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Choices and the
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
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
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 (Schulers
"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
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
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.
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).
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
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 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
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
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
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
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 todays 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
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
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. Todays 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.