Larry W. Hunter
Mastering Management, Part 11, The Financial Post

The management of people inside organizations is clearly a potential of competitive advantage for companies. Core competencies often depend critically on the management of people, for effective human resource management contributes to the creation of skills, fosters consistent effort by employees and reinforces cultures that foster productivity and quality.

This wisdom is now conventional, but its acceptance has been accompanied by a curious phenomenon. Simultaneously with the growing acknowledgement of the primacy of people in creating and maintaining an effective organization, human resource management (HRM) as both a term and as an organizational function has fallen into some disrepute. HRM has traditionally had two faces. On one side, it may be positively directed towards meeting workers' needs: improving wages and opportunity, providing a voice for workers, perhaps even ownership in the organization.

Some are troubled by this face, having seen HRM as a pernicious substitute for more independent forms of employee representation such as trade unions. And indeed many organizations operate on the theory that effective management of people can forestall the formation of independent organizations. But today this aggressively positive role actually exists independent of the HR function itself and is aimed not simply at forestalling unionization but at good management.

A generation of managers who have read Douglas McGregor and Abraham Maslow (or have, at the least, been taught by those who have read McGregor and Maslow), may not require a specialist function to tell them what workers want; they may even decide to give them some of it. Line managers see this face of HRM as innocuous, if a bit soft, and occasionally unconnected to business reality.

The other face of HRM is more troubling to both managers and workers. This is the face of bureaucratic compliance: with laws, with policies and procedures.

Today's human resource managers find themselves under criticism for doing what they have long been asked and expected to do. The elaborate systems they have set up to ensure that people are paid fairly, that relevant laws are followed, and organizational policies are enforced consistently and equitably throw bureaucratic obstacles into the paths of innovative managers and workers. All the while the function expends scarce organizational resources on tasks that in themselves appear to create little value for the company: producing pay cheques, enforcing arcane selection criteria, or designing elaborate and rigid job evaluation schemes.

The HR function is under increasing pressure to produce more with less, and is ripe for the application of "business process re-engineering." Consultants travel the globe offering to streamline human resource groups through work redesign, the more effective use of technology and outsourcing of much of the work to specialist companies. Indeed, Randal Schuler of New York University has argued that the HR function in American business must transform itself or face its own demise. One key to understanding the tumult in the HR profession is to cast it in a broader context. Human resource management happens inside companies whether or not there is a strong and effective human resource function. Whether human resource managers are to add value to organizations (Schuler’s "transformation") or line managers are to incorporate HRM into their daily job description (the "demise"), each must understand how the sets of policies and practices used to manage people can add value to or detract from organizational effectiveness.

That is to say, one must begin to understand contemporary HRM by seeing employment and labor relations in their entirety, with the full range of workers, labor and management practices in modern economies. One window into these relationships is to begin to understand human resource management as comprising the set of choices that organizations make about the way they will manage people. These choices might be organized and considered under a number of broad categories and I will focus on five here: staffing; training; work organization and job design; compensation; and employee voice and representation.

Organizations make choices in each of these areas, sometimes explicit; sometimes implicit. The choices are not unbounded, of course. Constraints in the broader environment --technology, the legal system or the state of the labor market -- circumscribe HRM to some extent. But the range of choice is often wider than managers realize. Consider each of the areas in turn as encompassing a series of choices for the organization.

Staffing

Who will join the organization and what are the criteria for selection? Should the company choose employees rather casually or, on the other hand, only after careful and costly searches? Should companies choose people for their ability to perform a specific range of tasks or because they seem to fit with a particular organizational culture? Promotion and career management also entail a series of organizational staffing choices. What are the criteria for promotion? Does the organization prefer to promote from within, rewarding service and loyalty, or hire from outside, seeking new ideas and skills?

Staffing also requires choices about the form that employment relationships will take. Should companies seek workers for long-term full-time relationships or, alternatively, establish any or many of a variety of forms of contingent employment, including part-time and temporary workers, outsourcing of particular tasks or functions, and the use of consultants and other externalized forms of technical expertise.

Employment security might be broadly guaranteed; on the other hand, such guarantees might be explicitly avoided or even broken (as in the current waves of downsizing).

Training

Human resource management implies choices about skill formation. Whose responsibility is skill development: the company's or the worker's? What level of investment in training is the organization prepared to make and for which workers? What sorts of skills are to be developed?

Will the company act creatively, training workers broadly to deal with a variety of potential situations or will training be more reactive, supplying workers with skills on an as-needed basis as technologies change or as staffing requirements demand it'

Work organization and Job design

Will jobs be broadly or narrowly defined? Will workers be organized into teams or fill individual roles? If there are to be teams, will those teams comprise specialists or generalists? Are jobs to be enriched or enhanced, the source of opportunities to exercise skill and autonomy? Or are they to be restricted and controlled, so that worker discretion and development are limited?

Compensation

Compensation clearly involves choices; though here constraints become most acute. In particular, labor markets and budgets may circumscribe the maneuvering room available to companies in this area.

Still, companies might choose to offer relatively low or relatively high levels of compensation in comparison to competitors or reference groups.

They also might choose different structures: backloading compensation so that the real payoff is on retirement or concentrating a large portion of pay in benefits, for example.

Another choice on top of level and pay structure reflects the company's decisions about the extent to which pay ought to be variable: over what time periods and for what reasons: the development of skills, the achievement of promotions or simply performance? And, if performance: individual performance, group performance, the performance of the entire organization? What share of the pay packet is to be placed at risk?

Employee voice and representation

Companies might choose to establish channels for monitoring employee concerns and providing employees with channels to communicate their views over the quality of working life, production issues or their rewards and treatment by supervisors.

These channels can be relatively passive (such as employee surveys) or more active (such as employee involvement committees). They may meet frequently, even daily, being built into the ebb and flow of daily work life (as with quality circles) or arise occasionally to address specific problems (as with increasingly popular focus groups). They may allow employees only to voice opinions or they may give real decision-making power to employees in any of a variety of areas.

Where workers are organized collectively, structures are more durable and likely to be more antagonistic, whether or not managers choose this route. Even then, managers make choices in dealing with unions. Do they avoid the union? Confront and challenge it? Seek to accommodate the union and to collaborate with it?

The high-performance workplace: where is it?

The challenge for contemporary human resource management is to see that as many of the choices as possible work in tandem to encourage and to enable the organization to achieve its goals and to create value. Value creation has a systemic quality and human resource practices must be considered both as they relate to one another and as they relate to the broader environment.

In many industries, for example, an explosion of information and telecommunications technologies creates the potential for individual employees to achieve great increases in productivity at consistently high levels of quality and to provide more effective customer service.

A first step towards the realization of the potential unleashed by this technology might be built on broadened jobs and enhanced employee discretion or empowerment. But consider what must happen in other aspects of human resource management in order to support this change.

If no attention is paid to skill development, employees may either not understand how to use the technologies or use them improperly. The organization must reconsider its approach to staffing -- effective recruiting and deployment of human resources -- lest it discover that its selection criteria are choosing people who are unable or unwilling to use the new technologies to work effectively or advancing people who are uncomfortable with devolution of decision-making.

And a reward system must provide incentives rather than disincentives for the sorts of behaviors that the new work organization expects: problem-solving, teamwork, contribution to organizational performance. Today's notion of a "high-performance workplace" comprises a set of practices similar to those just outlined. The high-performance workplace (HPW) features high employee involvement and lowered status differences between managers and workers, broader jobs and discretion for front-line employees, who are often embedded in a system of teamwork; a commitment by the employer to training; some component of performance-based pay; and careful selection of employees who are likely to fit into this system.

The specific details of the system may vary by context. Technology of production, for example, may circumscribe the latitude managers have to redesign jobs, so that teamwork looks like one thing in an auto plant and another in a retail bank. National institutions and cultural contexts also provide differences: Japanese high-performance workplaces feature a substantial biannual bonus for manual workers based on the performance of the company; U.S. companies may award pay raises based on team achievement or measurable skill development, for example.

A number of careful empirical studies suggest that these systems really do work to improve performance in key areas such as productivity, quality and adaptability. Further, the effects appear to be strongest when the HPW practices are implemented as a system: there is a synergistic effect that cannot be produced through the implementation of a few individual practices.

Yet, despite the evident allure of the system (and its clever name), we do not see companies rushing to adopt this model of HRM. Rather, innovations are often adopted piecemeal, if at all, and a substantial number of companies today seem to be more concerned about downsizing, cost-cutting and re-engineering than they do about implementing a high-performance workplace. Examining impediments to adoption sheds further fight on how one might think about the role of HRM in today’s organization. Why have companies not adopted the HPW?

As a first consideration, there is no reason to think that the sorts of capabilities fostered by the HPW are the only goals an organization might have. To take one obvious counter example, lower costs is also desirable. While it is well and good to invest in human resources for the long run, some of this investment may require quite clear out-of-pocket expenditure and take time to produce results. The environment -- for example, capital markets focused on quarterly statements -- may not permit such expenditure.

Companies therefore may consciously choose alternative paths toward the creation of value. Different paths may imply different approaches to the management of human resources. For example, a company may focus not on high quality, customization or adaptability but on predictably high levels of consistency -- in the treatment of individual customers, for example, or the production of simple, basic products -- at low cost.

It might therefore choose to limit employee discretion, to train only to produce these results and to pay the minimum necessary to retain workers able to carry out a limited range of tasks. And, of course, companies might especially seek to implement such an approach in regions or in countries with low wage rates, this may entail further disinvestments from alternative high-wage sites. What is more, the costs of HPWs are often more obvious, and easily measurable, than the benefits produced. Increases in training and changes in pay system require real expenditure. And many organizations have in place systems that distort the calculation. Focusing on numbers of employees rather than overall costs, for example, encourages the use of temporary workers who receive less training and have less alignment with the goals of the organization than do regular employees.

An organization may also consciously separate its approach to HRM for different segments of the workforce. A fast-food provider, for example, may embed its local management teams in something like an HPW, selecting them carefully, investing in their training and providing them with broad discretion and substantial pay incentives. Yet at the same time the same organization may choose practices for frontline employees that are designed first to control costs and second minimize discretion and maximize predictability. The above explanations seem reasonable and plausible (though, interestingly enough, they are only weakly supported by research evidence to date). They represent variations on the increasingly popular notion of "strategic human resource management," which suggests that companies might rationally choose different bundles of HRM practices in the pursuit of different sorts of organizational goals.

More troubling, but equally plausible, are other explanations for the failure of HPWs to diffuse more widely. First, there are a variety of institutional obstacles to HPWs beyond the control of the organization. Regulation and legal requirements may serve as impediments to adoption of particular practices. Some of this regulation may be justifiable on social grounds, but often it has arisen in an earlier context, and fossilized without accommodating changes in technology or the labor market. Disconnects between national and regional approaches to skill development and the needs of both employers and workers may also slow adoption of the HPW.

Second, full implementation of the HPW is necessary in order to reap its benefits, but such implementation requires a redistribution of power within the organization. Those who believe they stand to lose by the redistribution may resist change; this in turn makes the adoption of the system even more expensive

The HR function may be among the fiercest sources of resistance, posing obstacles to reform of compensation or hiring systems that would put more power in the hands of work teams, for example. Third, and related to the above point, is that there is a large gray area in which the costs and benefits of adoption are unclear. Here the norms and values of managers may act to encourage (or discourage adoption). For example, Paul Osterman of MIT found, in a large survey of American establishments, that organizations with cultures unsupportive of what he called "humanistic values" were much less likely than other organizations to adopt aspects of HPW, other things being equal.

Finally, many companies appear to operate under the impression that they can achieve strategic advantages in all areas at the same time: that they can be at once the lowest-cost, fastest-growing, most adaptable company in their industries and markets -- and maintain the highest levels of quality and customer service.

Or they hedge their bets, not knowing which of these attributes the market is likely to reward. This hedging may make sense from a market-based strategic perspective but attempts to be all things to all customers lead managers into incoherent bundles of practice. They may, for example, introduce an empowerment movement in an environment in which training costs are being cut to nothing, which is later condemned as a foolish fad because it failed to produce results. Or a pay-for-performance program in which employees are not given enough discretion be able to affect their actual performance in any significant way, so that they quickly become cynical about the whole initiative.

The role for HRM

Effective human resource management can no longer be concerned with simply executing a standard set of policies and procedures. Rather, it requires questioning and understanding the relationships between choices in managing people, the strategies and goals of the organization and the possibilities presented by the external environment.

HRM requires searching for sets of policies and practices that have a reasonable chance of producing capabilities that are valuable to the company. Whether or not it is explicit, these policies and practices are choices.

Where the organization has begun to choose policies characteristic of the high-performance workplace, this must be done with as clear an understanding as possible of the objectives of the organization, the costs of introducing the program, and the value of the new capabilities the program is expected to create.

Perhaps most crucially, HRM requires to marrying the external and internal environments of the company. Today's competitive environment features rapid technological change.

Markets are increasingly global: product markets, capital markets, labor markets. Labor markets, particularly, as they are considered globally, feature increasingly diverse work force, comprising not men and women with different sorts of career objectives, but potential workers from diverse cultural, ethnic backgrounds.

New technologies may require teamwork; diversity, on the other hand, may present challenges to teamwork unless it is managed properly. Today’s HRM, then, requires that managers ask the following questions:

• What do we want our system of HRM to produce and reinforce, what skills, what behaviors? What strategic capabilities do we believe our choices of managing people will create? Do these capabilities have enough value in today's marketplace to make them worth the investment? What are the alternatives?

• To whom are we directing which kinds of HRM? For example, which groups of managers and workers should be matched with our lead strategy and who should be treated differently (and by what logic)? Should those we treat differently be in the company at all?

• Do we have a plan for getting there from here? Where immediate cost pressures may seem acute, will steps taken to address these problems (such as slashing payroll) destroy the organization's chance to survive in the long run? Or are they necessary if the company is to move into the future on a sound footing? If the answer is that drastic measures are necessary, is there a clear plan in place to use HRM to create competitive advantage once costs are reduced?

This question-raising path may be risky for individual managers to engage in but it is a prerequisite for organizations if they are to manage human resources effectively. The process may also be frustrating, for many answers will not be explicit: costs and benefits of particular approaches cannot be known with certainty.

It is possible that HR professionals in organizations can reposition themselves to play this role, even as they continue to strive to make their own staffs more efficient. Professionals familiar with these issues have begun to describe themselves as internal consultants, with line managers as their clients, or customers, for example.

But line managers may be equally interested in joining the fray, particularly where they see deficits in the approach of the organization to HRM: where job structures and work design seem inefficient, where skills are short or pay systems unsatisfactory for achieving desired goals.

In either case, the future of HRM does not lie in progressive initiatives unconnected to business goals or organizational and environmental realities. Neither does it lie in the production of standardized sets of best practices. Rather, it lies in ensuring that the choices made in managing people are made sensibly with clear purposes in mind.