E1 Organisational Management

Module: 05

Human Resource Management

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1. Human resource management (HRM)

It can be hard to think of people as resources but that is what we are! Much

like any other resource in an organisation, human resources must be

managed.

While human resources (HR) is typically thought of as relating to typical

people-based activities in organisation such as recruitment and training, it can

include anything that relates to the management of people in the

organisation. Back in 2010, Unilever initiated a new project called the fit

business programme which involved giving staff health checks, fitness

information and revised on-site menu options. A quarter of all of those

involved in the pilot scheme reported a weight loss. Unilever has seen an

improvement in both the health and productivity of its workforce since this

initiative and employees are said to be happier too.

So, as we can see, all aspects of people-based operations come under the banner of HR. The formal definition is a little heavy though. Human

resource management is defined as: the process of strategically

aligning a company's human assets to the needs of the business.

Let's examine this in a little more detail. Let's say the needs of the business

are to produce high quality products quickly and efficiently. Recruiting skilled

staff is a critical element of that – the greater their skill the higher quality the

products and the quicker they'll work. As is training people; the better their

training the better their quality of work and speed. But is Unilever's fit

business programme? Well yes – the results of improvement in productivity

and staff well-being support the organisation's needs too. The key thing to

notice about this definition is that it's not just 'anything people related', it's

about aligning those people elements of the business with its objectives,

making it a strategically important task.

Function

HR departments are chiefly responsible for functions relating to

employees on a personal level, these functions can include:

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Selection

Choosing the right people for the job e.g. right skills, experience, personality

and qualifications.

Training

Ensuring employees have the right skills to do their work through training

and development programmes.

Assessment

Assessment of staff performance, including management of performance

appraisals to ensure employees are meeting their targets and obtain

feedback on how to improve.

Rewarding

Making sure employees are adequately compensated for their services and

that they receive sufficient recognition for their contribution to the business. Includes pay, bonuses, pensions and so on.

Employee relations

A productive workforce will have a positive impact on the business whilst a

toxic environment will have the opposite effect. The HR department are responsible for maintaining a healthy working environment where staff

are motivated and the helping to reduce conflict for instance between

unions and management.

In order to keep the best people, jobs at the organisation must be seen as an

attractive opportunity for the individual. For example, an individual

looking for a job is less likely to be interested in an organisation if they have a

reputation for treating staff poorly. This perception, whether true or not, can

affect the quality of applicants which in turn can affect an organisation’s

ability to meet its strategic objectives. The HR department is responsible for

the general ‘employee experience’ relating to how staff feel about the

organisation.

Legal Representation

HR are responsible for ensuring the organisation abides by HR related law

such as minimum wage and equal opportunity laws. A company’s HR

department is also the front-line representative during legal disputes

between a company and its employees and is also a company’s

representative when negotiating with trade unions and another employee

organisations.

Other activities

They also have involvement in all other people related activities such as the

changing the organisational structure/hierarchy and presiding over

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cultural and strategic changes.

Hard vs Soft HRM

Human resources management can be viewed as having two perspectives:

Hard HRM – staff are a resource of the business who must be recruited and

managed, but they are no more important than other resources. Pay and

benefits are set at a fair but basic level. e.g. a factory.

Soft HRM – staff are the key resource of the business and human

resources one of the most important keys to business success. Pay is high,

benefits are significant, recruitment and training are given significant budgets

and a key priority. e.g. a consultancy practice

Personnel vs Human Resources Management

We can contrast the strategic role that human resources take with the

situation of an organisation not treating their staff as being a strategic

resource. In this instance staff management is known simply as personnel.

In this case the 'personnel department' simply undertake the staff-based

tasks as noted above from an operational perspective, but without being

part of the strategic plan, but more as a function that simply must be

undertaken. Staff must be recruited, trained and paid and personnel perform those functions. Often in this scenario staff are seen as being motivated by

pay and they need to be well supervised to ensure they work effectively.

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2. History, development and work study

The industrial revolution

So, now for a bit of history! During the industrial revolution, large employers

and large-scale production became commonplace. The conditions in these

factories, or workhouses, would often be poor and would operate with little

regard to the employee’s well-being. Think of a tale by Charles Dickens and

you’ve probably got it spot on!

In this time staff were seen as lacking self-motivation and their only reason for

working was to be paid. As such theories were developed which aimed to

maximise the use of this key resource by controlling people through rules

and procedures and severe disciplinary penalties for non-conformance.

Probably the best known was developed by Frederick Taylor.

Taylor and ‘Scientific Management’

Let's say Joe runs a doll factory and wants to find the optimum speed for his production lines which would maximise productivity. He begins an

experiment, he sets his 1st production line to 2 miles per hour, the 2nd to 4

and the 3rd to 6. Then monitors the results.

On the first production line employees have plenty of time to fix their part of

the doll correctly and to the required standard. However, they are often left at

the conveyor-belt watching as the next piece has not arrived in their station

by the time they are ready.

On the third production line quality has gone down and stress levels have

risen as the employees are being worked too hard and as a result making

mistakes.

However, on the second production line productivity is up. Here every

employee has just enough time to put their piece onto the doll without being

rushed. As soon as they have finished, the next piece arrives. As a result,

Joe decides to run all of his production lines at 4 miles per hour. This is in a sense what scientific management is, using research, experimentation

and variation of different variable factors to find the 'optimum' solution

for the business!

Where did that idea start? Frederick Taylor's theory of scientific

management began as a paper published in 1881. This paper was concerned

with making the practice of cutting metal more efficient and was first

developed during his work at the Bethlehem Iron Company in Pennsylvania.

By the time of the publication of The Principles of Scientific Management in

1911 Taylor had moved into academia, holding a professorship at Dartmouth

College in New Hampshire.

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Taylor's principles can be condensed into four main points:

• For every employee, a scientific method for their work should be created. The optimum working approach and methodology

should be developed by analysing the role, conducting work

studies, and formulating the new process in writing.

• For every employee, ensure that they are selected and trained specifically for their line of work. A physical job, for instance, will need a healthy, strong worker trained in that specific activity.

• Cooperation between workers and management so that workers follow the scientific principles to the best of their ability and managers guide and support them in doing so.

• Allocate time effectively, with managers spending most of their time

planning (rather than supervising) and workers working. This involves

workers taking on some responsibility for the task even when not being supervised.

As a result of these methods, Taylor managed to lower the workforce

responsible for shovelling coal at the Bethlehem Iron Company from 500

down to 140, one example of his work being the optimisation of shovel size to

maximise the amount of coal that could be shovelled over the course of a

worker’s shift. Much like Joe's production line, he trialled a whole variety of

different shovel sizes until he found the one that worked best and then gave

all the men the optimum type of shovel.

Although Taylor achieved significant efficiency improvements there are also

problems with scientific management. Taylor’s theory was ultimately

flawed in so far as it made several assumptions such as the expectation that

every employee would be able to rationalise the effort required against the

reward gained. In addition, the constant instruction and supervision

combined with no flexibility for the worker could have a negative effect on

employee morale.

In summary the key problems were as follows: • De-motivated employees, doing standardised, boring jobs by the rule

book. • A lack of flexibility of approach. • Union conflict; particularly when redundancies came from his

efficiency measures and over changes to roles and working conditions.

• A lack of focus on the team and team working and its importance in motivation and productivity.

To make the assumption that Taylor’s theory is no longer relevant however,

would be incorrect as Taylor’s influence can be seen today in areas which

are highly process-driven such as on manufacturing production lines,

running monthly accounting reports or running a fast food restaurant such as

McDonald’s.

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Human relations

“Western business people often don't get the importance of establishing

human relationships,” said Daniel Goleman, author of Emotional

Intelligence. But Joe does, so perhaps this management technique is for

him! Elton Mayo’s research conducted under the Hawthorne Studies of the 1930s showed the importance of groups in affecting the behaviour of

individuals at work. He carried out a number of investigations to look at

ways of improving productivity, for example changing lighting conditions in the

workplace.

These were initially Taylorist, scientific management studies. What he

found however, was that work satisfaction depended to a large extent on the

informal social pattern of the work group where norms of cooperation and

higher output were established. Personal motivation and group and team

working, he concluded, were vital to an organisation’s success.

In summary Mayo said that:

Individual workers cannot be treated in isolation but must be seen

as members of a group.

Monetary incentives and good working conditions are less

important to the individual than the need to belong to a group.

Informal or unofficial groups formed at work have a

strong influence on the behaviour of those workers in a

group.

Managers must be aware of these 'social needs' and cater for

them to ensure that employees collaborate with the official

organisation rather than work against it.

This was in contrast to the ideas of scientific management and bureaucracy

that had dominated management theory to this point and led the way in a

school of management thinking that considered worker motivation, and

group dynamics as critical to the success of organisations.

While Joe's production line is mostly organised by standard processes

on his production line, it is important that he also considers the teams

he has at work, how they work together and their motivation. This

combination of an excellent process and motivated teams could

ensure his organisation is even more effective in future.

From the 1930s onwards therefore, the management of groups and people's

motivations became more important in management of people at work.

Human resource management

In the 1980s the term/idea of ‘human resource management’ arrived

suggesting that a company’s workforce was a critical asset and could be

strategically deployed to meet the organisation's strategic objectives.

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HR programmes were designed from the business strategy downwards.

In Joe's case he would decide on his organisation's goals, perhaps to produce

the best quality dolls in the market, and then consider what he would need to

do staff-wise in order to achieve that goal – most likely to employ skilled staff,

train them well and keep them motivated.

Human Resource Management also identified three key areas which must

be present for an employee to fulfil business needs:

Ability

The employee must have the necessary skills, knowledge and if required,

the experience, to cope with the job/role and meet the company’s

expectations.

Opportunity

The company must provide a working environment where an employee

can be productive and has the chance to show what they can do.

Motivation

In order for an employee to meet expectations staff must have the desire to work

hard and productively.

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3. HR planning

Joe currently has 100 employees in his factory with makes Dolls. However,

it's now the nearing the end of summer and he'll need to ramp up production

ready for the Christmas season. During this period, he needs the equivalent

of 150 staff. He typically loses 10% of all staff each year, and so needs to

bear this in mind too. Joe will need an HR plan...

He decides to give existing staff overtime and consults with them to see how

many extra hours they'll be able to work. This would cover enough work for 20

employees. Next, he works out that he's likely to lose 3 staff in the next few

months due to natural staff turnover. That means he needs 33 new staff on a

temporary basis and runs a recruitment campaign. He then provides training

to bring those new staff up to speed. As Christmas approaches, he asks 6

staff to stay on longer term to replace those that left and those he expects will

leave in the next few months and the contracts of the other 27 are allowed to

lapse.

As we can see, for Joe, his HR planning is critical to meeting his production

targets and is a key activity for him.

Let's see a formal definition. HR planning is the process of deciding on and

planning the organisation’s structure, pay, recruitment, training and (if

necessary) redundancy process to ensure that:

• The business has the right numbers of staff in the right locations

to meet its needs.

• The roles, as defined in the organisation's structure, fully serve the organisation and its future changes.

• The skills are available to do key roles effectively.

• Staff are productive and motivated.

As human capital is perhaps the most inconsistent and unpredictable

resource it is necessary for HR plans to be both flexible and

comprehensive. Often HR plans are developed on a rolling 3-year basis,

which means that forecasts for next year and the succeeding years in the

cycle are updated every year in the light of this years’ experience.

There are two key elements in the HR planning process:

HR demand

HR Demand is is the demand for staff in the future. HR demand is predicted

using the analysis of future output, volumes, sales and product projections

and linking those to staff needs. In Joe's case he worked out he would need

150 staff up until Christmas based on predictions of demand for the sale of

his dolls.

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The HR demands should be linked through to the business strategy so

that strategic issues such as future competitor actions, economic changes,

business growth plans and so on are taken into account in the HR plan. For

example, let's say Joe's business is growing by 10% per annum then he might

consider keeping on a few more of the temporary workers given this future

expected growth.

HR supply

HR supply is the other key factor in HR planning. The current numbers,

skills and locations of staff need to be matched against the demands for

the future, so that any gaps can be filled using the plan. Staff appraisals,

records and the organisational structure can be used to assess current

supply levels. In Joe's case he had 100 production staff – that was his HR

supply.

Staff turnover (the natural percentage of people that leave each year) is a

key element of HR supply too. This must also be taken into account as there

will always be the need to fill the gaps left by those people that leave, and we

saw this was a key part of Joe's calculations. We also saw that Joe used overtime too, which can be useful too as a way to increase supply in times of

need.

Problems implementing HR plans

The key problems in implementing HR plans relate back to the forces of

demand and supply:

• Demands change e.g. Joe's orders increase and he needs 10 more staff, a new product is produced that requires different skills.

• Supply changes e.g. more staff leave than expected, people are unwell, staff go on strike.

It is therefore important that future problems are anticipated, and contingency

plans put in place. e.g. Joe might set up and agreement with an employment

agency to obtain more staff at short notice so that if demand does increase

he has access to suitable staff.

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4. Human resources and business strategy

The business strategy is a long-term plan of operation for the business with the aim of achieving the organisation’s goals. A good HR plan will be

comprehensively entwined with the business' strategy.

Professor David Guest identified a six-step process showing the link

between human resource strategy and financial performance, illustrating

the importance of an effective HR plan:

HRM strategy – The business strategy will drive the HRM strategy (similar to

the HRM plan). The business strategy could, for example, be to keep costs

down or differentiate the business through high quality.

Let’s follow through the example of Joe here too to see how this works. Joe

focuses on producing the highest quality dolls in the market as its key factor

of differentiation.

HRM practises – Practises such as training and recruitment now need to be

linked to the strategy. For Joe, experienced staff with significant expertise will

be recruited and training programmes developed to ensure they are highly

skilled.

HRM outcomes – These are the key goals of the HRM practises. In Joe's

case, quality is the focus, and so the practises put in place should help

produce highly skilled staff that focus on quality in all they do. A measure

might be the number of trained staff employed, or another, the number of

defective products produced.

Behavioural outcomes – The HRM outcomes will directly link to the actual

behaviours achieved by staff. In Joe's case, his skilled staff now need to be

organised, coordinated and motivated to produce high quality work, for

instance through good supervision or set procedures.

Performance outcomes – The right behaviours will produce the right

outcomes of performance – in Joe's case high quality products that

customers want and purchase, as demonstrated by customer satisfaction

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ratings and high sales.

Financial outcomes – The sales deliver revenue which, due to the quality, is

higher than cost which drives profits and good financial returns for shareholders.

And so the link from Joe's HR plan through to how this achieves profit for his

business is shown; that's the aim of David Guest's model.

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5. Flexible organisations

The term organisational structure refers to how the people in an

organisation are grouped and to whom they report. The organisational

structure determines how the organisation performs or operates. While this

structure is often fixed in nature, the requirements of the business often

change and having an organisation which is more flexible can have great

advantages.

There are several ways in which the company can do this, here are a few

examples:

Numerical flexibility – This involves being able to adjust the numbers and

hours of staff. Joe is using both temporary staff and overtime to increase

numbers in the run up to Christmas.

Flexible work styles (temporal flexibility) – This can include employees

working from home (teleworking), job sharing, flexible working hours

(flexitime), or shift working where employees work on shifts outside normal

working hours. Organisations can use flexible hours to match production

schedules with labour hours, to improve motivation, or to reduce office

space requirements. While Joe couldn't have people working from home, he

could certainly use flexible working hours. At busy times, he could get

people working a range of hours to ensure the production line is working for

as many hours as possible during the day and even the night too.

Flexible roles and skills (functional flexibility) – Staff can be used in

different areas of the business as is needed. In Joe's case, perhaps the

administration staff could also be trained in production work and do stints in the

factory during busy periods.

Flexible structures – Structures are not set in stone – they are dynamic

depending on the organisation's needs. A matrix structure is one such

structure, where project teams are set up, and then closed down, to meet the

needs of changing projects. This is useful for project-based companies such

as consultants or builders. The shamrock organisation is also an example,

let’s see how that works...

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The shamrock organisation

This is a flexible organisational structure where a core group of executives

and workers are supported by outside contractors and part-time help.

Shamrock organisations have an organisational structure with three distinct

parts:

Professional core - Consists of professionals, technicians and managers

whose skills define the organisation's core competence. This group defines

what the company does and what business it is in. They are essential to the

continuity and growth of the organisation.

For Joe his core administration and production staff are all key to the

business are most likely to be in-house to ensure retention of key skills within

the company.

Outsourced vendors - Made up of self-employed professionals or

technicians or smaller specialised organisations that are hired on contract, on

a project-by-project basis.

When Joe has significant recruitment needs in the run up to Christmas he

uses a recruitment consultant as they are able to source large numbers of

people at short notice on temporary contracts. Payroll is also outsourced as it

is cheaper and because the company have clear expertise that is difficult to

replicate in-house.

Contingent workforce - Comprises the contingent work force of part time or

temporary workers, whose employment derives from the external demand

for the organisation's products. There is no career track for these people and

they perform routine jobs.

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Joe bringing in extra production staff before Christmas is an example.

Ideally Joe would have a group of people that were already trained that he

could bring in for each pre-Christmas season.

As we've seen shamrock organisations can therefore be flexible to changing

resource and skill requirements at different times of the year, different

stages in the company’s growth or changing economic circumstances.

Financial flexibility

Financial flexibility is the ability of the company to adjust its wage costs

to adapt to the changing demands on the business. Being able to change

the numbers of staff or staff working hours (numerical flexibility) helps to

reduce costs during quieter periods, whilst ensuring staff are able to do a

range of roles (functional flexibility) avoids needing to bring in new staff to do

those jobs.

Paying people bonuses which relate to job performance also increases

flexibility with more only being paid when the performance is strong. A

salesperson might get paid commission on sales made, for instance, linking

their salary directly with revenues earned and ensuring the company can

afford to pay. When company performance is lower, salespeople's pay is

lower, when it's higher their pay is too.

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6. The psychological contract

Think about your relationship with your employer, how do you treat each other? It is likely that you will have an informal set of rules by which you

treat each other on a daily basis. This is called the psychological

contract.

The employee, may, for example, expect opportunities for training and

development, a Christmas party, and promotion if they work hard. While

that may not be in their employment contract, it's part of what they and

other employees expect as part of being employed.

The employer, on the other hand, might expect honesty and loyalty and for

the employee to work hard as long as they remain in employment.

Again, that's not in the employment contract, but it's just part of being in the

working world.

Essentially, the psychological contract is a mutual understanding between

employee and employer of what they expect of each other and how they

behave.

There are three types of psychological contract:

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It is important to note that a co-operative contract is the most desirable of the

three as it allows for employee involvement. The employee and employer

work together in order to achieve shared goals.

A calculative contract requires no such input from the employee, but they

will calculate the benefits of doing extra work for the benefit gained (e.g.

overtime, a bonus, or promotion).

If you thought a coercive contract sounds like being a prisoner, then you

would be right! These are commonly found within custodial institutions but

may also be found within dictatorial organisations – on a production line in

factories for instance. In this scenario the employee's only incentive to work

effectively and hard is to avoid punishment.

Thankfully it is Co-operative contracts that are emerging as the most popular

psychological contract in the modern age.