Quality People Management for Quality Outcomes · Quality People Management for Quality Outcomes 7 Box 2.1 Key findings on people management roles • There are positive associations

Quality People Management for Quality Outcomes

The Future of HR review of evidence on people management

Prepared by Wilson Wong, Alexandra Albert, Marianne Huggett and Jane Sullivan

Quality People Management for Quality Outcomes2

Acknowledgements

The Work Foundation acknowledges a debt to our distinguished panel of experts comprising academics and practitioners in the field of people management. Thank you for your invaluable and challenging insights on the issues raised in this report and in the technical papers. Of course, any shortcomings or oversights remain the sole responsibility of the The Work Foundation.

Professor Mats Alvesson, Lund University

Mr Stephen Bevan, The Work Foundation, Managing Director

Professor James Buchan, Queen Margaret University College, Faculty of Social Sciences and Health Care

Dr Helen Francis, Edinburgh Human Resource Academy, Director of Research and Knowledge Transfer

Ms Alison French, Ministry of Defence, Director General for Civilian Personnel

Professor David Guest, Kings College London, Professor in Organisational Psychology & HRM

Ms Karen Jennings, UNISON, Head of Health

Dr Anne Keegan, University of Amsterdam, Associate Professor of Human Resource Management

Ms Shiree Murdoch, Ernst and Young, People Director

Ms Jackie Orme, Chartered Institute of Personnel & Development, Chief Executive

Mr Peter Reilly, Institute of Employment Studies, Director Research and Consultancy

Mr David Richardson, Innervision

Dr Penny Tamkin, The Work Foundation, Programme Leader – Management and Leadership

Ms Sian Thomas, NHS Employers, Director

Professor Michael West, Aston Business School, Executive Dean

Ms Kirsty Yates, Investors in People UK, Head of Research

3Quality People Management for Quality Outcomes

Contents

1. Introduction: The future of HR 4

2. The players in people management 72.1 What do we know about the main players – HR contribution 72.2 What do we know about the main players – line managers 92.3 What do we know about the main players – leadership 102.4 The challenge to HR professionals 112.5 What do we know about macro-factors shaping people management? 12

3. The changing employer/employee relationship 143.1 What do we know about the people management issues posed by the changing

relationship? 143.2 What do we know about the psychological contract? 163.3 What do we know about engagement and the changing employee employer

relationship? 173.4 What do we know about the importance of ‘voice’ for securing employee

commitment and engagement? 183.5 What do we know about the implications of breaching the psychological contract? 193.6 What do we know about psychological contracts and organisational culture? 20

4. People management outcomes 224.1 The impact of employee engagement on organisational performance outcomes 224.2 The impact of skills development on organisational performance outcomes 244.3 What role does accountability play in organisational performance? 254.4 The impact of effective HRM on productivity and organisational performance 274.5 What do we know about the link between innovation and HRM? 28

5. Closing comments 30

References 33

Contact details 42


Organisations face ever higher expectations of experience, quality and service from both staff and users – whether as commercial customers or citizen-users.

This is a deeply embedded trend that has combined with the accelerated introduction of new general purpose technologies and the exponential growth of business expenditure on intangibles to create the knowledge economy. It is a trend that will continue, even if it moderates during this current downturn.

HR professionals and the HR function, as the presumed ‘custodians’ of people management, are therefore confronted with a paradigm shift in how HR should be conceptualised.

People management is now as important a contributor to organisational success as marketing, finance, or sales – yet HR suffers from a lack of self-confidence, undervaluation by both practitioners and users, and a confused idea of what its own professional mission should be. In many organisations HR has tended to focus on the better engineering of technologies surrounding transactional processes. While some able HR directors through experience and personal insight have managed to position their teams effectively within their own organisational context, this ability to support the transformation of people management has not automatically been translated across the wider system.

The Work Foundation as an independent, ‘agnostic’ voice with no prior alignment to any particular theory of HR or its function has stepped into the debate supported by a strong consortium of sponsors from both the public and private sector to ask the difficult questions of HR and of organisations.

There is a vast amount of literature about managing people at work. This report aims to explore the existing research on people management, provide a synthesis of what we know and the strengths and limitations to that knowledge. This will provide the basis for the future direction of the programme to enable us to answer fundamental questions about how staff should be managed fairly and effectively and the implications for roles, structures and capability for people management.

It would be impossible to do justice to such a broad review without developing a framework from which quite specific questions are posed. The framework for people management outlined in Figure 1.1 identifies several points of focus which reflect the concerns of HR practitioners

1. Introduction: The future of HR


when designing HR that is fit for purpose. The review concentrates on academic literature that examines:

The role, capacity and contribution to people management of the senior leadership, the 1. line manager and the HR practitioner;The relationship between the employer and the employee through the employee value 2. proposition (or, ‘what’s in it for the employee’);The relationship between people management strategy and policies and outcomes;3. The people management outcomes prioritised by the sponsors of this programme;4. The link of good people management to organisational outcomes;5. The link, if any, between employees that are engaged and other people management 6. outcomes.

Additional analysis and evidence can be found in the accompanying technical report.

Introduction: The future of HR


Figure 1.1: Framework for people management

The players in people management


Box 2.1 Key findings on people management roles

There are positive associations between good people management practices and • organisational performance. HR’s role in contributing to people management outcomes is ambiguous, uncertain and • subject to forces outside practitioners’ control.HRM is becoming increasingly professionalised.• Concerns abound surrounding the capability of both the line, and HR professionals to • deliver the ‘people agenda’.It is crucial for effective leadership to include leadership of the values and practices that • shape the organisational climate for HRM.

In the past 15 years, there has been a tremendous growth in research attempting to demonstrate that ‘good’ HR practices result in higher organisational performance. On balance, the hundreds of studies reviewed provide ample evidence that a strong link between good HR practices and organisational performance exists, without establishing causation in either direction. Of course, there are other factors interacting or contributing to the association which are less well understood.

Huselid (1995) set the bar with his paper on high performance working practices and financial performance of the firm. Delaney and Huselid (1996) found further supporting evidence of the positive relationship between a set of HR practices and perceptual performance in 590 businesses. Guthrie (2001) surveyed corporations in New Zealand and found that HR practices related to turnover and profitability. West, et al., (2002) demonstrated strong associations between HRM practices and patient mortality, a clear and compelling measure for acute medical services. This line of research, examining HR practices against organisational performance measures, was confidently summed up by Huselid and Becker (2000) who stated that ‘Based on four national surveys and more than 2,000 firms, our judgment is that the effect of a one standard deviation change in the HR system is 10-20 per cent of a firm’s market value’. Huselid (1995) demonstrated that HR practices could be aligned strategically with corporate objectives and function as a ‘business partner’ (see Boxall, 2003; Lawler III and Mohrman, 2003; Ulrich, 1997).

The debate about the exact nature of HR strategy and HRM’s relative contribution to people management outcomes is however difficult to capture, not least because HR’s role is ambiguous, uncertain and subject to forces shaping business models and organisational design outside the control of the practitioners.

2. The players in people management

2.1

What do we

know about

the main

players – HR

contribution


In defining the role of HR, Legge (1978; 1995; 2001) identified ambiguity of the personnel role, lack of clarity about success factors for the function and a conflict of allegiances between the interests of the corporation and those of the employee. One consequence of the profession’s drive for ‘strategic partner’ status as a measure of acceptance at the top-table is the marginalisation of HR as employee champion (Ulrich, 1997). Ulrich and Brockbank (2005) argued strongly that notwithstanding HR’s strategic contributions, employee relations was central to the function. That meant that HR had the lead in ensuring employees were treated with fairness and dignity. This approach so prevalent in the HR discourse (eg Purcell, et al., 2003), however, did not address the inherent conflict between prioritising performance in high performance, high commitment work practices. There was an assumption that employee interests and organisational goals could always be aligned though high quality HR practices. There is some challenge to this unitarist model that excludes the centrality of worker interests (eg Francis and Sinclair, 2003). There is no literature on HR models recognising the possibility of conflict between employee interests/well-being and organisational outcomes. Winstanley and Woodall (2000) have highlighted this contentious gap by identifying yet another absence. In the current models for SHRM, there is no mention of the ethical dimensions of HR.

Legge argued that under current stakeholder arrangements practitioners would require an external source of credibility in order to fulfil the promised deliverables of personnel management, either through a parallel career in organisational development, or by gaining a strong grounding in social science knowledge and skills (cf. Rynes, et al., 2002). A consequence of this gap between rhetoric and practice was a vicious cycle of low calibre candidates entering the profession. Guest and King (2004) revisited her conclusions 25 years after their initial publication (Legge, 1978) and found that within the profession the issues of role ambiguity, lack of strategy authority at board level and the vicious cycle remained largely intact (see also, Watson, 2004).

Nevertheless there has been significant growth in the specialist HR role since 1990, an increase from 14 – 30 per cent of those responsible for employment relations in the workplace and a corresponding decrease in general and line management (Guest and Bryson, 2008). This trend remains significant after controlling for any changes in workplace composition and counters any suggestion of a decline in the role as a result of devolvement of activities to line management or the growth of shared services (Guest and Bryson, 2008).

There is little written about the ability of HR professionals to implement and translate people management policy and strategy but Rynes, et al., (2002) provided a window into HR practitioners’ capability to do so. The U.S. study revealed that there were wide variances in the



HR leaders’ knowledge about evidence-based practices in HR. The gaps identified between research and practice were core HR issues – recruitment, motivation using appropriate goal-setting and effective performance management.

There is a paucity of research available on the role of line managers. In this section, ‘line managers’ are those who have staff responsibilities. The role of line managers in translating policy to performance outcomes has received little attention (Boselie, Dietz and Boon, 2005).

As people management practices devolve to line managers and are accessed through shared services, these managers with direct supervisory responsibilities will be the critical link in how HR practices influence employee attitudes and behaviour (eg Bowen and Ostroff, 2004). Increasingly, employees experience HR practices through the enactment and leadership of their line manager. The role of the front line in human resource management harks back to the turn of the century when the personnel function was administered by foremen and supervisory staff (see Kaufman, 1993). Within HRM, the discussion in the past 15 years has been ‘returning HRM to the line’ (Cunningham and Hyman, 1995; Hutchinson and Wood, 1995; McGovern, et al., 1997; Harris, 2001). As the human resource function has grown, so too have the line manager’s people management responsibilities expanded beyond the traditional supervisory role (McConville and Holden, 1999; Hales, 2005). Given the significance of the line managers in delivering the HR bundle of employee resourcing, performance management and employee relations, the investigations have also looked at manager behaviour and how this has affected organisational climate (Purcell and Kinnie, 2006).

The studies on the gaps between HR practices and their enactment as experienced by employees were usually attributed to the line managers’ lack of capability, disinterest or conflicting priorities (Grint, 1993; McGovern, et al., 1997; Fenton O’Creevy, 2001; Harris and Ogbonna, 2001; Whittaker and Marchington, 2003). From surveys of employees’ experience of managers leadership behaviour (eg Guest and Conway, 2004a), the sense was that there was a wide variance in responses. McGovern, et al.’s (1997) survey of line managers in seven companies where the selection, appraisal and development of their subordinates were accepted by the line as their direct responsibility, revealed that administration of personnel functions was, in all seven companies, driven by the managers’ individual motivation and commitment. Limitations of line manager practice (eg patchy appraisals) and the constraints on line managers (ie failure to formalise the people management role in performance objectives and reward structure, managerial focus on short-term business targets and delayering of professionals/ managers in organisational restructuring) translated to people management being de-prioritised. The practice of devolution does not reflect the scenarios promoted by HRM professionals.

2.2

What do we

know about

the main

players – line

managers



This variance is of concern to practitioners given that employee response to HR practices is at the heart of all HRM performance models (Purcell and Kinnie, 2006), the object being an affective relationship with the organisation, one complete with commitment and job satisfaction; precursors to positive discretionary behaviour. This link between the employee experience of people management and their feelings toward the corporation as expressed in their commitment to it is underpinned by social exchange theory (Eisenberger, et al., 2002). Within social exchange theory, Uhl-Bien, et al., (2000) identified the interpersonal relationship between the line and their subordinate as a factor that could positively influence employee attitudes. Uhl-Bien, et al., (2000) suggest that ‘more effectively developed relationships are beneficial for individual and work unit functioning and have many positive outcomes related to firm performance’. Guest, Conway and Dewe’s (2004) study of 1,000 workers supports this line of reasoning. In this study, supervisory leadership was the strongest factor associated with organisation commitment. Kidd and Smewing (2001) found that employees reporting to supervisors who engaged in feedback and goal-setting behaviours, and/or provided greater autonomy in the workplace had higher levels of commitment.

The line manager is a crucial contributor in a positive people management equation (see Perry and Kulik, 2008). Purcell and Hutchinson’s (2007) study on Selfridges’ use of behavioural selection, training, appraisal, career management and involvement suggested a marked and measurable positive effect on employee attitudes and behaviour. The studies on line managers suggest that they are aware that people management is an intrinsic part of their responsibilities but often they will hold dissonant views on human resource management to those held by the HR specialists. Arguably, the literature suggests that where line managers fall short is their lack of HR capability, their prioritisation of operational demands over the HR needs of their reports and where the HR practices/services do not meet their requirements. Here the focus is on those who have the responsibility for determining the strategic direction of the business and their leadership role in driving the people management strategies for optimum performance from the organisation’s human capital – the chief executive officers, chief operating officers, managing directors, the business founder and others who set the climate for good people management.

The effectiveness of leadership lies in communicating a vision of where the organisation is headed, inspiring enthusiasm for that destination while communicating clearly employees’ roles/ contributions to that end and building external alliances and relationships to support the shift in direction (Yukl, 2002). Implicit in this description is leadership of the values and practices that shape the organisational climate for HRM.

2.3

What do we

know about the

main players –

leadership



Leadership as an individualised, dispersed attribute for organisational performance is documented in the research literature (eg Mumford, et al., 2000; Shipton, et al., 2008). Studies on strategic level management and their role in, contribution to and capability for people management appears to be a lacunae. There is also a paucity of information about corporate leaders and their translation of the values that underpin their strategic thinking into people management outcomes. This may be a reflection of an assumption that leadership of people management is attributed to specific groups of individuals, primarily HR specialists and line managers. Perhaps the focus should be leadership in the specific deliverable whatever the position of the actor/employee? However, given that leaders do manage the vision and symbolic meaning of strategy, how that is managed in terms of the human resource management is of importance.

Caldwell (2003) suggested that greater organisational complexity, devolution to the line and flexibility may also be undermining, in the long-run, the foundations of the expertise, status and credibility necessary to sustain the new HR professional. The move towards embedding people management into business units, devolving HR to line managers and outsourcing have translated to a sense of the profession’s ‘powerlessness’ in managerial decision making. In addition, the inability to maintain the boundaries of their HR expertise in the face of managerial intervention, the lack of clarity or accountability in specifying the goals, outcomes or contribution of the HR function and the erosion of the relationship of mutuality between corporation and employees have affected HRM’s status (Legge, 1978; Caldwell, 2003; see also Francis and Keegan, 2006). Even where HR functions are centralised at corporate headquarters, the HR contribution is still derived from a shifting array of expertise (Purcell and Ahlstrand, 1994) and the profession’s tendency is to identify HR expertise with who controls what HR function rather than with effectiveness (Ulrich, 1997), resulting in the erosion of expert knowledge, specialist credibility and a role-based status (Caldwell, 2003).

Guest (1987) saw the future of HRM in ensuring coherence in the strategic integration of leadership’s vision, HRM issues, strategy and line decision making. Even Guest in his consequent discourse of high performance working is also sceptical of the prospects [for HR]: ‘For many, the unitarist implications of human resource management could only begin to have an appeal following a much more radical shift in ownership and control in industry’ (1987).

Storey’s (1992) overt promotion of the connection between strategy and competitive advantage foreshadows much of the contemporary research into HRM and the significance of the resource-based view. Ulrich’s (1997) influential prescription that modern HRM was an amalgam of roles (strategic partner; change agent; administrative expert; employee champion on two

2.4

The challenge

to HR

professionals



binary axes – strategic vs technical and interventionary vs non-interventionary) was a panacea for integrating business strategy and people management and laid bare the unsatisfactory gap between HR rhetoric and reality.

The relentless shift towards strategic HRM and the devolution of operational/transactional HR (ie selection, assessment, training etc.) down to the line (Torrington & Hall, 1996) by HR professionals has had mixed results, with differences in perception as to who this process was empowering.

There are many environmental factors shaping the nature of work and this clearly shapes the roles involved in people management. These include:

2.5.1 LegislationSince 1997, the Labour Government has introduced many changes in UK employment law. These included enhanced rights for parents, the introduction of a national minimum wage and the Working Time Directive. Discrimination law was tightened, with protection from discrimination available on the grounds of age, religion or belief and sexual orientation, in addition to existing rights covering gender, race and disability. More significantly, the Human Rights Act 1998 heralded a more pronounced rights-based approach to negotiating competing demands between state and individual but also corporation and employee. Legislation like the Data Protection Act 1998 also afforded protection for employees as citizens. These impacted on the role and structures associated with the professionals covering this aspect of HRM.

2.5.2 Growth of business management educationThe growing complexity of the HR function against a background of business management education (see The Economist, 17 October 2003) saw the increasing professionalisation of HRM. Evans (2006) outlined the history of the Chartered Institute of Personnel and Development (CIPD), the professional body for HR practitioners in the United Kingdom. Given the complex demands on the HR practitioner, professional training must evolve to reflect market priorities. In management training, for instance, the MBA curriculum had changed considerably since its creation in the early 20th century. More recently, post ENRON, the US MBA programmes have emphasised leadership, business ethics and morality (The Economist, 17 October 2003) corresponding with many of the concerns in strategic HRM, save for ethics (see 2.1 above). This might indicate an area of contestation or recognition that people management was the concern for all managers.

2.5.3 Technology and people managementThe development of people management cannot be divorced from technologies of and affecting

2.5

What do we

know about

macro-factors

shaping people

management?



production. From Arkwright’s loom to the Ford assembly line to the advent of the BlackberryTM, many general purpose technologies have and continue to change ways of working and new ways of organising workers (see Lipsey, Carlaw and Bekar, 2005). For instance, ICT in the workplace has, inter alia, transformed the relationship between firm and employee, allowing new measures of productivity, remote working, and so on. ICT is also transforming some HR roles where software packages and standard operating procedures have enabled globally shared HR services, impacting on both the numbers and nature of HRM.

2.5.4 The knowledge workerToday there is free movement of knowledge work that does not recognise geographical boundaries. In this atmosphere, recruitment is becoming more of a two-way deal where companies must cultivate their employer brands and working conditions to attract the best-qualified prospects, conscious of their sought-after status and consequent bargaining power (Michaels, et al., 2001). Within the context of growing individualism in the corporate-employee relationship, it is interesting that neither Guest nor Storey in their construction of the HR function permitted any space for unions, joint decision-making or wider concerns about social justice (Keenoy, 2007); all important considerations in managing these highly mobile professionals. The tension between pursuing a paradigm of individual employee self-determination and labour as a function of firm-determined performance measures remains problematic for HR practitioners. Which values are HRM accountable for – a meaningful compact with the firm to deliver goods and services in exchange for security (Yousef, 1998) or one where labour is a unit of production? At the same time, firms are universally proclaiming people as the key to corporate success.

People management has never been more strategically placed centre stage. These developments, theoretical models and the manner in which these inform practice, we believe, have implications for the role of HR and their status as professionals. The negotiation of the responsibilities to ensure good people management between HR, line and leadership is currently ill-defined.

Box 2.2 Key issues relating to the relative roles in people management

The relative roles in people management are insufficiently defined to respond to the • macro factors shaping people management.The relentless shift towards strategic HRM and the devolution of transactional HR by • HR professionals has had mixed results.There remains a lack of confidence in the skills, competence and confidence of HR • professionals, and line managers, to effectively translate organisational and people strategy, into engagement and high performance.



Box 3.1 Key findings on the changing employer-employee relationship

Employees demonstrate more commitment when their psychological contracts are trust • based, negotiated, collective, broad, equal and long term.The psychological contract has been approached by examining context, or by examining • the positivistic, causal relationships between formants, the perception of employer by employee and the behavioural outcomes.A perceived violation of the psychological contract results in the loss of trust, reduced • performance and behavioural adjustments. Trust is fundamental to the psychological contract through its enhancement of employee commitment and engagement.

The aim of people management strategy and policy is to support the business objectives of survival, growth, service and profitability by harnessing the human capital. Understanding what contributes to the health of the relationship between employer and employee (the psychological contract) has important behavioural consequences for the organisation. Although we do know a lot about the content of the psychological contract, there is much to learn about the way this becomes meaningful to employees. According to Towers Perrin (2007), approximately 20 per cent of the workforce in any country, company or sector are highly engaged which poses questions about the employer’s understanding and management of their relationship with 80 per cent of their employees.

As we saw in the previous chapter, the role of HR in people management is far from stable. Yet, many organisations are operating in a cultural lag from the traditional psychological contract (Noer, 2000). Organisations now employ a multitude of models (part-time, job shares, remote working, contract, shared services, outsourcing etc) for organising their workforce but, largely, retain the artefacts of a traditional contract (eg career paths, benefits etc) which they cannot (realistically) deliver. HR use concepts like ‘mutual gains’ to describe a power relationship which is inherently unbalanced with employers expecting ‘engagement’ with limited guarantee of delivering employee expectations (eg job security, career path, development).

In managing ‘the deal’, McInnes, et al.’s (2009) study explored the relationship between different psychological contracts, and their impact on employee commitment. In testing a number of hypotheses they drew the following conclusions which hold practical implications for the maintenance of the health of the psychological contract:

3. The changing employer/employee relationship

3.1

What do we

know about

the people

management

issues posed

by the changing

relationship?


Employees reported stronger affective• 1 and normative commitment when their contracts were trust based, negotiated, collective, broad, equal and long term. Both affective and normative commitment was weaker when the contract was perceived to be imposed, unequal and short term. They also found that although commitment was positively linked with fulfilment of the contract, employees’ perceptions of the contract features contributed to their commitment, regardless of whether the contract was fulfilled.

They argued for a change in the way that psychological contracts are perceived. The • relational-transactional contract distinction focuses largely on the ‘features’ of the contract, rather than content.

They also argued that new contract types might be emerging as a result of changes in • the world of work. For example, they describe the emergence of ‘organisation-centred’ contracts that tend to be imposed and short term, and giving the organisation greater control (cf. De Vos, Buyens and Schalk, 2001; van den Brand, et al., 2002). Such contracts might be used with peripheral rather than core employees, who are providing a necessary but temporary service, thereby ensuring that important but clearly defined jobs get done without long term commitment or obligation on either side. This research found that with organisation-centred contracts, employees tended to show less normative and affective commitment.

They found further evidence for what Rousseau (2000) calls the ‘balanced’ contract. • Including features from both traditional relational and transactional contracts, these tend to be open ended in nature but include tangible performance-reward contingencies. It is thought that these balanced contracts maintain the positive aspects of the relational contract (trust based etc) with the flexibility required by the modern organisation to adapt to an ever changing economic environment, thus benefiting both the employer and the employee.

They also found evidence of what Rousseau (2005) described as ‘i-deals’ – contracts • that are individually negotiated with employees with the sole purpose of retaining key people and offering some flexibility to both parties. For example, this might take the form of an employee negotiating an unpaid sabbatical in exchange for a ‘time specific’

1 Affective commitment is taken from work by Allen & Meyer (1990) and is the principle that people stay because they want to. They defined normative commitment as people feeling that they should stay with an organisation because they ought to. These definitions are now common place in the literature on commitment

The changing employer/employee relationship


period of service at the end. However they also found that i-deals might not always be in the employees best interest – contracts with these features were found to be highly linked with normative commitment but not with affective commitment. Thus they argue ‘arranging even an optimal i-deal could result in a commitment based on obligation rather than desire’, particularly relevant in the context of the current recession.

The literature on the psychological contract is divided broadly into two approaches. The first focuses on the context, employing qualitative, social psychological lines of enquiry on the processes of contracting (eg Herriot and Pemberton, 1996). The second approach to psychological contracts can be described as positivistic, examining causal relationships between antecedents to the formation of the contract (eg organisational climate, HR practices, expectations of job security, experience of redundancy, chances of alternative employment, involvement climate), the perception of the employer by the employees (eg fairness, trust and record of actually delivering on the contract), and the consequent behavioural and attitudinal outcomes (eg commitment, job satisfaction and effort) (see Guest and Conway, 1997).

3.2.1 Theories of exchangeIn the mutual investment model (Tsui, et al., 1997), there is a mutually beneficial transaction between an employer willing to ensure the well-being of the employee (eg health and wellbeing, career opportunities, training and appraisal), and an employee who knows what is expected and offers up the appropriate behaviours to meet those expectations. More directly, HR policies and practices can and do translate into promises or obligations on the part of the employer in the employee’s understanding of the contract (Guest and Conway, 1998). In much of the literature, the psychological contract is viewed as dynamic, and evolving.

Shore and Barksdale (1988) use social exchange theory to discuss the importance of balance in a psychological contract. In this paradigm the extent of the balance/imbalance is more important to the nature and health of the contract than the specific content of the contract. From this perspective high mutual obligations are significantly more likely to lead to better outcomes for the organisation, such as higher commitment and the associated benefits of discretionary effort, pro-social organisational behaviours and so on. If balance cannot be achieved longer term, one or both of the parties will seek to terminate the relationship.

Against the backdrop of negotiating this relationship caused by the changing face of the psychological contracts, employers have simultaneously sought increasing levels of commitment from their employees. In recent years, this focus has manifested itself in the drive to build and harness employee engagement.

3.2

What do we

know about the

psychological

contract?



There is a general assumption in HRM literature that commitment and performance should correlate positively. The evidence is at best patchy (Cohen, 1991; DeCotiis and Summers, 1987; Mathieu and Zajac, 1990; Mowday, et al., 1982). However, the work on organisational citizenship behaviour and prosocial behaviour does provide some light. Organ (1988) proposed that citizenship behaviour resulted from perceived fairness in relations between employees and the organisation. He justified this interpretation by arguing that through ‘fairness’, a social, rather than an economic exchange relationship developed.

In the resource model of human resource management, high employee involvement and commitment were prerequisites for high performance outcomes (Ferris, et al., 1998). The classic assumption was that that in return for diligence and loyalty, organisations provided tenure. In this relationship, trust was a component. Trust was regarded as fundamental to the psychological contract (Guest and Conway, 1998) and tied to whether the contract was transactional or relational (MacNeil, 1985; Rousseau, 2004). Atkinson (2007) found that trust was present in all psychological contracts but cognitive trust and transactional obligations seemed to operate as hygiene factors. When trust reached the threshold of adequacy, the relationship might then progress to a more relational level. The question was the price of this coveted employee commitment.

More recently the emphasis had shifted to employee engagement, defined as ‘the intrinsic motivation... when behaviour is performed for its own sake rather than to obtain material or social reinforcers’ (Bateman and Crant, 2003). The Institute for Employment Studies described an engaged employee as ‘aware of business context, and works with colleagues to improve performance within the job for the benefit of the organisation’ (Robinson, et al., 2004). It is attractive to organisations because it sought to harness discretionary effort by creating an environment where staff were working more effectively, in a more focussed way, rather than simply longer, harder and faster.

The CIPD Employee Attitudes and Engagement Survey 2007 suggested that just over one third of employees are actively engaged with their work. Of the three types of engagement identified in this study, levels of emotional engagement are the highest, with around six in ten employees being emotionally engaged (feeling engrossed in their work), three in five are cognitively engaged (focusing very hard on their work) and around four in ten are physically engaged (willing to go the extra mile). HR professionals are generally pessimistic, and believe employee loyalty has decreased, largely, due to a loss of trust (Frank, et al., 2004).

3.3

What do we

know about

engagement

and the

changing

employee

employer

relationship?



Employee voice through the processes of engagement is one avenue for negotiating the new employer-employee relationship, one that has the potential to engender trust. Understanding of the forms and purpose of employee voice has shifted dramatically over the past 60 years.

In the 1980s and early 1990s, the importance of employee voice was promoted in terms of the business case rather than employee rights. Management looked to employee involvement to generate a positive and constructive voice, rather than an independent one (Ackers, et al., 2004; Gollan & Perkins, 2007). More recently, the expression of ‘voice’ has shifted towards legally enforced employee rights, for example, the right to request flexible working and to have non-unionised consultative bodies.

Bryson, et al.’s (2007) definition of employee voice as the ‘institutionalisation of two way communications between employer and employee designed to reduce transaction and exit cost for both parties – a form of contractual governance with mutual gains’ is telling. The implication is that the changing relationship with the employer is transactional, time limited and with deliverables/outcomes clearly specified. Coats (2004) points out that ‘voice’ is usually limited to local, operational level discussions. The bigger strategy discussions that impact on the employee’s work life occur elsewhere and are not always in the best interests of individuals.

The literature strongly suggests that given the declining levels of union membership and the emergence of various forms of employee representation, coupled with the link between voice and commitment as pre-requisites for high performance working (eg Pfeffer, 1998) ‘voice’ is an increasingly important people management issue. There is also the growing support for voice as part of employee rights within the construct of industrial citizenship through the European Union (Ackers, et al., 2004). It is not clear from the literature how the different voice mechanisms affect the psychological contract, and vice versa.

3.4.1 Structural mechanisms for securing commitmentIn the process of engaging employees, it is a management competence to ensure that a sound and shared grasp of what is important to employees is recorded, and that the voice is consistent, coherent and authentic. Much of the discussion in this section has highlighted the uncertain negotiation of the mutual gains between employee and the employer, often times with the line manager as the (sole) agent. Given the need and desire to capture an authentic employee voice in spite of imperfect power relations between employee and the employer, a number of complementary structures and process such as works councils (eg Statutory Instrument 1999 No. 3323) and partnership agreements were created.

3.4

What do we

know about

the importance

of ‘voice’

for securing

employee

commitment

and

engagement?



In seeking to understand the nature of the new employer-employee relationship, what happens when the psychological contract is (perceived to be) breached by the employer?

As with any relationship, the test is in its violation and the consequences (Rousseau, 1995; Morrison and Robinson, 1997). A perceived violation of the psychological contract has been found to result in a loss of trust (Robinson and Rousseau, 1994), reduced performance (Robinson and Wolfe-Morrison, 1995) and behavioural adjustments (Nicholson & Johns, 1985). The perception of a breach of employee expectations of the employer (eg job security, promotion, training and development, failure to administer administrative justice) can lead to feelings of injustice and distrust (Morrison & Robinson, 1997; Kickul, 2001; Kickul, et al., 2001). Circumstances like organisational timing (eg mergers) or market factors (eg redundancies, cutbacks) can lead to feelings that the contract has been broken (Turnley and Feldman, 1999a; 1999b). Unsurprisingly, the employee’s understanding of the commitment to the employer will affect their response to a perceived breach (eg Herriott, Manning and Kidd, 1997; Rousseau, 2001b; Ang, Tan and Ng, 2000).

Individual determinants of the psychological contract include employee experiences and expectations prior to employment, during the recruitment interactions, or from experiences in the course of employment (Rousseau, 2001a). The understanding of the contract may vary according to individual difference factors such as age, labour experiences, level of education, union membership or non work commitments/interests (Guest and Conway, 1998). For instance, there is evidence that older workers lose trust in their organisations when the perceived contract is violated (Herriot, et al., 1997), while younger workers may have different expectations (Turnley and Feldman, 1999b; Smithson & Lewis, 2000). This could reflect a more ‘realistic’ understanding of the modern labour market (Brannen, et al., 2002; Harwood, 2003). Alternatively, it could be argued that a sense of violation is related to different and evolving expectations or perceived promises, so, for instance, job security is ‘replaced’ with expectations of challenging assignments (Turnley and Feldman, 1999b). However, Pate, Martin and McGoldrick’s (2003) study suggests that triggers of violation impinge on employee attitudes but not on behaviour, trends substantiated by analysis of absenteeism records. The qualitative data there highlighted two contextual issues to this dichotomy between attitudes and behaviour. The first of these was labour market conditions and perceptions of job insecurity and second was a sense of collegiality and pride in the job.

3.5

What do we

know about the

implications of

breaching the

psychological

contract?



In understanding the offer by the employer, the employee is likely to give regard to the organisation’s culture. Briefly, culture is ‘a system of knowledge, of standards for perceiving, believing, evaluating and acting that is largely tacit but meaningful and relevant to a group of people within a defined environment which manifests in behaviour, beliefs and actions recognised by that group and to new members’ (adapted from Allaire and Firsitoru, 1984; Becker and Greer 1960; Louis, 1980; Schein, 1991; Sorensen, 2002).

In forming the psychological contract with the employer, the new employee is likely to pay attention to a variety of ‘cultural carriers’ (Schein, 1991), described as observable behaviours or daily enactments; artefacts, which are essentially the constructed social and physical environment; organisational symbols; language; ideology; and ritual and myth. There is a rich body of literature suggesting the centrality of organisational culture, values and beliefs (eg Schein, 1991; Deal and Kennedy, 1982) to organisational performance (eg Bilsky and Jehn, 2002; Sorensen, 2002; Kotter and Heskett, 1992; Gordon and DiTomaso, 1992; Denison, 1990). Reproducing Schein’s (1991) list of cultural carriers is perhaps the most succinct way to illustrate the centrality of culture to the psychological contract:

What leaders pay attention to, measure, control;• How leaders react to critical incidents and organisational crises;• Role modelling, teaching, coaching, walking the talk;• Criteria for allocation of rewards/status (what behaviour is rewarded, what behaviour is • punished);Criteria for recruitment, selection, promotion, retirement and excommunication (what • type of people are brought in, retained, advanced);Organisation design and structure (modifying the basic structure might be a way of • changing the norms);Design of space, facades, buildings; • Stories about important events, people;• Formal statements of philosophy, creeds etc.•

From the above, we see that the psychological contract is constantly being re-negotiated. The employee’s affective response to them can affect levels of engagement and, where sufficiently incongruent, break the relationship. Section 3.7 makes the links illustrated in Figure 1.1 and highlights the relationship between organisational culture and values to the employee value proposition.

3.6

What do we

know about

psychological

contracts and

organisational

culture?



Box 3.2 Key issues in the employer-employee relationship

As constant changes in the world of work alter the employer-employee relationship, • there is insufficient understanding of how the psychological contract will be perceived. It is currently unclear how the psychological contract should be negotiated, and • renegotiated, in such a way as to ensure the mutual gains of both the employee and the employer.It is unclear to what extent is the failure to generate higher levels of engagement in • the workplace a product of imbalanced or poorly negotiated psychological contracts. A better understanding of the specific de-railers of the deal is required.It is unclear how individual employee voice and collective voice mechanisms interact to • influence new and changing employer-employee relationships.



Box 4.1 Key findings on selected people management outcomes

There is a strong evidence base of the links between high performance HR practices • and organisational performance.The effects of HRM are often found to be greater than other investments such as ICT • and research and development.Higher skills levels have a positive association with productivity and skills and capabilities • are a significant part of the bundle of HR practices that make a difference to business performance.There is sparse academic literature on how HRM affects accountability within • organisations.HRM creates an environment that fosters innovation and diversity although HR itself is • not usually the source of innovative practice.

People management outcomes are some measures of the efficacy of HR strategy and policy in encouraging the behaviours seen as precursors to desired organisational performance (client/customer loyalty and satisfactions, improvements to the bottom line, and where appropriate, citizen or public value). The people management outcomes that are prioritised in this section reflect those identified by the programme sponsors as a priority and of common interest. The focus here is on the following people management outcomes: employee engagement, skills and capability, accountability, productivity and performance and innovation. These are not an end in themselves but one of the means to achieving the organisational outcome.

Employee engagement is currently a dominant people management outcome and there is a wealth of evidence suggesting that higher levels of engagement are associated with a number of positive organisational performance outcomes. Some of the key research in this area is outlined below:

Gallup’s research (Ferguson, 2005) found that employee engagement spawned • customer loyalty, business growth and profitability.

The Institute of Employment Studies (IES, 2007) found higher levels of employee • engagement to be associated with positive performance outcomes – revenue growth, profitability, productivity, customer satisfaction, labour turnover, retention of staff, facilitating change and trust and confidence in public institutions.

4. People management outcomes

4.1

The impact

of employee

engagement on

organisational

performance

outcomes


The Towers Perrin European Talent Survey in 2004, based on 250 companies found a • 15 per cent increase in engagement correlated with a 2.2 per cent increase in operating margin. ISR in 2003 compared high-engagement to low-engagement companies over a • three-year period and saw massive differences in performance with low engagement organisations operating margin at -2 per cent and high-engagement organisations at +3.7 per cent. Low engagement organisations net profit margin was -1.4 per cent and high engagement +2.1 per cent (ISR, 2003).

There is also a substantial body of research that illustrates the ‘service profit’ chain, • demonstrating links between employee satisfaction, commitment to customer satisfaction and loyalty, and bottom line performance (Borucki and Burke, 1999; Gelade and Young, 2005; Barber, et al.,1999).

This body of work is consistent with Wall and Wood’s (2005) meta analysis of the links between HRM and business performance, where 19 of the 25 studies reported some statistically significant positive relationships between HRM practices and performance. Wall and Wood’s (2005) analysis of the links between HRM and performance suggest that only two studies (Cappelli & Neumark, 2001; Ichniowski, et al., 1997) have an authentic longitudinal design on which causal inferences about the relationship between HRM practices and performance could justifiably be based. However, Wall and Wood (2005) point out that these studies yield divergent results, thus limiting the use of these causal findings. Similar small but positive associations are reported in People and the Bottom Line (Tamkin, et al., 2007).

The links between engagement and people management and organisational outcomes are compelling enough for organisations to focus HR attention on measuring engagement and introducing a range of employee engagement strategies. Despite this level of activity, however, the generally low levels of employee engagement and the difficulty of replicating those who succeed, require an explanation.

There are a number of studies that highlight the importance of the relationship with leadership/senior management in engendering employee engagement (MacLeod and Brady, 2007; Towers Perrin, 2003). However, Towers Perrin also argues that most senior leaders are not up to the challenge and are failing to meet the expectations of their employees.

People management outcomes


The relationship with the line manager is also identified, both directly and indirectly, as a key factor in engendering employee engagement. The IES (Barber, et al., 1999) service profit chain can be traced back to the immediate line manager, whilst their 2007 study places immediate line management as the third most important factor in employee engagement. In the Corporate Leadership Council’s model of employee engagement (2004a), the line manager is identified as driving both rational and emotional commitment. Furthermore, line management that balances challenge and support is a primary determinant of engagement in Robertson’s (2009) model of psychological mediators and business unit outcomes.

Therefore, it may be fair to conclude that any deficit in line manager capability, or lack of clarity of their role in delivering the psychological contract/employee engagement strategies, will be a factor in the levels of employee engagement in an organisation at any given time.

Another important people management outcome is the development of workforce skills and capability. This has already been mentioned as part of the changing nature of the psychological contract in Chapter 3, but here we examine the literature specifically in relation to skills and capability as a people management outcome.

The evidence points to higher skill levels having a positive association with productivity. For example, the most productive manufacturing organisations tend to have a more highly educated workforce than the least productive equivalent on average, to an extra qualification level (Haskel and Hawkes, 2003). Other research has suggested that a more highly skilled workforce can bring other benefits such as enhancing company survival (Reid, 2000) or boosting innovation (Albaladejo and Romijn, 2001). Other examples of investment in workforce development include evidence linking attainment of IIP with performance (Hambledon Group, 2000) and a range of business benefits reported by employers, including improved service quality, increased turnover, and higher profitability (Hilage and Moralee, 1996).

Much of this literature has been summarised by Tamkin, et al., (2004; 2005). Overall the weight of evidence and the consistency of the general direction of results – even if not the finer detail – presents a strong and persuasive case that skills and capabilities as a significant part of the bundle of HR practices make a difference to business performance.

The importance of skills and career development is also highlighted in the research on the key drivers of employee engagement. For example, in the IES 2007 model of employee engagement the most important key driver, feeling valued and involved, is most influenced by the opportunity for training, development and career progression. Furthermore, opportunities to

4.2

The impact

of skills

development

on

organisational

performance

outcomes



learn and develop new skills emerged as one of the top ten key drivers in MacLeod and Brady’s 2007 review of employee engagement, The Extra Mile.

Skills policy in the UK for the past 25 years has focussed very much on skills acquisition, upskilling or reskilling. This emphasis tends to underplay the issue of how employees’ skills are deployed in the workplace. The Knowledge Workers Survey (Brinkley, et al., 2009) highlights a significant minority of workers who believe their current jobs under-use their skills. In this survey, about 36 per cent of knowledge workers say they are in jobs that under-use their skills, compared with over 44 per cent of those in jobs with some or little knowledge content.

There are also philosophical differences between training to support employee employability, and targeted training to support business need, and these may indicate a different form of psychological contract on offer. Sung and Ashton (2005) demonstrate that in high performance work organisations (HPWO) skills development is very focused and designed to achieve specific business outcomes and levels of performance. Learning and development opportunities may be in line with both organisational and individual need and provide a situation of mutual gain, but this evidence suggests that for high performance, individual needs for employability take second place to organisational need. The potential impact of this focus on the changing nature of the psychological contract should not be overlooked.

The important role that the development and deployment of human capability plays in organisational performance should not be underestimated. Tamkin, et al., (2004) position this eloquently with their argument that ‘training and skills focus respectively on the growth and stock of human capital, but workforce capability also depends on the degree to which this stock is deployed’. The links between this line of thinking, the employee engagement agenda, and organisational performance, are clear and once again put line managers in the spotlight.

Whereas corporate governance examines accountability at firm-level, this section considers individual accountability within an organisation and how increased individual accountability can lead to enhanced organisational performance.

The academic literature in this area is generally sparse and mainly has a US focus. It refers to both formal and informal accountability mechanisms. Ferris, et al., (2008) suggest that performance evaluation is ‘a formal accountability mechanism nested within a complex social, emotional, cognitive, political and relationship context, which needs careful consideration and comprehension in order to fully sort out performance evaluation challenges and leverage possibilities’. Accountability is described in informal terms by Frink and Klimoski (2004) ‘as the adhesive that binds social systems together’

4.3

What role

does

accountability

play in

organisational

performance?



Ferris, et al., (1995) suggest that accountability can be divided into external and internal accountability. Whereas an organisation might hold employees formally accountable (external), a particular individual might not accept that accountability and might not feel accountable (internal). Hall, et al., (2004) argue that ‘internal accountability is a more theoretically interesting and relevant construct than external accountability because it relates to the effects on attitudes and the behaviour of organisation members’.

Siegell-Jacobs and Yates (1996) distinguish between two types of accountability: Procedural accountability (PA), where evaluation of an action is based solely on the quality of the procedure that a judge or decision maker uses in arriving at a response, regardless of the quality of the outcome of that response; and outcome accountability (OA) which is based exclusively on the quality of the outcome of a response, without looking at the nature of the procedure used to arrive at that response. Procedural accountability appears to have positive effects on the quality of decisions (Kiker, Mero and Brownlee, 2002; Rozelle and Baxter, 1981), although some studies suggest that outcome accountability may actually result in lower quality decision making (Adelberg and Batson, 1978). Hall, et al., (2007) suggest that ‘disconnects between aspects of accountability may pressure individuals to behave unethically and seek to rationalise their behaviours’. This is in line with Smith and Reeves (2006) who suggest, ‘Successful organisations... recognise that while rules are necessary, they are far from sufficient and that people believe their eyes more readily than their ears. But the drive to accountability in all corners of organisational life – what Michael Power calls an ‘audit explosion’ – has meant that too many organisations are leaning too heavily on the rule book to the detriment of professional intuition and ethical behaviour’.

Current working practices suggest that the rule book is still dominant. According to the Knowledge Workers Survey (Brinkley, et al., 2009), workers, regardless of the knowledge intensity of their work, expressed strong preference for organisations built on mutual trust and loyalty, with very few respondents stating a preference to work for an organisation bound by rules and procedures. Unfortunately, this latter characteristic is also the one that most workers perceive as prevalent in their organisations. Over 60 per cent of knowledge workers said their organisation was characterised by rules and regulations compared with the fewer than five per cent who said they preferred such organisations.

So a number of key questions remain unanswered about accountability in the organisation. For example, what is the difference between accountability and performance management? What is the link between accountability, performance and ethics? And how clear are the people management roles and responsibilities for creating an organisational environment in which staff at all levels are accountable for understanding and delivering, customer/citizen or service



user needs? Who is accountable for holding the organisation to account for how it manages its people?

There are many empirical studies, such as those by Delaney and Huselid (1996), Delery and Doty (1996), and Koch and McGrath (1996), which suggest that specific, stand alone HR practices are associated with organisational effectiveness. Similarly there are many studies which look at HR ‘systems’ encompassing a number of practices, and which suggest that these systems may have a stronger effect than any one variable (Huselid, et al., 1997; Ichniowski, et al., 1997; Bae and Lawler, 2000). Positively, there is a vast array of literature demonstrating the strong association of HRM to productivity. Key research in this area includes:

Using the UK WERS (Workplace Employee Relations Survey) data Wood, de Menezes • and Lasaosa (2001) found that the implementation of high involvement management raised the rate of productivity growth.

Patterson, et al• ., (1998) found that nearly a fifth of variations in productivity and profitability were associated with differences in HR practices.

Huselid and Becker (1996) in the US used a one standard deviation shift in HRM • practices as a benchmark and found that sales per employee rose by $27K and market value per employee by $15K. This was greater than strategy, R&D expenditure and technology as a predictor of productivity and profitability changes.

Guest, et al• .‘s (2003) study of 366 organisations concluded that there was an association between high-commitment HR practices and higher profitability, as well as lower reported levels of labour turnover in manufacturing, but not in services.

Guest and Bryson (2008) also analysed WERS data to reveal that, even using the • limited set of HR practices that were collected over a number of the surveys, the analysis supported the general findings of the major reviews (Boselie, Dietz & Boon, 2005; Combs, et al., 2006) in revealing an association between the adoption of more HR practices, and measures of comparative labour productivity and financial performance.

However, the consensus from all of these studies is that high performance HR systems have economic benefits for organisations in terms of their financial, bottom line performance.

4.4

The impact of

effective HRM

on productivity

and

organisational

performance



Furthermore, the effects of HRM are often found to be greater than other investments such as ICT or research and development.

This section examines innovation in the context of how it links to HRM, whether HRM enhances innovation within organisations, and also whether HR is innovative or is required to be risk averse and bureaucratic.

In the context of HRM and innovation, the main measures of innovation that appear in the literature are quality in product innovation and commitment to technical change and production techniques. Shipton, et al., (2005) distinguish between the different measures of product innovation, focusing on both innovation in production technology, and innovation in production processes.

Much of the literature argues that change and innovation fall outside the remit of technical specialists, such as R&D professionals, and instead involve those at the coalface of organisations, those who have most knowledge of the task and the technology required to ensure its effective implementation. According to Shipton, et al., (2006), HRM creates an environment that fosters innovation. For example, people management practices are thought to play an important role in fostering innovation because they can signal to employees that innovative activity will be recognised and rewarded (Laursen and Foss, 2003). Good HRM should also ensure that all members of an organisation are receptive to, have the necessary skills to support, and are empowered to instigate change and innovation (Paton and McCalman, 2000; Shipton, et al., 2006). Furthermore, effective HR practices should help employees to identify new and different opportunities for the future (Shipton, et al., 2006).

Ichniowski, et al., (1997) suggest that production lines with innovative HRM systems have greater productivity, and lines becoming more innovative in HRM over time showed increased productivity. Interestingly, Dorenbosch, et al.’s (2005) study found that employees who perceived HRM practices to be commitment-oriented both ‘felt more ownership for work issues beyond their immediate operational tasks and showed more innovative work behaviour (IWB)’.

Diversity, in the broadest possible sense, also has a role to play in organisational innovation. Bassett-Jones and Lloyd (2005) makes the case for embracing diversity management sooner rather than later, since creativity and innovation are enhanced by the existence of diversity. He defines diversity management as ‘the aggregate effect of HRM sub-systems, including recruitment, reward, performance appraisal, employee development and individual managerial behaviours in delivering competitive advantage through leadership and team work’.

4.5

What do we

know about

the link

between

innovation

and HRM?



Findings about the role of HRM in innovation are interesting when one considers that much of HR practice has a basis in employment regulation and compliance, with generally risk averse and overly bureaucratic policies. Guest and Bryson (2008) suggest in their examination of the longitudinal data of Workplace Employment Relations Survey that ‘personnel specialists, including qualified specialists, are not the vanguard of human resource innovations’. If anything, the evidence suggests that they are bringing up the rear, their presence associated with traditional employment relations, and their time presumably engaged in a range of operational activities. Legge (1978) had argued persuasively that personnel managers were often not capable of bringing about the kind of employment relations innovations that seemed to be required. She suggested that if personnel managers were to establish themselves as credible players in organisations, they needed to engage in either deviant or conformist innovation.

There are indications in the analysis of WERS data as reported by Kersley, et al., (2006), that many human resource specialists are beginning to break out of this traditional mould by devolving certain activities to line managers, and by exercising greater autonomy. New HR operating models that focus on the deployment of the ‘business partner’ and the development of shared services to take care of the ‘transactional’ nature of much of the work of the HR department are partly designed with this goal in mind.

In conclusion, it would seem that there is research evidence to support a link between HRM and fostering, or suppressing, innovation. Nevertheless there is also evidence that innovative HR practices are less likely to be driven by HR professionals and as one sponsor HR director mentioned they are more likely to be characterised by 60 page bureaucratic polices and procedures.

Box 4.2 Key issues on delivering positive outcomes

The strong evidence for employee engagement driving improved performance fails to • explain the relatively low levels of engagement as a whole. The identified drivers of employee engagement are clearly not easy to operationalise.Learning and development opportunities may provide a situation of mutual gain but • evidence suggests that for high performance, individual needs for employability take second place to organisational need.There is limited clarity about who is accountable for holding the organisation to account • for how it manages its people.Much HR practice has a basis in employment regulations and compliance, with generally • risk averse policies inhibiting HRs potential to foster innovation.



Like any navigator, we’ve started with paths well trodden before branching off to less-visited, but promising ground. From a broad and preliminary review of the literature on people management, there is a large body of work attempting to link HRM practice to people management and organisational outcomes. Some measures are unequivocally crisp, like that of West, et al., (2002) when mortality was used in an acute medical context. Others like Tamkin, et al., (2008) demonstrate the importance of the association between positive HR practices and desirable organisational outcomes. In the main, the understandable concern is that the leap from HR process to profit, or to citizen and public value, must be treated with caution given the large number of contributory and intermediate factors. Nevertheless, the ever-growing number of studies examining the association of people management interventions to performance suggests, on balance, that one can be optimistic that good people management, inter alia, is an important ingredient in organisational performance. In our opinion, adding to this evidence base is unlikely to provide the insights required for recommendations for how staff should be managed fairly and effectively in the future.

Leaving the well-lit paths covered by the literature to explore some of the interstices, what is clear from the research, and the discussions with academic experts, practitioners and our sponsors, is that between the parts that we confidently proclaim from research and practice, to the universe of high performing, engaged, happy employees who deliver services with skill, competence and wisdom is a chasm of interacting factors and HR interventions (the ‘black box’ as defined by Purcell and others before us). Despite the armoury of tools and knowledge about people management, and the efforts of many to unpick the mysteries of the ‘black box’, the vast majority of employees in the UK remain unengaged.

It would be tempting to accept the people management terrain as is, where practice and strategy are informed by anecdotal evidence and generalisations of the literature. After all, if the situation described by Rynes, et al., (2002), remains unchanged (where the HR largely fails to draw on research knowledge – see Section 2.1), the future of HR will remain largely familiar. The profession will continue to react to external pressures with only limited scope to be strategic about its own development as a profession. With the exception of a few leading the way in HR innovation, the value of the HR profession will, in the main, continue to be based on its leadership in learning and development, talent management, ability to foresee workforce risks, contain costs and the delivery of bad news to employees within clear risk parameters, while aiming for/maintaining a place at the top table. There is an unspoken tension with the uncritical adoption of the SHRM paradigm. That trajectory minimises affective relationships with employees, communicating through the line and remote service terminals. In effect, HR is seeking engagement, while itself maintaining a transactional presence in the lives of most

5. Closing comments


employees. There is much to be gained for people management if HR re-examines/clarifies its complex role vis-à-vis the other players.

The future of HR programme was built on the premise that practice and strategy could be informed by re-examining the interstices (between theory and practice) and by standing back to question some of the fundamental assumptions and givens that pervade people management. The review (including the technical report) lays the foundation for that inquiry.

The review has opened up several paths less trodden. One that interested the programme sponsors is the issue of implementation. Is the weak link the enactment of policy and strategy by the line? Intervening at this point presupposes that there is a unitary perspective to people management in organisations and that all line managers are adept at (or at least competent in) people management. Intuitively, the response from our expert advisory group and from the sponsors was that not everyone has the aptitude for managing people. That reaction has implications for, inter alia, strategy, policy, reward, career development, structure and, potentially, limits HR’s scope for devolution.

Implementation as the focus for the programme ignores the fact that at the centre of the people management industry (practitioners and consultants alike) is the individual employee, with all the potential to active engagement but also the will to thwart and subvert (perhaps with good reason). Focusing on implementation presupposes the employer knows and understands what motivates their employees to give of themselves towards organisational goals. An exploration and evaluative framework that includes the employee perspective is crucial, or it may lead to the simplistic conclusion that the fault is the line managers’ inadequate translation of policy. This is based on the pervasive assumption of management intervention being the main tool, but that is only part of the equation. The literature on high performance working depends on a healthy relationship between employer and employee. Without an appreciation of what inspires employees to go beyond the transactional, implementation is only a reactive tool to a business imperative.

In the extensive consultations with our expert panel and sponsors, it became apparent that the sponsors spoke of the relationship largely in terms of ‘the deal’ while the expert panel was more concerned with the accountability and protection of employee intentions over and above compliance. There are fundamental questions about the way theory and discourse (‘the rhetoric’) have shaped the understanding of HRM in both groups, and how this influences practice.

Closing comments


What is not examined reflectively is the psychological contract between employee and employer. The concept of the psychological contract appears to have passed its sell-by date in current HRM discourse and yet, underpinning these practical concerns with high performance is the employees’ interpretation of ‘the deal’ and employees’ clarity on what they expect in exchange for ‘their deal’. Given that Towers Perrin (2003) has estimated that employee engagement in any organisation at a given time is as low at 20 per cent, to what extent are the current people management practices and agents able to deliver employee engagement without fundamental insights into how employees perceive ‘the deal’?

As the review in Chapter 3 shows, much is known about psychological contracts, in particular, the content (eg pay, autonomy, trust, organisational support etc). What is less clear is how employees negotiate an inherently unequal relationship and from the employers’ perspective, what is realistic when attempting to manage that relationship.

It is clear from the literature that both culture and values are fundamental to the employees’ experience of and understanding of the organisation. If ‘the deal’ is indeed ‘managed’, it is not clear who is accountable for ensuring that there is consistency between the espoused values, the culture and the deal as experienced by employees. What happens when this translation goes wrong? What, if any, is the role of voice, partnerships and mutuality in the formation of the deal? And in negotiating the deal with employees, how focussed is the organisation on the desired outcomes, and how confident are organisations that the deal is the right one?

Against this backdrop of a constantly evolving relationship between employer and employee – and one that is likely to continue to evolve over time – there is relatively little understanding of the relative roles, responsibilities, and capabilities of the main people management agents (HR, the line, leadership) in delivering high performance.

The HR practitioners’ clarion call to arms usually looks like an engagement ‘transformation’ and, in practice, most employees are adept at adjusting to organisational changes. Before the transformation panacea is applied, perhaps a fresh understanding of why the employer-employee relationship works is necessary, if the goal is sustainable high performance. Within the context of The Work Foundation’s philosophy of Good Work, this programme aims to further the understanding of what makes for good people management starting from its raison d’être, the well-being of the individual worker.

Closing comments


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