Although “human resource management” is a phrase which has been in use for over 40years, it did not come to the fore as a distinctive approach to managing people until the mid 1980s, when it became generally known as “HRM”. The vocabulary for managing the employment relationship has undergone a change. “Personnel Management” has increasingly given way to “human resource management” (HRM) or, better still to “strategic human resource management” (SHRM).
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It was charted/noticed in the writings of US academics and managers (for example, Tichy et al., 1982; Fombrun et al., 1984; Beer et al., 1985; Walton and Lawrence, 1985; Foulkes, 1986). This was, however, taken up by both UK managers (for example, Armstrong, 1987; Fowler, 1987) and UK academic (for example, Hendry and Pettigrew 1986; Guest, 1987; Miller, 1987; Storey, 1987; Torrington and Hall, 1987). By the end of the 1980s and the beginning of the 1990s it became a common term. Strengthening this change was the emergence, in 1990, of two new academic journals – Human Resource Management Journal and International Journal of Human Resource Management. It heralded the pushing-aside of “personnel-management” and the solidification of HRM. Perhaps the most important reason why HRM emerged as the dominant philosophy for managing people in the 1980s is that chief executives, prompted by economic and business trends, and the view of a number of influential writers such as those mentioned above and Kanter (1984), at last began to appreciate that competitive advantage is achieved through their employees i.e. the people who implement the corporate plan, and that they must do something about seeing that it happens in their own organisation. Porter (1985), another highly influential writer captured this view when he wrote: “HRM is an integral part of the value chain at firm level”.
The impact of global competition, complexity, technological change and shifts in employee values have affected UK as well as US chief executives, and it has been said by Fowler (1987) that “HRM represents the discovery of personnel management by chief executives”. For years, chairmen in their annual reports have been paying lip-service to the message “people are important”. Now, however, competitive pressures from one-culture, high-commitment firms, and changes in employees’ expectations have indicated the need for action instead of words to obtain fuller use of their human resources.
Having said all these I intend to discuss HRM in perspective, its various strategic interventions (SHRM) and analyse/focus more on Performance Management. I will also highlight the challenges and benefits of this strategic intervention using a particular model and how it truly improves an organisation’s effectiveness.
A common theme within the human resource management (HRM) literature in recent years has been the adoption of HRM practices designed to achieve high levels of employee performance, flexibility and commitment. Here, human resource (HR) practices are placed in a much more direct relationship with organisational policy making and performance issues than traditional approaches to personnel management (Bach and Sisson, 2000). In the 1980s, original writers in the area of human resource management (HRM), Beer et al. (1984), stressed that in the face of increasing international competition, organisations had to focus on the value of investments in human resources as a major source of competitive advantage. The transition from personnel management to HRM reflects this emerging organisation-wide commitment to human capital development. The change, however, has activated considerable discussion within the academic literature about the successful strategic positioning of, and responsibility for, HRM (Beer, 1997; Dyer and Holder, 1988; Guest 1987; 1989).
The effective use of diverse/different people seems to be the primary assets of any organisation aside from its financial, technological and physical resources therefore it has to be managed effectively and strategically. What then is HRM? There are quite a few descriptions :
Beer et al (1984) “Human resource management involves all management decisions and actions that affect the relationship between the organisation and employees – its human resources.”
Pettigrew and Whipp (1991) “Human resource management relates to the total set of knowledge, skill and attitudes that firms need to compete. It involves concern for and action in the management of people.”
Bratton and Gold (2003) “Human resource management is a strategic approach to managing employment relations which emphasizes that leveraging people’s capabilities is critical to achieving sustainable competitive advantage, this being achieved through a distinctive set of integrated employment policies, programmes and practises.”
As you can see, the emphasis is, first, on the interests of management, secondly, on adopting a strategic approach, thirdly, on obtaining added value from people by the processes of human resource development and performance management and, finally, on gaining their commitment to the objectives and values of the organisation.
We can therefore identify the following as basic characteristic features of HRM:
- It is a top-management driven activity;
- The performance and delivery of HRM is a line management responsibility;
- It emphasizes the need for the integration of business and personnel strategies;
- It involves the adoption of a comprehensive and coherent approach to employment policies and practises;
- Importance is attached to strong cultures and values;
- It places emphasis on the attitudinal and behavioural characteristics of employees;
- Employee relations are unitarist rather than pluralist, individual rather than collective, high trust rather than low trust;
- Organizing principles are organic and decentralised with flexible roles and more emphasis on teamwork;
- Rewards are differentiated according to performance, competence or skill.
It is however important to note that these characteristics will be applied in many distinctive ways in different organisations. HRM as practised in America, UK, India, Nigeria or anywhere else will have features which will be affected by economic and political environment, and the industrial relation climates and practices of the country. HRM as practised in any country will depend on the culture and tradition, structure, technologies, products and markets of these countries. Drawing on Squire’s (2001) work, these practises suggest three basic questions:
(1) what do HRM professionals do? (2) what affects what they do? and (3) how do HR professionals do what they do? Firstly, to understand what HRM professionals do we can identify 8 key HRM functions, policies, programmes and practises designed in response to organisational goals and contingencies, and managed to achieve those goals. These functions contain alternatives from which managers can choose. The functions are:
(1) Planning; (2) Staffing; (3) Developing; (4) Motivation; (5) Maintaining;
(6) Managing relationships; (7) Managing change and (8) Evaluating. Secondly, to identify what affects what they do, we must understand that HR activities that managers undertake vary from one workplace to another. These variations may be due to the following:
(a) external effects (economic, political, legal regulations, social aspects,etc)
(b) strategy and
(c) organisation (size, work and structure, technology,etc). Lastly, how do HR professionals do what they do? This points to the means or skills by which they accomplish their managerial work. These could include technical, cognitive, and interpersonal skills and processes according to Squire’s (2000) work.
Thus far, I have tried to analyse the origin of HRM and its meaning. I have also shown how it contributes to the functioning of work organisation. Now, this is the important part of my discourse – the defining features of HRM – the theoretical perspectives. Practice without theory, they say, is blind, Hyman (1989).
Models of HRM
Like I pointed out before, the extent to which HRM is applied, and how it is applied, will vary considerably according to the type of organisation and the environment in which it operates. This will be governed by the policy goals of the enterprise and may be hard or soft depending on the philosophy of top management. But we can identify five major HRM models ( The Fombrun, Tichy and Devana model: developed by the Michigan school ( Fombrun et al, 1984); The Harvard model: the analytical framework of the Harvard model offered by Beer et al. (1984); The Guest Model (David Guest , 1989,1997), The Warwick Model (Hendry and Pettigrew, 1990) and the Storey Model (Storey, 1992) that seek to demonstrate analytically the qualitative differences between traditional personnel management and HRM. These models fulfil at least 4 important intellectual functions for those studying HRM:
(1) they provide an analytical framework for studying HRM ( like stakeholders, situational factors, strategic choice levels and notions of competence and commitment)
(2) they legitimate certain HRM practises/interventions
(3) they provide a characterisation of HRM that establishes variables and relationships to be researched and
(4) they serve as a heuristic device – something to help us discover and understand – the nature and significance of key HR practices/interventions.
The Fombrun, Tichy and Devana model
For my discourse here, I shall be applying the above model, (Fig 1), which emphasizes the interrelatedness and coherence of HRM activities/practises or interventions. They introduced the concept of strategic human resource management by which HRM policies are inextricably linked to the formulation and implementation of strategic corporate and/or business objectives (hence the name “matching model”). This HRM ‘cycle’ in their model consists of four key constituent components: selection, appraisal ( performance management), rewards and development, these four human resource activities aiming to increase organisational performance. The strength of the model is that it expresses the coherence of internal HR policies and the importance of ‘matching’ internal HR policies into the organization’s external business strategy. What makes the model particularly attractive for many personnel practitioners is the fact that HRM assumes a more important position in the formulation of organisational policies. This model ultimately introduced the concept of strategic human resource management (SHRM) (Fig 2). A strategic orientation provides the framework within which a coherent approach can be developed to the creation and installation of HRM policies, system and practises or interventions. SHRM is concerned with those decisions which have a major and long-term effect on the employment and development of people in the organization and on the relationships which exist between its management and staff. It will highlight how the organization intends to manage its human resources. These intentions provide the basis for plans, developments and programmes for managing change
Hendry and Pettigrew (1986) amplify this with the following: use of planning; a coherent approach to the design and management of personnel systems based on an employment policy and manpower strategy, and often underpinned by a “philosophy”; matching HRM activities and policies to some explicit strategy; seeing the people of the organisation as a “strategic resource” for achieving “competitive advantage”. Guest (1992) argues that such a coherent approach to human resource management policies can also lead, via the generic HRM outcomes of strategic integration, commitment, flexibility/adaptability of the workforce and quality (all necessary ingredients when developing a competitive edge), to the following benefits to the organisation which has adopted SHRM:
- High job performance;
- High problem solving, change and innovation;
- High cost-effectiveness; and
- Low turnover, absence, grievances.
Storey (1992) adds to this list attitude and behaviour changes amongst the workforce, resulting in highly desirable increases in competitive performance.
Grant (1991) sums up a now-widely-held view that “capabilities are the main source of a firm’s competitive advantage”. SHRM aims to provide the framework within which these key characteristics can be fostered. In essence, SHRM requires a holistic approach, with not only an internal integration between HR practices/interventions(recruitment, selection, rewards mechanisms, appraisal performance management), but also an integration between those practices/interventions – summarised in an HR strategy – and the organisation’s strategy overall. Thinking holistically about HRM may lead to a greater degree of success simply because changes envisaged in one area of an organisation (e.g. structures) are more likely to work because all the knock-on effects of such a change have been considered (e.g. recruitment, selection and induction policies).
Summarily, SHRM ensures that the culture, style and structure of the organisation, the quality, commitment and motivation of its employees, contribute fully to the achievement of business objectives.
HR Strategic Interventions
Based on the model I am discussing on – I shall look briefly at the practises/interventions: recruitment/selection, rewards, human resource development but focus more on performance management.
Selection: This is one of the major practices carried out by any organization in ensuring the selection of the right people to join its workforce (IRS, 1999a). The selection(recruitment) process is concerned with identifying, attracting and choosing suitable people to meet an organisation’s human resource requirements. While recruitment is “searching for and obtaining potential job candidates in sufficient numbers and quality so that the organisation can select the most appropriate people to fill its job need” (Dowling and Schuler, 1990); selection is concerned more with “predicting which candidates will make the most appropriate contribution to the organisation – now and in the future” (Hackett, 1991). There has been correlational data, Terpstra and Rozell (1993) supporting the conclusion that organisations using a wide variety of selection procedures (such as interviews, cognitive ability test, bio data and the evaluation of recruiting sources, etc) had higher levels of overall performance, annual profit, and growth in profit.
Rewards: Reward management is the process of developing and implementing strategies, policies and systems which help the organisation to achieve its objectives by obtaining and keeping the people it needs and by increasing their motivation and commitment, Armstrong and Murlis (1991). It is also central to the effective management of the employment relationship. It is not just about money but also concerned with intrinsic as well as extrinsic motivation; with non-financial, as well as financial rewards. This motivates and leads directly or indirectly to the satisfaction of many needs. It can act as an incentive to improve performance and as a way to recognise success in a highly tangible way.
Human Resource Development: Human resource development comprises the procedures and processes that purposely seek to provide learning activities to enhance the skills, knowledge and capabilities of people, teams and the organisation so that there is a change in action to achieve the desired outcome. It incorporates traditional views of training and development but seeks to extend attention to learning throughout an organisation as a strategy to cope with change. The idea of ‘learning’ at work has become an obvious good thing, and this has led to growing interest in HRD as a profession and its theoretical development, although there are continuing debates about the meaning of HRD. There is evidence to suggest that learning has an impact on an individual’s earning power and employment prospects.
Performance management can be defined as a ‘strategic and integrated approach to increasing the effectiveness of organisations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors’, and also can be seen as a ‘continuous process involving reviews that focus on the future rather than the past …. (Baron and Armstrong, 1998: 38-39). Performance management, unlike the performance appraisal or annual evaluation process, is an ongoing assessment of employees in a manner geared to match their goals to the organizational goals. It also makes strong use of goal-setting and metrics to identify progress and areas of individual strengths.
It is important to point out here that employees, as well as supervisors, are often confused by the differences between performance management systems and performance appraisals. Performance appraisals, also called Performance evaluations are tools used to measure the effectiveness of an employee; most organizations conduct performance appraisals once a year during an annual evaluation process. A performance management system, however, is much more dynamic. It can use the performance evaluation tool but also incorporates other elements into the performance management cycle. The overall aim of PM is to establish a high performance culture in which individuals and teams take responsibility for the continuous improvement of business processes and for their own skills and contributions within a framework provided by effective leadership.
History and Evolution of Performance Management and Appraisal
Performance management systems, in various forms, have been employed for nearly two millennia. In the third century AD, the Chinese were not only using performance appraisal systems but were critiquing each other’s biases in their evaluations of their employees
(Murphy and Cleveland, 1995; Evans, 2004). During the Industrial Revolution of the 18th century, factory managers became aware of the importance of their employees’ performance on their production outputs (Grote and Grote, 1996; Murphy and Cleveland, 1995). The development of the philosophy of performance evaluation systems in America has been attributed to such researchers and philosophers as Peter Drucker and Douglas McGregor, who developed ideas of management by objectives (MBOs) and employee motivation (Evans, 2004; Murphy and Cleveland, 1995). Spreigel reported in 1962 that by the early 1960s more than 60% of American organizations had a performance appraisal system. The system’s popularity stemmed from the Army’s implementation of a performance management system for its officers (Murphy and Cleveland, 1995). Since then, researchers have continued to develop theories of how different performance evaluation methods can contribute to the success of the organization.
Elements of Performance Management
Armstrong (2006) identifies the five elements of performance management as agreement (of employee, unit, and organizational goals), measurement, feedback, positive reinforcement and dialogue (contingency management). These ensure that the performance management process is positive, successful and a boost to employee improvement. Continued feedback and assessment is key to the performance management process as shown in the performance management cycle (Fig 3). There are four main elements of the planning portion of the performance management cycle: role creation and development, objective planning, assessment and development planning. The first step, role creation and development, is important because an employee must understand his or her role in the organization before the performance of that role can be fairly assessed. By first defining the employee’s goal, a supervisor can then align the employee’s objectives with the organizational goals. In performance management, employers provide continuous appraisal through feedback and re-alignment of goals based on performance. Unlike the annual evaluation process, most performance management systems are designed to meet the changing needs of both the organization and the employee. The following are the aims of PM as expressed by a variety of organisations (source IRS, 2003):
Empowering, motivating and rewarding employees to do their best. Armstrong World Industries
Focusing employee’s task on the right things and doing them right. Aligning everyone’s individual goals to the goals of the organisation. Eli Lilly & Co
Proactively managing and resourcing performance against agreed accountabilities and objectives. ICI Paints
The process and behaviours by which managers manage the performance of their people to deliver a high-achieving organisation. Standard Chartered Bank
Maximising the potential of individuals and teams to benefit themselves and the organisation, focusing on achievement of their objectives. West Bromwich Building Society
The organizations that have chosen to use a performance management process have often done so because the annual evaluation process has failed to meet their appraisal needs. The constant communication loop of performance management enables organizations to meet both the goals of their organization and the development and feedback needs of their employees. In contrast, the annual evaluation process, which is retrospective in nature, provides no formal opportunity for employees to receive feedback about their performance, request development to increase their efficiency or ask for new goals during the year.
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Role Creation and Development
In order for performance management to be effective, an employee must have a clear understanding of his or her organizational role and responsibilities. Armstrong says that the role profile “defines the role in terms of the key results expected, what role holders are expected to know and be able to do and how they are expected to behave in terms of behavioural competencies and upholding the organizations’ core values”. Defining the core competencies for each employee is one step in effective goal creation because it allows the supervisor to communicate personalized feedback.
Effective and “SMART” Objectives Creation
There are many different kinds of objectives in an organization. Armstrong identifies that effective objective-setting “results in an agreement on what the role holder (employee) has to achieve” and “is an important part of the performance management processes of defining and managing expectations and forms the point of reference for performance reviews”. He also identifies the following types of objectives:
1. ongoing role or work objectives: based on the job description
2. targets: quantifiable goals that should be met
3. tasks/projects: specified results or product
4. behavioural expectations: outlines desirable and undesirable behaviours
5. values: outlines the values of the organization
6. performance improvement: areas that need improvement
7. developmental/learning: provide specific areas to meet improvement needs
Luecke (2006) notes that effective objectives are recognized as important, clearly written in specific terms, measurable and framed in time, aligned with organizational strategy, achievable but challenging and supported by appropriate rewards. Armstrong provides the “SMART” mnemonic, to help set effective objectives
S = specific/stretching
M = measurable
A = achievable/achievable
R = relevant
T = time framed
The creation of appropriate, measurable objectives is key to the performance management process; they provide a framework for assessment and, without them, the performance management system would fail.
Assessment of Goal Achievement
After defining roles and setting goals, the manager and the employee must determine whether the employee had been successful during the assessment period. If the goals are “SMART,” then assessing the employee’s performance will be simple: if the employee met the specific goal within the time frame designated, then the assessment would be a positive one. The most important aspect of the assessment is the performance review. There are many ways to conduct performance reviews. Some organizations conduct reviews at certain intervals throughout the year; others create a timeline based on the goals developed.
Many organizations have employees conduct a self-evaluation prior to the evaluation meeting; Aguinis (2007) identifies that “self-appraisals can reduce employees’ defensiveness during an appraisal meeting and increase employee satisfaction with the performance management system, as well as enhance perceptions of accuracy and fairness and therefore acceptance of the system”.
Both employees and employers have historically disliked the performance review process. Armstrong reports that most appraisals have existed in a vacuum, with little or no relation to the workplace: “employees have resented the superficial nature with which appraisals have been conducted by managers who lack the skills required, tend to be biased and are simply going through the motions”. In order to have a productive, positive performance review, Aguinis identifies six recommended steps:
1. Identify what the employee has done well and poorly by citing specific positive and negative behaviours.
2. Solicit feedback from your employee about these behaviours. Listen for reactions and explanations.
3. Discuss the implications of changing, or not changing, the behaviours. Positive feedback is best, but an employee must be made aware of what will happen if any poor performance continues.
4. Explain to the employee how skills used in past achievements can help him overcome any current performance problems.
5. Agree on an action plan. Encourage the employee to invest in improving his performance
6. Set up a meeting to follow up and agree on the behaviours, actions, and attitudes to be evaluated.
After creating goals and assessing progress, the employee and employer have identified areas that can be improved; the action plan for this improvement is called development planning. This
development plan ensures that employees will continue to meet the needs of the organization through the identification of their weaknesses and the opportunity to address them through workshops, classes, and other educational channels.
Quantitative and qualitative advantages
The literature findings suggest that the introduction of SPM has a positive impact in terms of revenues, sales and net profit. Various studies (Malina and Selto, 2001; Sim and Koh, 2001; Braam and Nijssen, 2004; Neely HYPERLINK “#idb49″et al.HYPERLINK “#idb49”, 2004;) identified that organizations implementing and using SPM systems were able to achieve an increase in revenue, an increase in profit, a reduction in costs, and a higher ROA. These studies also indicate that organizations that initially used an SPM system suffered decreased results when they reverted, for whatever reason, to traditional measurement systems. Other studies (Kald and Nilsson, 2000; Sim and Koh, 2001; Neely HYPERLINK “#idb49″et al.HYPERLINK “#idb49”, 2004;) showed that organizations using an SPM system experienced a myriad of qualitative benefits, such as improvement in internal communication of the strategy, closer collaboration and better knowledge sharing and information exchange between organizational units, strengthened focus on what is important for the business, more focus on the achievement of results, higher quality of performance information, better strategic alignment of organizational units, higher operational efficiency, improvement of management quality, better understanding by people of the organizational strategy, higher commitment of personnel to the organization, more clarity of people of their contribution towards achievement of the strategy and organizational goals, higher innovativeness, better achievement of organizational goals, more pro-activity, more clarity for people about their roles and goals, more effective management control, higher employee satisfaction, stronger process orientation, strengthened reputation of the organization as a quality firm, and a better strategic planning process.
Quantitative and qualitative disadvantages
Literature findings also show that PM systems are not without disadvantages. Various studies (Kald and Nilsson, 2000; Sim and Koh, 2001; IOMA, Business Intelligence at Work, 2005; Neely HYPERLINK “#idb49″et al.HYPERLINK “#idb49”, 2004;) stated that organizations experienced disadvantages after the implementation and subsequent use of SPM but only in non-financial performance terms, no quantitative disadvantages were found in the literature. Disadvantages reported are:
- too many performance indicators;
- not enough strategic information in the system;
- too much internal competition;
- too expensive and too bureaucratic;
- performance indicators too subjective and therefore unreliable;
- performance information too aggregated;
- too much financial information; and
- too much historical information.
Because of these incredibly negative effects that an improperly conducted performance management system can have on an organization, the system must be implemented thoughtfully and executed consistently.
Performance management, unlike traditional annual evaluation, provides employees with feedback throughout the year. The system allows constant re-evaluation of goals, progress and performance. This process requires more interaction between the supervisor and supervisee and encourages the professional development of the employee to meet the organization’s changing needs. While this more dynamic evaluation process is time-consuming, the increased productivity levels resulting from performance management have proven to be valuable to many organizations. Lord Kelvin once said:
When you can measure what you are speaking about, and express it in numbers, you will know something about it [otherwise] your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in thought advanced to the stage of science (cited in Fisher, 1990). So I believe that performance management (which also details performance measurement) is a very vital HRM strategic intervention.
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