transformation
(divisional) transformation
(scale
Collaborative
(style
•
Consultative
(style
•
Directive
(style
•
Coercive
(style
Type Type Type Type
•
and
style
1
2) 3) 4)
management of change):
Style of change leadership/ management (the
In matrix form, the scale
Type Type Type Type
1
2) 3)
4)
dimensions of change form a four by four
contingency model. This is shown in Figure
5.2.
Overlaid on
it
are the percentages
Figure 5.2 Change matrix positioning of Australian service corporations
Style of
Fine
Incremental
change
tuning
adjustment
Corporate
Modular
transformation transformation
management 0%
Collaborative
Type
Consultative
8%
Directive
4%
Type 2
1
Participative
Charismatic
evolution
transformation
;
Type
2%
12%
8%
26%
1
,
32%
i
22%
60%
Type 4
3
Forced evolution
Dictatorial
transformation
4%
Coercive
12% Note
Figures given are based
24%
4%
38%
on modal responses of senior executives
and have been converted to percentages
26% in
8%
100%
each organisation,
Strategic perspectives of
human
resource
of organisational responses indicating the areas on the matrix
management 91
'utilised'
by the
These scores were based on the
sample organisations for their change
strategies.
resf>onses of executive interviewees in
each organisation to research instruments
on the
and style of change characteristic of their organisations in two time The modal score was utilised as the means of measuring central tendency
scale
periods.
in each organisation.
Overall, the research evidence shows that at a corporate level of analysis: •
The lower performing
organisations in the sample used fine tuning change,
and even timid approach to change. No organisation overall, nor any of the 450 interviewees rated indicating a careful,
•
using a collaborative change •
One
organisation used a combination of coercive change style
transformational change as a
•
its
executives as
style.
means of regaining
'fit'
and corporate became
(the organisation
one of the highest performers in its industry within three years of this type of change intervention). 1 1 of the 13 organisations had utilised a directive change style, associated with corj>orate transformational change for periods of 12-24 months in the previous three to five years.
Our research therefore demonstrates that more differentiated change strategies than are often portrayed in management literature, and the
exist in practice
predominant approach
to corporate
or charismatic transformation as illustrates that
medium
to high
is
change
is
not that of participative evolution
widely advocated in the
OD
literature.
This
performance can be maintained by leading the
corporation with either a consultative or directive
management style. However, in management and leader-
the current business environment a directive corporate
dominant in Australian financial and service organisations. Fine tuning be a non-viable change strategy, as it is unable to deliver enough adjustment for the organisation to sustain high performance in a turbulent
ship style
is
also appears to
business environment.
Examples of different corporate change strategies are plentiful. A change one organisation where it will not elsewhere. The critical point for success of a change strategy is that it must be integrated with the business needs of the corporation. It must be capable of delivering sufficient structural systems and cultural change to meet the emerging business imperatives of the organisation. Traditionally, organisations like IBM have been able to achieve this by our change strategy Type 1 participative evolution, but IBM has now adopted more transformative change strategies (probably a mix between change strategy Type 2 charismatic transformation and change strategy Type 4 directive transformation). In Australia the transformation of Westpac Banking Corporation in the early 1980s under its Managing Director, Bob White could best be described as change strategy Type 2 charismatic transformation. The transformation of Honeywell Information Systems in the US under James Renier is similarly an example of a Type 2 change strategy (Renier 1987). Westpac's change strategy involved a major revolution in the business, but the process was assisted by organisationstrategy will succeed in
—
—
—
—
92 Readings
in strategic
human
resource
management
wide team building, internal communication and new MBO-type performance management strategies. Westpac's approach to change in the early 1980s, because of widespread workforce support, became a hallmark for transformative change by consultation. Recent business events have, however, led to an alteration in corporate change strategies \vithin Westpac: a considerably more directive approach is now used. However, as if by way of contrast with Westpac's earlier approach, the directive, results-oriented approach in Australia's Lend Lease Corporation, under Stuart Hornery, has been utilised for nearly 20 years and is characteristic of change forced evolution. By contrast Rupert Murdoch, the international strategy Type 3 media tycoon, has chosen change strategy Type 4 dictatorial transformation, with demonstrated success, at critical periods in the life of News Corporation. The celebrated case of the introduction of new technology at Murdoch's new Wapping Plant and breaking the power of the Fleet Street unions, illustrates the success of this type of change strategy (Harris 1987). Murdoch's approach was similar to that used by Jack Welch in General Electric resulting in the retrenchment of 140 000 of GE's workers. All of these strategies have been successful, in business terms, in their time, and yet some are quite contrary to the dominant approaches advocated in much of the change and HRM literature. In fact, we would go so far as saying that the advocacy of participative forms of leadership and management as a universalist approach has left many executives confused and ill-equipped to handle the demands of leadership in a difficult business environment. We do not, however, suggest that participation or consultation should not be used; the key issue is under what circumstances should these leadership styles be used. Our research has shown the following patterns of change leadership/management most typically emerge in medium to high performing organisations, at two different levels in the organisation:
—
•
Predominantly directive at corporate level. While some executive groups espoused a corporate value system of consultation and appeared to practise it, there was only one organisation in our sample where executives and supervisors/ managers agreed that the top group effectively used a consultative change
management style •
—
as a
means of effecting coiporate change.
Consultative between managers and employees at the business unit level. This
was true for all but two organisations. In one of these cases a directive approach
appeared
to
be an attempt by business unit managers
to
cope with a lack of
direction from above because of a consultative style of executive leadership; in
the other case, the directive approach at the business unit level appeared to stem from a tough results-oriented philosophy consistendy maintained at all levels in the organisation.
While these are the predominant trends from our research, we do not, however, espouse them as a universalist position. In fact one of the highest performers in our
sample, Macquarie Bank
—a small, high value-added niche bank, had
incremental adjustment by consultation (change strategy Type corporate change strategy, with demonstrated success. While the rest of the
medium
to high
performers
in the sample,
it
1 )
this
as
its
utilised
dominant
was not typical of
suggests that change
Strategic perspectives of human resource
strategies
might be best chosen for
management 93
their situational specificity rather than their
universalist appeal.
Change agents (internal or external) should therefore select the most effective and style of change, rather than reflexively relying on a change strategy style compatible with their own personal values. An implication is that most and OD and HR practitioners v^U need more knowledge of charismatic and coercive strategies, and more competence in using emotion and symbolism and engaging in politically-based interventions. Similarly, financial and corporate strategy consultants need to develop more appreciation of the role that participative methods of change can play, particularly at the business unit level, in securing the strategy
implementation of their recommendations as well recommendations.
as
improving the quality of their
IMii^ human resource strategies to the change ^game plan' Some writers (for example, Miles & Snow 1984; Smith 1982; Tichy, Fombrun & Devanna 1982) have attempted
to trace a direct correspondence between the an organisation and its HR strategies, but this search for a direct business strategy/human resource link can often neglect the vital role that an organisational change program has on HR strategies. In our view, HR strategy is most strongly affected by the kind of 'game plan' being run by management in moving the organisation back into strategic fit. We can therefore predict more about which HR strategies should be used fi"om knowing the degree of change and type of change leadership being exercised than we can by knowing the corporate or business strategies being pursued by the management of an oi^nisation. It is the degree of internal change and repositioning required which makes the most powerful impact on which HR strategies will be chosen. So change theory is the missing link in the business strategy/HRM model. Business strategy has potential to affect HR strategy, but the organisational change program is the important strategic direction of
intervening variable that modifies the relationship.
Using the 'change strategy positioning' of each of our sample organisations, we made a detailed analysis of the HR practices of each organisation in our study. The sources for compiling detailed descriptions were: then
•
structured interviews conducted with between 22 to 30 executives, managers
and supervisors •
in
each of the 13 organisations
HR policy documents, including Executive Committee and Board papers and minutes, and
•
printed materials such as staff newsletters, annual reports to
memoranda
relating to
We compared what organisations were
HR practices
staff,
and
internal
HR policies, systems and practices.
(see Table 5.1)
and then
doing
in
each of the 12 major areas of
carefully analysed the similarities
differences between the overall pattern or 'gestalt' of
and
HRM practices of the organi-
Two broad sets of phenomena were identified. The first was that across all medium to high performing organisations in our sample, there emerged
sations.
the
several strong
common
trends in
HRM irrespective of their business or change
94 Readings
in strategic
strategies.
human
resource
The second phenomenon was
variations in the 'flavour' of different parts of the
Table
•
•
HR
Training
•
Interpersonal
restructuring
•
Supervisory and management training
Future workforce needs analysis
Corporate image as a
Review of selection techniques
means of tracking
PM
•
Employee attitude surveys
Team
•
Employee communication (newsletters,
Employee Iindustrial
staff
Counselling discipline, grievance
•
Consultative mechanisms/
•
Appeals procedures
procedures
procedures with
Systematic job analysis as a basis for equitable compensation practice
Performance-based compensation
HR
intrinsic (eg job satisfaction)
industrial unions
legislation
employment opportunity
•
Equal
•
Occupational health and safety
•
Worker's compensation
systems
rewards based on both tangible and
days, video networks)
relations
•
as a basis for determining
Rewards and compensation
•
building
commencement
as a basis for rewarding
employee training/development needs
•
Cross functional appointments/
•
goal achievement
and compensating
Development programs for future
Organisation development
Performance management (PM)
PM
training
transfers/multiskilling
Appointments policy
as a
training for present job
skills
Career development
•
•
PM
skills
skills/jobs
•
•
development
Functional
prospective employer
•
skills
•
•
•
and
work practices Workgroup or organisational
Job design,
Recruitment and selection
•
rewards Workplace productivity programs
Severance/exit practices •
Outplacement counselling
•
Early retirement
•
informa^on systems
Manual or mechanised
HR
record systems •
Interactive
computer-based
HR
information systems •
Link or
HR
information systems with
other corporate planning systems
management
•
Quality
•
Workskill enhancement
•
Service quality
De-hiring, retrenchments
•
HR
distinct
activities
based on business plans
•
some
organisations positioned
on
change matrix. Both of these phenomena are explored below.
Workforce planning •
that there were also
HR strategies between
Clusters of related
5.1
management
Strategic perspectives of
human
Common trends in human resource management trends in HR management common to all the medium
The
resource
management 95
to high
performing
organisations in our sample were: •
•
A decentralisation of operational HR functions to divisions/business units, away from centralist HR departments. A trend for organisations to adopt, at the corporate level, a more strategic approach
to
HR policy and its links into
the business planning process of the
organisation. This was evidenced in the reporting of the most senior
HR
Executive direcdy to the Chief Executive, and by the strategic importance of
•
human capital issues to the business planning process. This was occuring concurrendy with the decentralisation of operational HR functions. The development of comprehensive performance management systems as an integrated approach to MBO-type goal setting, appraisal, development and reward structures. This trend was strongly in evidence in all but two lower performing organisations in the sample.
decade ago, none of the above trends would have been observed personnel departments were highly centralised; personnel policy was precedent-based rather than strategically focused, and performance management systems were either control-based (ie an appraisal rather than an appraisal-training-reward orientation), or non-existent. This suggests that an organisation's HR strategies vis-a-vis another organisation may be partially a function of broader changes in the general culture of management (eg the current emphasis on devolution, downsizing, and flatter structures). Thus the type of change in the functional field of human resources is similar to the transition from a functional to strategic orientation in other fields (eg sales to marketing, and accounting to finance) in recent years. Such changes reflect the general trend for more rapid and less predictable environmental change and represent for HRM strategists and managers a common response to handling such problems.
As
littie
as a
in the majority of Australian organisations, as
A contingency model of human resource strategies Apart from these common trends, we also found some important differences between organisations in the overall orientation of their HR strategies. For example, two large banks in our sample had aggressive but different business strategies, and distincdy different change strategies. However, the question remained as to whether both organisations would also have distinctive differences in HR strategies. They did. Intuitively, a major initial difference appeared to be among those organisations which were developmentally oriented, and those which tended to use radical structural solutions in HR strategies as a means of maintaining or regaining strategic fit (see also Curtain & Mathews 1990). The former organisations appeared to emphasise team concepts, and to be more oriented toward staff training and development, career development, internal appointments, and culture development. The latter organisations appeared to be more aggressively
96 Readings
in strategic
managed,
less
restructuring
human
resource
management
team-oriented and more reliant on organisational and workplace and use of external rather than any internal labour market for
recruitment. This
initially
suggested two distinct types of HR strategy with different
and structuralist approaches, based on the tough care and soft love traditions referred to earlier. But if these distinctions existed, were they complementary or mutually self exclusive? It is possible that by displaying tough love toward some difficult employees means showing soft care to the balance of the workforce: philosophical roots; ie developriiental
The positive fact
is
that the removal of a marginal, unproductive or unnecessary it 5 legally and ethically handled, almost always improves and above-average employees, who are, after all, the people
surplus employee, provided the morale of the average the
company most wants to retain.
to observe
a fellow worker loho
is
It is
demoralising to a good, productive employee
consistently
—
do^ng it and getting away with (Foulkes 1986,
it.
p 382)
A rigorous process of analysis was undertaken to test our initial perception of a two-part contingency model: developmental
{soft)
and
structural {hard)
HR
We systematically checked to see if organisations with similar organisachange strategies also had similar profiles of HR practices. We found that
strategies.
tional
organisations sharing similar change strategies did exhibit similar approaches to
HR management; however, we identified not two, but four different and distinct HR strategies, as outiined in detail in Table 5.2. They cover the following four HR strategy types: • task focused HR strategies • developmental HR strategies • turnaround HR strategies • paternalistic HR strategies. The task focused HR strategy type was characteristic of the majority of organisations in the sample and represents one of the two new emergent HR strategies in the current business environment. The basic HR orientation of these organisaapproaches to HR, which we refer to as
tions
appeared
functional
skills
to heavily
emphasise business
unit,
training; lateral recruitment as a
work-team and job redesign;
norm rather than
the exception,
emphasis developing HR strategies for business units than for the corporation as a whole. The approach appeared more oriented to
and a greater
relative
structural solutions, role definition
concerned
and technical
skill
development and
less
involvement of employees in planning personal, profesorganisational change. In all cases, this type of HR strategy
to create the
sional or corporate level was associated with a directive inanagement style at the corporate level. The second type, the developmental HR strategy, appears compatible with the central thrust of much of the relatively recent (1960s to 1980s) HRM and OD literature, and was characteristic of two of the 1 1 medium to high performing
organisations in the sample. These organisations placed strong emphasis on personal development, management development, career management and culture
management
(internal marketing, culture surveys,
employee communi-
—
——
— Strategic perspectives of
Table 5.2 Four
HR
strategy types
Developmental*
HR
strategies
HR
strategy
is
jointly
actioned by the corporate
HR
unit
human
resource
management 97
and the business units
Features •
Emphasis on developing the
•
Internal recruitment,
where
individual,
and the team
possible
•
Extensive developmental programs
•
Use of 'intrinsic' rev^ards Corporate organisational development given Strong emphasis on corporate culture
• •
Task/Focused*
HR
strategy
is
HR
high priority
strategies
strongly focused
on the business
unit
Features •
Strong bottom
•
Emphasis on workforce planning, job re-design and work practice reviews
•
Focus on tangible reward structures
•
Internal
•
Functional
•
Formalised IR/ER procedures
•
Strong business unit culture
line orientation
or external recruitment skills
training
and formalised
multi-skilling
*Both of the above give high priority to performance management systems
Paternalistic
HR
HR
centrally administered
practice
is
practices
Features •
Centralist personnel orientation
•
Emphasis on procedures, precedent and uniformity
•
Organisation and methods studies
•
Inflexible internal
•
Emphasis on operational and supervisory training
•
Industrial
awards and agreements set the
Turnaround
HR
strategy
appointments policy
is
HR
HR
framework
strategies
driven for a short period by the executive leadership, characterised by
challenging, restructuring
or abolishing
HR
systems, structures and methodologies
Features •
Major structural changes
•
Downsizing, retrenchments
•
Lateral recruitment of key executives
•
Executive team building, creating a
•
Breaking with the
'old'
affecting the total organisation
from outside
new
'mindset'
culture
cation strategies). In each case this type of tative style
and career structure
HR strategy was associated with a consul-
of corporate change leadership.
However, the research also demonstrated that the task focused and developmental HR strategies were not entirely discrete categories: organisations with a dominandy task focused HR orientadon would often include some developmental
98 Readings
in strategic
human
resource
management
HR strategies. Similarly, organisations with a HR orientation would often include some task focused HR practices in their overall HR strategies. Thus the task focused and developmental HR strategies did not represent absolute differences in HR practice, but HR
practices in their overall
dominantly developmental
rather a difference in balance of emphasis.
pursuing a highly task focused
HR strategy,
The implication is that even when some culture building and manage-
will also be necessary. Similarly, a strong developmental HR most likely include some emphasis on workforce and job restruc-
ment development strategy will also
turing, but these elements will not
Two
other
dominate.
HR types were also identified. The
turnaround HR strategy type was
a newly emerging type characteristic of six of the organisations in the period three years prior to the study; a time
when
these organisations were undergoing a period
of radical business redefinition and corporate transformation. These organisations
had substantially downsized, redefined or abolished their central HR departments; were in the process of radically reviewing their HR systems and policies; were effecting voluntary or forced retrenchments, and had opened out their recruitment to outside appointees at key, executive and other levels. These moves were all aimed at radically changing the 'old' culture of the organisation. The final HR strategic type, paternalistic, was associated with the lower performing organisations effecting change by fine tuning. A paternalistic HR strategy exemplifies the traditional mechanistic strongly influenced by scientific practice,
and a
HR policies of the
management, standard
desire to maintain the status quo. This
1950s and 1960s.
It is
industrial relations
HR type featured a strong
an emphasis in HRM based on procedures and precedents, heavy reliance on productivity work studies as a form of personnel/control, and formalistic employer-employee industrial relationships which had the effect of centralist
HR role,
setting the
HR agenda. HR strategy types superimposed on the change model of change strategies to HR strategies. shows that HR strategies were altered subsequent to
Figure 5.3 shows the four
and
The
illustrates the systematic relationship
research evidence
change strategies, which indicates that an organisadetermine its HR strategy rather than vice versa. This is a rather more complex model than has been advanced by previous authors, alterations in organisational tion's
change
but we believe
There
is
strategy tends to
it is
a
more
realistic
and
useful one.
conceptual consistency between our four
HR strategies and some HR
categories recendy developed by Frenkel (1991). Frenkel has advanced the notion that HR practice and positioning is a product of the economic and business environment and has gone through the following three phases.
The
traditional internal system
This system
is
common
to large organisations
employing unionised labour;
it is
and employee rights won by unions through collective bargaining under a redundant 'craft' employment system. Such a system is suited to mass production for stable markets and it is 'control' rather characterised by promotion on seniority
than change oriented.
Strategic perspectives of
HR
Figure 5.3
human
resource
management 99
strategies and organisational change
Scale of change Style of
Fine
Incremental
change
tuning
adjustment
Modular
Corporate
transformation transformation
management Collaborative
Developmental Consultative
HR
Paternalistic
strategies
HR
•
Directive
Task
/
focused
^
strategies
^
/
/
HR
•
strategies
Turnaround
HR strategies
Coercive
The high commitment system This system it is
designed to develop broadly trained, highly motivated employees;
is
characterised by an emphasis
on job
security,
career advancement within the
harmony and organisational and strong corporate culture. Such a system is suited to growth markets, the need for functional flexibility.
corporation, employee/commitment, industrial flexibility,
and
to
The 'new
craft'
This system
is
system
increasingly
common as organisations delayer and downsize, and the
focus for adding value moves from the corporate centre to organisational business/ units; there is a strong emphasis on subcontracting and networking rather than in-house resources; a frequentjob redesign and work restructuring. Employees are highly skilled and earn high wages and unions play a protective rather than a
work
lead role in collective bargaining.
and
The system
is
well suited to flexible specialisa-
high value-added niche markets. Frenkel observes that the traditional internal system is now redundant (although, we would add, still practised by some organisations) the high commitment internal tion,
is
most suitable for firms serving
in
;
labour market system
and
flexibility
is
increasingly less able to provide the structural flexibility
of workforce numbers and resourcing required for niche market
100 Readings
in strategic
strategies; while the
human
resource
management
New Craft System provides a flexible HR solution
to business
turbulence, and the need for strategic re-orientation in high value-added markets.
The similarities between our HR strategies, in the article,
and Frenkel's
stages can
Table 5.3 The positioning of
HR
be
HR emphases
HR
(Storey,
&
HR emphasis referred to earlier
strategies
Stace and Duriphy strategies
the
illustrated as follows.
Frenkel
HR
stages
Legge
Foulkes)
Paternalistic
-
Developmental
Soft care
Task focused
-
Turnaround
Tough love
Traditional internal
High commitment The new craft system -
Unlike Frenkel and possibly other writers, however, we see the positioning of HR strategies as a
contingency in organisational process rather than as a discrete series of
historical stages or
mutually exclusive categories. In fact three of our four
strategies (developmental, task focused
and turnaround) could be
HR
equally applic-
able according to different market conditions, while the fourth (paternalistic) could
have some hmited applicability volatile business
in a
monopolistic situation, even in the current
environment. In Table 5.4 we oudine the characteristics of our four
HR strategies, and the conditions imder which they might be applicable. The dominant HR strategies foimd in our research therefore were task focused and turnaround, reflecting the association of
relative
absence of stable or growth markets, and the
HR strategies with the radical change strategies required to produce
greater business
flexibility,
more work unit autonomy and less centralism (of both The two low performers in
the 'old' paternalistic or the 'new' developmental kind).
our study were following paternalistic HR strategies, both having previously held near monopolistic and/or highly protected positions in their industries. Of the remaining two organisations following developmental HR strategies (one small and one large bank), only one is still doing so two years after the research study. In this latter case, the organisation is positioned in a high valued-added segment of its industry, and is the product-market innovator in the indtistry. The other has dramatically repositioned
more
radical
its
Strategic implementation:
Our
HR sUategies over the
past two years to align with a
approach to corporate change which has now been adopted.
an integrated approach
research has identified a scheme for describing differences in
which
relate to a
contingency model of strategic change
HR strategies
strategies.
Figure 5.4 juxtaposes the two process models and indicates
how tiieir positioning
performance. Note that both task focused and developmental HR strategies are associated with medium to high performing organisations; turnaround HR relates to
Strategic perspectives of human resource
Table 5.4
HR
Stace/Dunphy
Type
strategies
HR
management 101
and conditions for their use
strategy
A
Conditions for use Use when markets/products/services are undergoing major changes and
Task focused
are prevalent.
HR
strategies
'niche' strategies
must
deliver the
capacity for rapid structural systems, cultural changes. Strong
unity autonomy,
skill
and
emphasis on business
maximum
devolution, rightsizing
(continuous redeployment), and outsourcing of labour.
Type B Developmental
Use when markets are growing and product/market innovation
desired.
is
HR
strategies
must create
cross-organisational synergy, and a market leader culture. Strong emphasis
on
individual
development,
corporate culture management, developing a strong internal labour
and team
Type C Turnaround
market (promotions/appointments),
skills
Use when the business environment changes dramatically; its
when the organisation is not in fit with when the business strategy of
environment, and
the organisation radically changes.
must break and abolish redundant structures and redefine a
new
systems, and radical
strategies practices,
culture. Strong
emphasis on forced downsizing,
new HR
HR HR
lateral
work and
recruitment, job
restructuring.
Type
D
Use only in very limited mass production situations where the organisation has an absolute monopoly on stable markets/products. HR strategies are used
Paternalistic
as devices for 'control' and uniformity of
procedure/operations. Strong emphasis on formal detailed job descriptions, formalistic
employer-employee
industrial relationships,
and
industrial awards.
attempting to regain fit either because of the need to radically adjust to a rapidly because their performance changing environment. Paternalistic HR strategies are associated with lower performing organisations or with monopolistic ownership. An organisation's change
strategies are associated with organisations is
strategy
is
low, or
therefore a powerful determinant of its
HR strategies.
The model advances our understanding of how change
strategies
aimed
at
actioning an organisation's business strategies are typically integrated with a comple-
mentary set of HR strategies. In
practice, business
are often actioned by senior executives while
mental
level
and
strategic
change
strategies
HR policies are actioned at the depart-
by managers, and formulated by personnel departments. In our view
— 102 Readings
in strategic
human
resource
management
Figure 5.4 The relationship between performance, change and
Style of
change
Scale of change Modular
Incremental
Fine tuning
adjustment
transformation
HR
strategies
Corporate transformation
management Collaborative
Consultative
Maintaining
ftt
medium
Lower performers
to high
performers
Directive
Regaining
fit
by corporate
turnaround Coercive
Style of
change
Scale of change Modular
Incremental adjustment
Fine tuning
transformation
Corporate transformation
management Collaborative
Consultative
''
Developmental
•
HR
^\Task
Paternalistic
^ ^ strategies^ '
HR
^
strategies
,
focused
HR
Directive
^ *
strategies
Turnaround
HR strategies
Coercive
there
is
a critical need for an integrated view, such as that advanced here, of
different choices about man^ement process relate to each other. This
important for organisational change and
is
how
particularly
HR sU^tegies, both of which are currently
being translated into a wide range of interventions in organisations, sometimes in
non-complementary ways. For instance, we see frequent use of major organisational restructuring interventions as part of an overall business and change strateg)' instituted by senior managements. Typically, however, some in-house trainers will try to distance themselves from such draconian measures. They prefer to focus on interventions such as interpersonal skills training, whether or not that form of intervention represents the most appropriate and focused use of the organisation's
Strategic perspectives of
human
resource
management 103
resources in actioning its business strategies at that particular stage of the business cycle.
The opposite may also apply if a major structural intervention is utilised by when a more appropriate team development intervention
corporate strategists
should be used. We conclude, therefore, that contingent rather than universalis! solutions are required in developing strategic organisational change and HR strategies. In practical terms, the soft and hard approaches to organisation change and HRM are not irreconcilable: they are rather parts of a broader set of contingent choices available to managers,
implement business
change agents and organisational stakeholders as they designed to maximise corporate performance.
strategies
References Fraser, J & Heath, L 1988, Management into the Future, Ashridge Management College and Faculty for Management Education, Berkliamsted, London Beer M, Eisenstadt, R A, & Spector, B 1990, The Critical Path to Corporate Renewal,
Barham, K,
Harvard University Press, Boston, Massachusetts P 1990, 'Recent developments in human resource management: The good, The bad and the ugly'. International Journal of Human Resource Management, vol 1, no l,June, pp 45-59
Blunt,
Curtain,
R&
Mathews, J 1990, 'Two models of award restructuring in 3, no 1 pp 58-75
Labour and Industry, vol
Australia',
,
Dunphy, D C & Stace, D A 1988, 'Transformational and coercive strategies for planned organisational change: Beyond the OD model', Organisation Studies, vol9, no3, pp317-44 Dunphy, D C & Stace, D A 1990a, 'Transformational and coercive strategies for planned organisational change: Beyond the OD model', in Massarik, F ed. Advances in Organisational DeveUrpment, Ablex Publishing, Norwood, New Jersey, pp 85-104 Dunphy, D C & Stace, D A 1990b, Under New Management: Australian Organisations in Transition, McGraw-Hill Book Company, Sydney Foulkes, F
K 1986,
Strategic
Human Resource Management: A
Guidefor Effective Practice,
Englewood Cliffs, New Jersey Frenkel, SJ 1991, 'Increasing work commitment through HRM strategies: An international perspective', unpublished paper prepared for the Conference on Prentice Hall,
Human
Resources, 25-26 January, Taipei
and change of organisational cultures: A Studies, vol 7, no 2, pp 117-34 'Macro-Level Interventions and Change-Agent Strategies',
Gagliardi, P 1986, 'The creation
conceptual framework'. Organisation Golembiewski,
RT 1979, RT ed, Approaches to Planned Change; Part lA, Marcel Dekker,
Golembiewski New York
in
Harris,
R
1987, 'Rupert
Murdoch: Media tycoon, strikebreaker and
world'. The Listener, 27 January,
p7
citizen of the
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Hendry,
8c
human
Pettigrew,
resource
A
1990,
management
'Human
resource management:
An agenda
the 1990s', Intemationaljoumal of Human Resource Management, vol Kanter,
RM
K 1989,
A'i?jx'
Levy,
A
,
no
1
,
for
p 21
Chan^ Masters: Innovation and Entrepreneurship in the American Simon and Schuster, New York 'Human resource management: A critical analysis', in Storey, J ed,
1983, The
Corporation,
Legge,
1
Perspectives
on
Human Resource Management, Roudedge, London
1986, 'Second-order planned change', Organizational Dynamics,
pp 4-23 Miles, R E & Snow, C C 1978,
New York R E & Snow, C C
Organisational Strategy, Structure
Summer,
and Process, McGraw-
Hill Inc,
Miles,
1984, 'Designing strategic
human
resources systems',
Summer, pp 36-52 1986, 'Configurations of strategy and
Organizational Dynamics,
D
structure: Towards a synthesis'. Management Journal, vol 7, pp 233-49 Miller, D & Friesen, P H 1984, Organizations: A Quantum View, Prentice Hall, Englewood Cliffs, New Jersey Nord, R & Tucker, S 1987, Implementing Routine and Radical Innovations, University of Kentucky Press, Lexington, Kentucky Sashkin, 1986, 'Participative management remains an ethical imperative'. Organizational Dynamics, Spring, pp 62-75 Smith, E C 1982, 'Strategic business planning and human resources', Personnel Journal, Part I, no 61 &: II, no 89, pp 606-10, 680-2 Stace, D A 1987, 'The value-added organisation: Trends in human resource management'. Human Resource Management Australia, vol 25, no 3, pp 52-63 Stace, D A 1989, Strategic Change and Human Resource Policy in Australian Service Industries, unpublished PhD Thesis, University of New South Wales Stace, D A &: Dunphy, D C 1990, 'A New Paradigm: Human Resource Strategies and Organisatioucd Transitioning in Australian Service Industries', in Research in Personnel and Human Resources Management, supplement 2, JAI Press, Miller,
Strategic
W
M
Connecticut Storey, J 1989,
'From Personnel Management
in Storey J ed,
New
Perspectives
on
to
Human
Human
Resource Management'
Resource Management, Routledge,
London
M
M
N Fombrun, C J & Devanna, A 1982, 'Strategic human resource management', Shan Management Review, Winter, pp 47-61 Tushman, M L Newman, H & Romanelli, E 1986, 'Convergence and upheaval: Managing the unsteady pace of organisational evolution', Califomia Management Review, vol 29, no 1, pp 29-44 Tichy,
W
Reading 6 Strategic
human
resource management: theory and practice
MinKrmar
During the 1980s and eariy 1990s attention was paid
to the
development
of employment strategies and policies which served to promote the achievement of organisational objectives. Many Australian organisations
sought to make changes to their corporate
and human resource management indicate that
strategies, structures, culture
policies.
However, numerous studies
much organisational life and interaction is not direcdy related
achievement of organisational objecdves. This reading examines the features of the formal human resource management strategies of three organisations and identifies how they changed during the 1980s. It is particularly concerned with examining those factors which inhibited the implementation of these strategies. Firstly, policy was not always implemented because managers either continued to apply their personal to
main
social values
or the standards and criteria associated with previous policies.
Secondly, social relationships between managers, their colleagues and their staff,
the
new
and perceptions about the support of senior management
policies influenced policy implementation. Thirdly, there
inconsistencies
for
were
and tensions between human resource policies in the three
organisations, reflecting the maintenance of policies associated with a
previous
During the
management approach.
last
organisational
10 years the important contribution of employees to improved
and labour market performance has been
edged by trade unions, employers,
industrial tribunals
explicitly acknowl-
and governments.
Decisions of the Industrial Relations Commission which provide for the
re-
evaluation of career paths, training and job classifications through the Structural Efficiency Principle (SEP)
and the
striking of enterprise
agreements
provide for the implementation of policies seeking to improve the efficiency of
employees and reduce turnover. Initiatives taken by the Commonwealth government, such as the enactment of the Training Guarantee Act and the funding of reforms sponsored by the Department of Education, Employment and Training, Department of Industry, Technology and Commerce and the Department of Industrial Relations through schemes such as the Best Practice Demonstration Program, Workplace Language and Literacy Program and the Workplace Reform Program, also seek to improve the productivity of employees and employer commitment to employee development and training. Employers have also unilaterally taken initiatives to improve employee performance and reduce employee turnover. One method for doing this has been the adoption
106 Readings
in strategic
of a strategic
human
human
resource
resource
management
management (HRM) approach
to
employee
management. The strategic
HRM approach has a number of key dimensions. It requires HRM be integrated with corporate strategic issues. This integration has implications for the involvement of different parties in shaping the framework in which HRM policies are developed. As Miller (1991, p 25) points out, decisions made at the most senior levels of the organisation shape the corporate and HRM strategies and to
policies of lower levels of the organisation. It is
argued that
achieve strategic
fit
strategic
HRM
is
one of the ways organisations can attempt to and Snow (1984, p 14)
with their market environment. Miles
claim corporate excellence
is
the result of organisational characteristics, such as
and services. A number of Gospel Kochan, Katz writers (Miles &: Snow 1984; 1983; & McKersie 1986) have highlighted the importance of the relationship between corporate strategy, organiorganisational structure, technology, culture, products
HRM strategy and the structures providing for the delivery of HR policies in creating a 'tight Strategic HRM provides the means of developing
sational structure, the
fit'.
by motivating and equipping employees so they are able to work towards the achievement of the organisation's objectives (Collins 1988; Guest 1987). Strategic HRM is contextually sensitive. It has been argued that HRM practices fit
should seek to develop and implement
HR policies which are consistent with the
management strategy (Miles & Snow 1984, pp 36-52; Kerr 1982, pp 58-65; Ferris, Schallenberg & Zammuto 1985, pp 381-94; Miller &: Norburn 1981) and competitive strategies (Dowling 8c Schuler 1991, pp 139—44). Certain employee behaviours are assumed to be instrumental organisation's product life-cycle stage or business
in the
implementation of these competitive
strategies (Schuler
& Jackson
1987;
Dowhng &
Schuler 1991, p 133; Schuler 1987, pp 1-19). These behaviours can be encouraged by implementing a package of consistent HR policies and practices.
Table 6.1
sets
out three competitive strategies and the
HRM practices necessary
and reinforcing the behaviour required for the achievement of these competitive strategies. Dowling and Schuler (1991, p 143) identif)' a model which fits particular HRM practices with different competitive strategies. They identify three competitive strategies: the cost reduction, quality enhancement and innovation strategies; the appropriate employee role behaviours; and HRM for encouraging
strategies required to achieve these strategies.
Dowling and Schuler (1991, pp 144—6) argue that the appropriateness of competitive strategies are influenced by the life-cycle stage of the firm. They identify three stages: the entrepreneurial/growth stage; mature/decline stage;
and
the turnaround stage. During the entrepreneurial/growth stage, the strategy stresses innovation
and new product development and
is
facilitated
who are
innovative, co-operative, longer-term oriented, risk-taking,
assume
responsibility. In
by employees
and willing
to
comparison, during the mature/decline stage the emphasis of the strategy 'is taking away as much profit as possible from the existing product... emphasis is on increased production runs and cost cutting, the real HRM challenge is attracting and retaining capable employees' (Dowling 8c Schuler 1991, p 146). Finally, in the turnaround stage, organisational survival is stressed
Strategic perspectives of
human
resource
management 107
through cost cutting. This can occur by reducing the number of employees and by enhancing the quality of products.
Table
Consistent packages of
6.1
HRM
practices
and competitive strategies
Quality-enhancement strategy and l^
>
^
so
rt
>f
-D
>
a: .E
-8 .S (u-P rt
W
*J
>. c c v 3 « _Si o rt
O
v
T3
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l/f
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O
""to « o
O
^
E
i_
(J
£
C
1 Q.
o Q. OJ O >
L.
OJ
3
(U
0)
Q_ T3
1/)
c
i/l
C O 1-
C 3 o
V o -^
^^ 10 1_ «->
O S O -n
T?
'15)
2
International perspectives of strategic
human
resource
management 329
Staffing issues
The international staffing process is of considerable importance
to a multinational
company. As Duerr (1968, p 43) has pointed out: virtually
any
type of international problem, in thefinal analysis,
is
either created by
people or must be solved by people. Hence, having the right people in the right place at the right time emerges as the key to
a company
5 international groioth. If
successful in solving that problem, I am confident
To
we can cope loith
date, three issues in international staffing have
we
are
all others.
been considered by and predictors
researchers: executive nationality policies, expatriate failure rates,
of expatriate success.
With regard to executive nationality policies, a multinational company can choose from five options: (1) ethnocentric, (2) polycentric, (3) geocentric, (4) mixed, and (5) ad hoc or patchwork (Robinson 1978; Heenan & Perimutter 1979; Robock & Simmonds 1983). These options are described in Table 21.1. It is important to consider these policies in some detail because each option has important implications for a multinational organisation's staffing practices.
Ethnocentric all key positions in a multinational company by parent country nationals, (PCNs). This practice is common in the
This approach to staffing results in
being
filled
early stage of internationalisation
where a company
is
setting
up a new
process or product in another country and prior experience essential.
Other reasons for pursuing an ethnocentric
is
business,
considered
staffing policy are a
perceived lack of qualified host country nationals (HCNs), and the need to
maintain good communication links with corporate headquarters. However, an
number of disadvantages. number of major problems:
ethnocentric policy also has a identified a •
An
ethnocentric staffing policy limits the promotion opportunities of
•
•
HCNs.
reduced productivity and increased turnover among HCNs. The adaptation of expatriate managers to a host country can be a long process. During this time, PCNs often make mistakes and take poor decisions. Serious compensation equity issues often arise when PCN and HCN compensation packages are compared. The often considerable income gap in favour of PCNs is viewed by HCNs as unjustified. For many expatriates a key overseas position means new status, authority and an increase in standard of living. Zeira (1976) states that these changes 'tend to dull expatriates' sensitivity to the needs and expectations of their host country subordinates and is not conducive in objective self-evaluation.
This •
Zeira (1976, p 36) has
may lead
to
330 Readings
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in strategic
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Polycentric
A polycentric staffing policy is one where HCNs are recruited own country and PCNs occupy positions
aries in their
There are four main advantages 1
to
manage
subsidi-
in corporate headquarters.
to this approach:
Employing HCNs eliminates language barriers, the adjustment problems of managers and their families, and removes the need for expensive
expatriate
training programs.
2
Employment of local
nationals allows a multinational
company to
take a lower
Robinson (1978) has noted that a dubious reason for employing local managers is to insulate parent company personnel from direct involvement in making extra legal payments to local government officials. It is difficult to evaluate the extent to which this factor may influence staffing decisions, but clearly, in some countries this may well be the case. 3 The employment of local nationals is generally less expensive, even if a profile in sensitive political situations. Related to this point,
premium 4
is
paid to attract high quality local applicants.
A polycentric policy gives continuity' to the management of foreign subsidiaries.
While a number of these advantages address some of the shortcomings of an number of disadvantages which may develop from a polycentric policy. Perhaps the major difficulty is that of bridging the gap between local national subsidiary managers and the parent country managers at corporate headquarters. Language barriers, conflicting national loyalties, and a range of cultural differences (eg personal value differences and differences in ethnocentric policy, there are also a
attitudes to business)
may leave
from the various foreign firm could
become a
move
to
The end
result
may be
that a multinational
'federation' of independent national units with
to corporate headquarters. as a
the corporate headquarters staff relatively isolated
subsidiaries.
nominal links Such a situation would make major strategic shifts, such
production sharing, very
difficult to achieve.
A second
major problem associated with this type of staffing policy concerns the career paths of HCN and PCN managers. HCN managers have limited opportunities to gain experience outside of their own country and cannot progress beyond the senior positions in their own subsidiary. PCN managers also have limited opportunities to gain overseas experience. Since executive positions at headquarters are only held by PCNs, this
means
that the senior corporate
management group
responsible for resource allocation decisions between subsidiaries and overall strategic
planning will have litde overseas work experience to draw on. In an increas-
ingly competitive international environment, this lack of experience
Such a
situation also tends to reinforce a cynical view
among PCNs as
is
a
liability.
to the value
of overseas experience in terms of career advancement (Smith 1975).
Geocentric
The
third
approach
to international staffing
is
the geocentric policy where the best
people are sought for keyjobs throughout the organisation, regardless of nationality.
International perspectives of strategic
human
resource
management 331
There are two main advantages to this approach. Firstly, it enables a multinational firm to develop an international executive cadre. Secondly, it reduces the tendency of national identification of managers with units of the organisation. However, there are a number of difficulties in implementing a geocentric policy: •
employ their citizens and utilise employment of local nationals if adequate numbers and skills are available. Most Western countries require companies to provide extensive documentation if they wish to hire a foreign national instead of a local national. This can be a time-consuming, expensive, and at times futile process. This approach can be expensive to implement because of increased training and relocation costs and the need to have a compensation structure with standardised international base pay which may be higher than national levels in Most host countries want foreign
subsidiaries to
their immigration laws to achieve this goal by requiring the
•
many •
countries.
To successfully implement a geocentric staffing policy, longer lead times and more centralised control of the staffing process are required. This necessarily reduces the independence of subsidiary management in these issues and this loss of autonomy may be resisted.
Mixed
A fourth approach to international staffing is to adopt a mixed policy with regard The best example of a mixed policy is a regiocentric The specific mix will vary with the nature of a firm's business and product strategy. Robock and Simmonds (1983) give three examples of how the nature of a business or product strategy influences staffing policies. to executive nationality.
approach
(see Table 21.1).
is important (eg consumer goods and/or need for PCNs will be low, relative to the need for experienced HCNs and third country nationals (TCNs). A second example would be where product expertise is important and/or industrial markets are being served. In such a situation PCNs would be used more frequentiy because of the need for quick access to parent country sources of supply and technical information. A third example is that of service industries such as banking which tend to use relatively large numbers of PCNs, particularly where a firm is serving
Firstly, if
regional or area expertise
limited product lines) then the
parent country multinationals in foreign locations.
Ad hoc/Patchwork This final staffing option default.
is,
in a sense, a
misnomer because
A better descriptor may be corporate inertia.
succincdy summarised
The danger in foreign
is
how an ad hoc approach
it is in fact a policy by Robinson (1978, p 297) has
often develops:
that the firm will opt for a policy of using parent country nationals
management
positions by default, that
is,
simply as
extension of domestic policy, rather than deliberately seeking
of management
skills.
an automatic
optimum
utilization
332 Readings
in strategic
human
resource
management
A multinational firm that would be described as following an ad hoc staffing approach will clearly have difficulty developing a consistent organisational HR strategy which fits with the overall business strategy of the enterprise. Consequently, it will often be poorly placed to either anticipate threats or profit fi-om opportunities.
Expatriate failure rates
A
predominant issue in the international staffing literature is that of expatriate which may be defined as the premature return of an expatriate manager Thus, an expatriate failure represents a false positive selection error (Heneman et al 1986). The costs of a false positive selection error are both direct and indirect. In the case of expatriate recalls, the direct costs include salary, training costs, and travel and relocation expenses. Mendenhall and Oddou (1985) state that the average cost per failure to the parent company ranges between US$55 000 and US$80 000, depending on currency exchange rates and location of assignment. failure,
The importance of indirect or invisible costs rises with the level of position being many expatriate positions, these indirect costs may be consider-
considered. For
For example, an expatriate head of a foreign subsidiary who subsequendy this job may damage relations with the host country government and other local organisations and customers. This may result in various outcomes such as loss of market share, difficulties with host government officials, and demands that PCNs be replaced with HCNs. Zeira and Banai (1984) argue that multinational corporations should consider these factors as the real costs of failure of international executives rather than direct expenses such as able.
proves to be unsuitable for
salary
and
The
repatriation costs.
international literature also indicates that expatriate failure
is
a persistent
and recurring problem with failure rates remaining relatively high. Mendenhall and Oddou (1985) report that the estimated expatriate failure rate from 1965 to the present has fluctuated between 25% and 40%. Desatnick and Bennett (1978)
70% in developing countries. One of the few empirical studies on expatriate failure rates is reported by Tung (1982) who surveyed a number of US, European and Japanese multinationals. Her results showed US companies as having both higher expatriate failure rates and a higher percentage of companies reporting recall rates of 10% or more, than
state that this figure rises to
European or Japanese multinationals. However, these national differences should not obscure the
fact that all multinationals in
Tung's sample reported a significant
no data available which compare international and domestic false positive selection error rates, it would seem reasonable to assume that few companies would report domestic error rates of the relative magnitude shown in Tung's study. An indication of some of the differences between domestic and international
expatriate failure problem. While there are
selection
is
apparent when reasons for expatriate failure are examined. Tung
(1982) asked her sample of multinational managers to indicate reasons for expatriate failure in their companies (see Table 21.2).
International perspectives of strategic
Table 2
Reasons for expatriate
.2
1
(in
The
management 333
failure
Japanese
of spouse to adjust
ability
resource
descending order of importance)
American 1
human
1
Inability
to cope with larger
overseas responsibility 2
Manager's
3
Other
4
Manager's personal or
to adjust
inability
family
emotional maturity 5
Inability
new environment
2
Difficulties
3
Personal or emotional problems
4
Lack of technical competence
5
Inability
with
problems
to cope with
of spouse to adjust
larger overseas responsibility
European
of spouse to adjust' only consistent reason given by respondents
'Inability
Source Tung 1982
Tung notes that the finding that inability of spouse for failure for
to adjust was a major reason but a relatively minor reason for not surprising given the role and status to which Japanese
US and European companies
Japanese companies
is
society relegates the spouse.
As with false positive selection error rates, there are no data available which compare reasons for international and domestic false positive selection errors, but it is a plausible hypothesis that relational and environmental adjustment difficulties would not be the major reasons for explaining failure of domestic managers as they are for international
managers.
Predictors of expatriate success
There are two important papers which have examined the expatriate success. practices of 80
An
empirical study by
Tung
US multinational companies.
expatriate success,
issue of predictors of
(1981) focused on the selection
Based on a review of the
literature
on
Tung grouped the variables that contribute to expatriate success
into four general areas: (1) technical
competence on the job;
(2) personality traits
Each respondent (the Vice President of Foreign Operations) was asked to indicate whether these criteria were used in their organisations. Using categories reported by Hays (1974), overseas job assignments were classified as: (1) chief executive officer; (2) functional head; (3) troubleshooter; and (4) operative, h appeared that for each job category some selection criteria were judged to be more important than others. For example, 'communicative ability' was less important for technical jobs (troubleshooter) than for a CEO, while 'knowledge of host country language' was important for functional head and operative jobs. Presumably, individuals in these latter job categories have limited access to translators or are more likely to work with HCNs who do not speak English. or relational
abilities; (3)
environmental variables; and
(4) family situation.
334 Readings
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human
resource
Tung also asked respondents assess criteria
management
to indicate the
used for selection of overseas
—
procedures used by each firm to staff. Few companies formally
competence a predictable result since most expatriates are ample documentation of technical competence is generally available from performance appraisal data and personnel records. With regard to assessing family situation, for management positions 52% of companies interviewed both candidate and spouse while for technical positions, 40% of companies interviewed both candidate and spouse. Only one percent of firms conducted no interviews with either the candidate or spouse. While these figures for interviews with candidate and spouse are relatively high, they are less impressive when one considers the fact that inability of spouse to adjust is the most frequentiy cited reason for expatriate failure. The most surprising result from Tung's study was for assessment of relational ability. Although most companies indicated that relational abilities were important, assessed technical
internal recruits
—and
only
five percent of firms assessed a candidate's relational ability through a formal procedure, such as judgement by seniors, or psychological appraisal. Given the
research available (eg Hays 1974) which shows that relational abilities are positively is an obvious deficiency in the expatriate selection procedures of most of the companies in this study. A final aspect of Tung's paper which warrants discussion is her selection and training model. The issue of executive nationality is raised by the model as it requires information as to whether the position could be filled by a HCN. As well,
related to expatriate success, this
the model follows a non-compensatory selection strategy which Newman, Bahl and Gutteridge (1978) note is a lower risk strategy with regard to selecting expatriates. Also, Tung's model takes a contingency approach to selection and training by recognising firsdy that different expatriate jobs involve variations in extent of interaction with local nationals and duration of stay. Secondly, foreign
assignment locations will vary widely in terms of similarity with the expatriate's own culture. Using this model, Tung analysed the relationship between type of
and training procedure used and expatriate failure rate for the companies in her sample. She reports a correlation of -.63, indicating that the more rigorous the selection and training procedures used, the lower the failure
selection
rate.
A
second important paper is a recent review of the expatriate acculturation Mendenhall and Oddou (1985). In re\iewing problems in expatriate selection, Mendenhall 8c Oddou state that a major problem area is the ingrained literature by
practice of personnel directors
when
selecting potential expatriates to use the
The effect of this practice is that of importance in the selection process other than technical expertise and a successful domestic track record. They conclude that the field of expatriate 'domestic equals overseas performance equation'.
little
else
is
and training suffers from two interdependent problems. Firsdy, there is an inadequate understanding of the relevant variables of expatriate acculturation which leads to a second problem, the use of inappropriate selection and training methods. The purpose of their paper was to review the literature to determine the selection
key dimensions involved in the expatriate-adjustment process and to examine the implications of these dimensions for the selection and training of expatriates.
International perspectives of strategic
human
resource
management 335
From their review of tJie literature Mendenhall and Oddou conclude are four key dimensions in the expatriate adjustment process:
dimension;
(2) the others-oriented
(4) the cultural-toughness
dimension;
(3) the
(
)
1
that there
the self-oriented
perceptual dimension; and
dimension. The authors also make a
number of recom-
mendations concerning the selection and training of expatriates. Firsdy, they
recommend
on and weaknesses on the dimensions of expatriate
that the expatriate selection process should focus
evaluating the applicant's strengths
acculturation which they identify in their review. Secondly, the toughness of the culture of the country to which a future expatriate will be assigned should be assessed by
comparing the host country's
political, legal,
business systems to those in the parent country. If there
the host country
is
is
socioeconomic and
considerable disparity
'culturally tough') only applicants with
(ie
high scores on the above
dimensions should be considered for this assignment. For assignments to countries similar to the parent country (eg an assignment to Australia from the US) applicants with more marginal evaluation scores may be considered. This point is very similar to the notion of similarity/ dissimilarity between cultures as a selection factor
which Tung ( 1981 ) emphasises
in
her model.
Compensation International compensation policies are a key issue for the multinational firm.
Robock and Simmonds (1983) state that an effective compensation expatriates should strive to meet the following objectives: and
1
Attract
2
Facilitate transfers
foreign
retain
policy for
employees qualified for overseas service. between foreign affiliates and between home country and
affiliates.
and maintain a consistent and reasonable relationship between the compensation of all employees of any affiliate, whether posted at home or abroad, and between affiliates. 4 Arrange reasonable compensation, in the various locations, in relation to the 3
Establish
practices of leading competitors.
In practice, multinationals tend to have compensation packages which include the following components:
a
which serves a number of functions. home country payroll value for that individual
Base
salary,
•
represents a
It
repatriation •
It
upon
in terms of
the expiration of the foreign assignment.
provides the basis
upon which
various allowances
and
special benefits are
calculated.
While the base salary may be determined using a similar job evaluation plan for domestic
andforeign employees,
this is frequently
in foreign subsidiaries require considerably
problematic because
many positions
more autonomy of action than
comparable domestic positions.
(Harvey 1985)
336 Readings
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human
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payments made to and to compensate for hardship or danger in the country involved. Two components or allowances are involved: an adjustment allowance to encourage mobility and a hardship
b Expatriate premium, the general term nsed
to describe
expatriates to increase the attractiveness of foreign posts,
allowance.
which include general cost-of-living, education, housing and tax equalisation. The overall purpose here is to ensure expatriates are able to maintain their normal pattern or standard of living. d Additional fringe benefits, such as home country visits, car allowances and payment of part of base salary in home or third country currency. c
Cost-of-living allowances,
There are a number of complex issues in the international compensation field. of the major issues is that of equity between PCN, HCN and TCN employees of a multinational working in a foreign location will receive a higher level of compensation than a TCN or HCN employee doing a similar job. The reason for this is that most multinationals opt for 'keeping the PCN expatriate whole' (ie maintaining relativity to home country counterparts plus compensating for the costs of overseas service) rather than equal pay for equal work (Teague 1972). The main advantage of the former policy is that it allows multinationals to achieve the first objective of an effective international compensation policy to attract and retain employees qualified for overseas service. However, HCN employees tied to lower local wage rates and TCN employees tied to wage rates in their home country will invariably react negatively to these salary differences, since they will use an equal pay for equal work equity standard. Short-term solutions to this equity problem include keeping compensation practices secret, pacing PCN expatriates in both local currency and home currency so that the amount of local currency available to the PCN expatriate will match HCN disposable income patterns, and
One
—
limiting the use of PCN expatriate assignments to relatively short-term consulting
or training assignments. this dilemma is to ensure that compenmatch the organisation's international staffing policies. Such a strategy recognises that there is no ideal approach to international compensation. Rather, compensation policies should complement overall staffing policies so that
Perhaps the best long-term solution to
sation policies
advantages are optimised. Thus,
if a multinational opts for an ethnocentric staffing pohcy for its foreign operations, the logical compensation policy would be to keep the PCN expatriate 'whole' because an ethnocentric policy (if consciously adopted) indicates that PCN employees have skills and experience which HCN and TCN employees do not possess. The dysfunctional side of this policy (perceived lack of equity by HCN/TCN employees) would be less important or
significant than the functional
outcome of satisfied
PCN
employees. Similarly, a
multinational which adopts a polycentric staffing policy would opt to keep expatriates whole. This
would be
polycentric staffing policy implies that
most PCN
PCN
HCN
employees as a assignments would be short-term
less controversial
with
consulting or training assignments.
However,
if
a multinational aims to develop an international executive cadre
via a geocentric staffing policy,
it is
not logically consistent to keep
PCN employees
International perspectives of strategic
human
resource
management 337
whole and ignore HCN and TCN dissatisfaction. For example, most large US oil companies do not delineate between domestic and international operations since most product and regional subsidiaries have international activities. To develop a worldwide selection pool of managers, it is necessary to have a compensation structure with standardised international base pay with allowances and premiums based on the country of assignment (Robinson 1978). A system of international base pay would need to match the average US salary for each pay grade or particular position. This would be a major cost for the multinational company, but it is a precondition which must be met if a geocentric staffing strategy is to be successfully implemented. A second issue in international compensation is that of taxation and currency rate fluctuation. Tax equalisation programs are an important component of international compensation packages which must be regularly reviewed to account for change in home country and foreign tax laws. Many companies now have fairly well developed procedures for dealing with tax equalisation or seek advice from consultants. A less well known problem area is that of incentive compensation plans for foreign based executives. As Brooks (1985) has recently pointed out, US multinationals that rely on the performance of overseas operations for long-term success need to assess the appropriateness of their incentive compensation plans outside of the
US because the value of awards to foreign based executives
and HCN or TCN executives) is largely determined by and currency exchange rates and regulations. expatriate
A final
issue in international
(both
local tax
US
codes
compensation concerns the administration of the
and benefits function. Changes in the external environment (eg national tax codes, floating exchange rates) and a growing number of PCN and TCN executives are making the management of the compensation process increasingly complex. An empirical study of this process was conducted by Toyne and Kuhne (1983). The focus of this study was to determine how multinational companies organise the three principal management tasks associated with international compensation: policy and procedure development, financing and supervision and control. A majority of the 83 chief compensation officers who responded to the survey indicated that both policy/ procedures development and supervision/control were centralised at US headquarters while financing was less centralised and as likely to be located in a foreign subsidiary as US headquarters. With regard to financing, international compensation
total
worldwide
sales
was inversely related to the centralisation of the financing
suggesting that multinational companies
task,
may decentralise this task as their financial
more sophisticated. Further research should be conducted to determine whether these findings are indicative of how most multinational companies manage their international compensation fianction. system becomes
International training
The
and development
rationale for international companies investing resources in training and development programs rests primarily on the cost of expatriate failure. As Robock and Simmonds (1983, p 562) have noted, 'however imperfect training may be as
338 Readings
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human
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resource
a substitute for actual foreign living experience,
it is
valuable
if it
can reduce the
often painful and agonising experience of transferring into another culture and
avoid the great
damage
and
that culture shock
cultural misunderstanding can
do
to a firm's operating relationship'.
The need for international training and development becomes more apparent we examine the complexity of the role of the PCN manager Torbiorn (1985, p 59) has described the task of the PCN manager as one of 'realizing the expectaif
tions of a psychologically close, yet physically distant stakeholder in
containing other role senders
an environment
who are psychologically distant, but physically close'.
Because of the close link between parent company expectations and rewards, the will naturally pay close attention to these, but in the absence of
PCN manager
may well lack both
suitable training
the
skills
and motivation
tations of the host country stakeholders. Since
precondition for
Two additional problem areas concerning the domestic assignments.
on
all
is
invariably a
PCN success, such behaviour is clearly dysfunctional.
family
Firstiy,
members
expatriate assignment
initial
the
that for
since the stress associated with a foreign assignment
(Harris
& Moran
1979; Harvey 1985), training
programs directed towards the expatriate should Secondly, in addition to
make
and development more complex than
task of international training
falls
to attend to the expec-
HCN co-operation
also include family
members.
culture shock at the start of an overseas assignment,
many expatriates also experience a reentry or repatriation shock when they return to the parent company environment (Harvey 1985). The most common concerns to expatriate are personal finances, reacclimatisation to home country life, and readjustment to the domestic corporate environment. Failure to address repatri-
ation problems
companies are
may lead
to disillusionment
and
premium
for
willing to pay a
expertise (Kendall 1981).
To overcome
turnover, particularly when
many
an expatriate's experience and
repatriation problems, international
companies should develop training programs
to facilitate the reentry of expatriate
executives into domestic operations.
When looking at the issue of predeparture training, Tung's (1982) study of multinational training practices of 144 US, European and Japanese multinational companies found that the US multinationals tended to use training programs for expatriates less frequentiy than the European and Japanese firms (32% compared with 69% and 57% respectively). This finding is consistent with earlier research (Ronen 1986; Baker 8c Ivancevich 1971). Given this relatively low level
of training, the higher expatriate failure rates experienced by
US
executives
are perhaps less surprising.
Policy aspects of international training
A number
of writers (Edstrom
&
and development
&: Doz 1981) have suggested that the decision to transfer a manager may be for a number of reasons. The first and most obvious reason may be to fill a vacancy which has occurred. A second reason for a transfer may be to provide an opportunity for
management development.
Galbraith 1977; Prahalad
A third
reason
may be
that the organisation
is
using
International perspectives of strategic
transfers as a co-ordination
and control
A number of studies
cadre of managers.
human
resource
management 339
strategy to develop an international
(Edstrom
&
Galbraith 1977;
Ondrack
all three some 1985) have confirmed option (organisation development) tends to transfer policies, but that the third
that
be
restricted to
multinational organisations use
PCN employees only.
The experience of Australian companies The preceding
literature review discusses the issues highlighted
(mainly US) research studies in the area.
A major question
by previous
raised here
is:
What is
and importance of these issues to Australian companies? This is pertinent, as more Australian companies are expanding globally and die Australian government is actively encouraging local companies to become international in both outiook and operation. IHRM issues are therefore becoming important for the relevance
an increasing number of Australian companies. However, it is not clear what the major IHRM issues are for Australian companies. In the study which follows, focus is given to three of the issues highlighted in the literature: staffing policies, compensation, and training and development. These issues should be of primary importance to Australian companies, as they are to their US, Japanese and European counterparts. The following sector assesses whether this is in fact the case.
Research methodology and sample For the collection of data, a case study approach was used, with structured interviews of each company's personnel director, expatriate line managers (including returned managers and HCNs currently in Australia) and spouses. Additional data was obtained from company reports and newspaper articles. The topics covered during the research interviews were adapted from a study by
Ondrack (1985) and through
number of IHRM practitioners. During each interview, respondent's company was obtained in addition to a series of
consultation with a
information on the
and the HR function and details of international staffing and compensation policies. Four companies were selected for investigation. Two were Australian owned firms which had expanded internationally, primarily through strategic acquisitions questions concerning structure of international operations
of existing foreign competitors. Both of these firms were in the service sector.
Of
the other companies in the study, one was an Australian subsidiary of a multina-
and chemical company while the other was the regional international companies in the study appear in Table 21.3. It can be seen that the companies in this sample range from very large to relatively small. Total sales/revenue range from US$1129 million to US$62 716 million and total number of employees range from 4700 to 384 000. There is also a wide spread with regard to number of countries in which companies operate and length of time in which companies have been involved in intertional oil
division of an automobile manufacturer. Details of the
national operations.
340 Readings
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