Category: Human Resource Management

The personnel/HR function has developed considerably since its earliest welfare role, through a range of different incarnations. There is a long history of the specialist func­tion analysing its role in the organisation and promoting the way in which such roles need to develop in order for the function to gain greater power and credibility. Much emphasis has been placed therefore on a strategic role. If HR is strategic to business success (Boxall and Purcell 2003) then HR needs to be a strategic player and the role of business strategist will be a key role for HR specialists in the future (Cleland et al. 2000).

Analysing HR roles has been a useful way to reflect what is going on in the func­tion and how it is changing, but sometimes roles and role structures are used in the normative sense of what the function should be doing and where it should be aiming.

The function is again in a period of key change and this is reflected by the attention given to this topic in journals. For example a whole issue was devoted to this topic in Human Resource Management Journal (2001), in Human Resource Management (2005), and in Personnel Review (2006).

1. ANALYSIS OF HR ROLES AND STRUCTURES

One earlier well-known example of the analysis of HR roles is by Tyson and Fell (1985) who identified three roles using a construction management metaphor: architect; clerk of works and contract negotiator, but perhaps the most frequently quoted is Storey’s (1992) four roles (handmaiden, regulator, changemaker and adviser) which he identified at the threshold of the move from personnel management to HRM.

In 1997 Ulrich proposed an HR role set which has had a significant influence on the way in which HR has subsequently been structured in the UK, and elsewhere. On the basis of work with leading-edge organisations in the USA he proposed four HR roles, using the metaphors of employee champion; administrative expert; change agent; and strategic partner. He further identified the summary role of business partner, explaining that HR fulfils this role if the four roles above are all effectively achieved. Ulrich’s four 1997 roles are as follows:

• Strategic partner – aligning HR and business strategy, identifying HR priorities through organisational diagnosis.
• Administrative expert – the traditional role of designing the firm’s infrastructure to enable the design and delivery of HR processes, producing administrative efficiency.
• Employee champion – concerned with the day-to-day needs of employees, linking employee contribution to business success, and increasing commitment and com­petence. Involves personal contact with employees and provides a means for employees to voice their opinions, and helps maintain the psychological contract.
• Change agent – involved in transformation and cultural change such as identifying and framing problems and working to solve them.

One of the fundamental features of Ulrich’s approach is his view that HR effective­ness can only be achieved if all business needs relating to HR are met, and therefore all roles are fulfilled. Thus, Ulrich argues that HR must deliver on both an administrative level and a strategic level. This has been echoed elsewhere, with comments that opera­tional HR excellence is an essential precursor for the involvement of HR professionals at a strategic level (e.g. Caldwell 2003; CIPD 2006a). This is a clear change of thinking

from the earlier views which exhorted HR to move from administration to strategy, as in the characterisation of HRM as being in opposition to traditional personnel manage­ment (see, for example, Storey 1992) It has been argued that Ulrich’s model has been the biggest reconception of the HR function since the personnel versus HRM debate and a cursory glance at the advertisements in People Management will show the influence that it has had on job titles and the apparent structure of the HR function. However whilst making the case for strength from the combining of roles, Ulrich does acknowledge the paradox created by trying to fulfil all roles, such as representing employee needs at the same time as implementing a management agenda.

On the basis of further research Ulrich and Brockbank (2005a, 2005b) provided a view of the way in which HR roles had evolved since 1997, and this new analysis focuses on what an HR professional has to do to create value. In the new synthesis of roles, most of the roles have new titles. These are: Employee advocate; Human capital developer; Strategic partner; Functional expert; and the compound role of Leader. However, the roles reported in 2005 can be linked back to the earlier model, as shown in Table 32.1.

We can make some interesting observations about how roles have evolved, in Ulrich’s view, over the period. For example the Employee advocate role is now a single clear role rather than being combined with people development as in the old Employee champion role. This reflects the recent imperative to explore and understand the employee voice and employee well-being and a recognition that these are important for the individual and the organisation and were underrepresented in earlier thinking and practice in HRM.

The Human capital developer role reflects increasing attention to the management and development of human capital and the role of HR in this. It is resonant of role titles, both academic and professional, with ‘human capital’ in the title and in other analyses of HR roles such as the ‘human capital steward’ in Lengnick-Hall and Lengnick-Hall’s analysis, 2003. We discuss the concept of human capital in more detail in Chapter 2 and in Chapter 33.

Whilst one of the key and differentiating features of the 1997 roles was the pro­minence of the Administrative expert role, in that it was of equal value to other roles, it is interesting to see that administration has now been subsumed in a role reflecting func­tional expertise. This may reflect a further distancing from administrative aspects as these are outsourced.

Note that while these new roles have been published much of the debate in profes­sional journals and in academia still relates to both the original 1997 roles and the new roles. This is due partly to publishing time-lags, but also to the huge impact that the original model has had, and reflects the gradual process by which organisations absorb and implement new ideas.

What has emerged from Ulrich’s work, much of which is suggested in the 1997 text, is a restructuring of the HR function into what is often referred to as the three-legged structure. This structure comprises:

• strategic/business roles working with senior managers and business leaders on business issues, strategic organisational change and design;
• shared service centres, outsourcing contractors, and HR intranet support, all focusing on administrative and routine issues; and
• centres of HR expertise providing specialist support to the service centres, providing expert advice and being involved in the design of HR policy and activities.

There is evidence that in many large organisations (see, for example, Robinson 2006) this structure has replaced the integrated model where one HR team carried out this full range of roles. The CIPD is beginning a research project to find out how widely adopted this structure is and what evidence there is of effectiveness.

2. HR STRATEGIC ROLE

There is much evidence that the strategic or business partner role is the one which has been most attractive to organisations. For example an examination of advertisements for HR posts in People Management at the time of writing shows that around 25-30 per cent of job titles advertised are Business Partner or Strategic Partner, compared with early 2003 when these titles were rarely, if at all, used. HR needs to be credible to offer a strategic contribution and it has been suggested that such credibility needs to come from being involved in a wider range of business agendas, and there is some evidence of this happening (see the Window on practice that follows).

It is worth noting however that the term business partner is often used as a synonym for strategic partner, and used interchangeably (Francis and Keegan 2006; Robinson 2006), although this is not what Ulrich was suggesting. In addition there is further evidence that different organisations are interpreting the role in a variety of ways. For example Pickard (2004), suggesting that business partners are emerging as the dominant model, explains how in Vauxhall ‘partners are working with the business, developing

close relationships with line managers and helping to solve issues’. In other organisations partners are roles of a more strategic nature, providing consultancy to senior managers and becoming involved in the wide range of business issues, as above, and in the Pruden­tial example quoted by Pickard in the same article.

In a local government context Griffiths (2005) reports an Employers’ Organisation survey which found that 68 per cent of senior HR managers had a strategic partner role as their primary role; however the survey report suggests reasons for this high figure, one of which is that there are varied interpretations of that role. Furthermore Truss et al. (2002) identify ambivalence over the precise meaning of the word ‘strategic’.

Articles and books abound on how to become a strategic partner (see, for example, Goodge et al. 2004; and Reilly and Williams 2006), with other roles seemingly down­played. One interpretation of this is that the HR function is finally gaining prized strate­gic involvement giving it credibility and power in organisations.

The focus on HR’s strategic involvement was a fundamental part of the move towards HRM from personnel management. However recent prescriptive literature appears to display similar levels of exhortation, and research suggests that while some progress may have been made towards strategic involvement there remains a wide gap between rhetoric and reality.

In addition to the lack of clarity about the nature of the strategic role, another prob­lem with assessing the extent of strategic involvement is that many surveys on the HR roles are completed by HR specialists alone, and it has often been demonstrated that others in the organisation will not necessarily share the view of the HR specialist on this, and other topics. A recent example of this is a survey which included an assessment of the HR strategic role in India, where Bhatnagar and Sharma (2005) found that line managers and HR managers differed significantly in their assessment of HR’s strategic partner role, with HR managers having a much more positive view of their involvement in this capacity.

Caldwell’s (2004) interviewees were mostly optimistic about the growing links between HR policy and business strategy, but this rarely was sufficient for them to be defined as a ‘business partner’, even though 16 of the 24 respondents were represented in the board­room. The general view was that HR people are at the implementation end of strategy. We must therefore question the extent to which changes in role titles actually reflect changes in roles carried out.

The extent to which the HR function becomes involved in both organisational and human resource strategy development is dependent on a range of factors, the most often quoted being whether the most senior HR person is a member of the board of directors. The ultimate in strategic involvement is the presence of an HR board director and this has previously been used as a proxy for strategic involvement. Sparkes (2001) identifies a key role for the HR director as promoting the connection between organisational strategy, culture and people strategy. He maintains that being an HR director means that ‘we can almost guarantee that a human element is built into everything strategic from the start’ (p. 45).

There is some historical evidence to suggest that HR board membership has increased and surveys suggest that around three-fifths of larger organisations have an HR director (see, for example, Hall and Torrington 1998), although some surveys indicate lower percentages. However we found, as did Truss et al. (2002), that strategic HR roles can come and go depending on the context. Recent examples of HR directorships doing just this include Arcadia (Topshop, Burtons and other high street names), where the HR director for over 10 years resigned and will not be replaced by another HR director, with no reasons being given (People Management 2006d); and Thorntons who scrapped the HR director post believing it to be a luxury the company could not afford (Griffiths 2004b). Griffiths (2005) quotes Warner (the corporate director of people and property at Hertfordshire County Council) who says that HR has dropped off the top table in recent times, but who also suggests that HR should not have an automatic right to be on the board, and that the function has to earn its place.

Saratoga, the human capital metrics business of PwC, in its Key Trends in Human Capital Survey 2006 found little evidence of an increasing strategic influence for HR: in fact the number of HR board directors of FTSE 100 companies had fallen to six, and Phelps, the partner in HR services at PwC, said one of the reasons behind the trend was the lack of skilled, strategically minded HR professionals (People Management 2006b).

There is evidence that HR managers have to prove themselves before being given a seat on the board (see, for example, Hall and Torrington 1998) so building key com­petencies is essential. Barney and Wright (1998) suggest that one of the real reasons why HR professionals are not involved in strategic planning is that they are not displaying the required competencies. This continues to be an issue.

It is suggested that HR managers need to use business and financial language; describe the rationale for HR activities in terms of added value; use strategic thinking, act as a business manager first and an HR manager second; appoint line managers into the HR function; concentrate on priorities as defined by the business; understand the business they work in, display business acumen, use relationship building and networking skills, and offer well-developed change-management skills that can be used immediately

Sheehan (2005) argues that the business expertise and credibility of the senior HR specialist can either support or prevent strategic HR integration. Vicky Wright (President of the CIPD) considers that HR will never get to the strategy table unless it delivers at a basic operational level, and identifies the most common problem as HR’s lack of busi­ness understanding. She also points to the need to link business priorities with the HR strategy agenda (using creativity and innovation), and to develop personal competencies to ensure that they can interact successfully with bosses and peers at board level. At a 2006 CIPD seminar three themes emerged when HR directors talked about their rela­tionship with their chief executives:

building their confidence and interpersonal skills; preparedness to take accountability; use of analysis and information to support their argument. (Wright 2006)

In our own research we found (Hall and Torrington 1998), as did Kelly and Gennard (1996), that board membership was generally identified as desirable, for as Sparkes (2001) suggests, it improves HR’s understanding of the business context in which HR strategies need to be developed and implemented. However, board membership does not guarantee the involvement of specialists in strategy, and it is not necessarily seen as essential to strategic involvement. This is perhaps why currently very little attention is given to assessing the percentage of organisations with an HR director.

Other factors influencing the role of the HR function in strategic concerns include the overall philosophy of the organisation towards the value of its people, its culture, the mindset of the chief executive, and the working relationship between the chief executive and the most senior HR person.

These influences are not particularly easy to manipulate, but what the HR function can do is look for opportunities in these areas, and use them. Building a good working relationship with the chief executive is critical. For example Stiles (2001) confirms the power of the chief executive in selecting who should be appointed to the board.

Guest and King (2001) argue that, as senior managers and board members appear to have limited knowledge of research linking people management and performance, there is an opportunity for enthusiastic HR managers/directors to feed new ideas to chief executives. Increasingly, HR managers need to become closer to their accounting colleagues. In addition, the function needs to prepare itself by thinking strategically, identifying a functional mission and strategy and involving line management in the development and implementation of human resource strategy.

The extent to which the HR function makes a strategic contribution to the organisa­tion is the focus of Case 32.1, ‘People issues are central to the success of any organisation’, on this book’s companion website, www.pearsoned.co.uk/torrington.

3. THE ROLE OF LINE MANAGERS IN HR

The literature has for some time been replete with articles about the decentralisation and devolution of HR management as methods of integrating HR activities with day-to-day line management. We use the word devolution here to mean the reallocation of HR tasks to managers outside the HR function, keeping this separate from the relocation of HR specialists to lower levels of the business, in order to work closely with line man­agers in specific departments or sections in the organisation (which we consider to be decentralisation). Here we concentrate on the line taking ownership of HR activities, enabling HR specialists to act as a consultant, coach, facilitator and strategic partner, which has been identified as a key plank of HRM, being different from a traditional personnel management approach (see, for example, Storey 1992). Such devolution of operational day-to-day HR tasks has been described by Hope-Hailey et al. (2005) as devolving the employee champion role.

The advantages of this approach to restructuring HR activities have been identified as allowing HR specialists to focus on strategic rather than operational concerns, and a strengthening of the relationship between the employee and his or her manager, result­ing in a more positive management approach to employee performance. The importance of the role of the line manager in delivering HR is well documented, especially by Hutchinson and Purcell (2004), as in their research they found that first-line manager behaviour is:

the most important factor explaining the variation in both job satisfaction and job discretion, or the choice that people have over how they do their jobs. It is also one of the most important factors in developing organizational commitment. (p. ix)

Hutchinson and Purcell suggest that line managers bring HR policies to life, and in the extract quoted above show how line managers have a direct impact on employee performance.

However, the difficulties of devolving HR activities to first-line managers have also been consistently highlighted. In our research, we found that implementation was difficult, sometimes being described as a game of tennis where although there was a deliberate policy to devolve HR activities, and managers were encouraged to take them on, these often bounced straight back to HR specialists (Hall and Torrington 1998). The idea that line managers need to take on more day-to-day HR activities has been countered by line managers’ lack of skills and interest in this. For example Hope-Hailey et al. (2005) on the basis of their research found that line managers neither were motiv­ated nor had the ability to take on people management responsibilities. Interestingly McConville (2006) in the context of the NHS, the Armed Forces and the Fire Services, found that middle managers wanted to be proactive in HR, were committed to it, and exceeded their job requirements to carry out HR activities, but their already substantial workload created the greatest barrier. Caldwell (2004) found that managers resisted taking full ownership of HR and conversely HR professionals wanted to retain control over HR policy. His interviewees were generally reluctant to take devolution ‘too far’, as ultimately too much devolution may result in the HR role itself being devalued. Our evidence supports this, that HR specialists were keen to hand over the responsibility for day-to-day HR activities, but were less keen to hand over authority for them and the associated budgets. A number of aspects of line manager involvement in HR activities have been identified as problematic, including the lack of consistency of HR decisions and lack of integration resulting in more difficulties in implementing HR strategy.

Maxwell and Watson (2007), on the basis of their investigation into line manager and HR manager perspectives of line management involvement in HR in Hilton Hotels, propose three types of line manager buy-in which are key to their active involvement in HR activities. These are:

• a conceptual understanding of the reasons for their involvement;
• the ability to implement these activities effectively through a clear HR role and having sufficient capability; and

• belief that their involvement in HR is valuable.

Interestingly the authors also found a general lack of shared understanding between line managers and HR specialists about the role of line managers in HR, and some indica­tions that the more similar the perceptions of HR and line managers, the better the hotel performance, whereas the more divergent their perceptions, the weaker the hotel performance.

4. CRITIQUE OF THE DEVELOPMENT OF HR ROLES AND STRUCTURES

The evidence suggests that while it is difficult successfully to change HR roles, as they are socially constructed and depend on the expectations of other members of the role set (see, for example, Truss et al. 2002), there have been changes in the overall level of line manager involvement in HR, in the use of outsourcing and shared service centres and in the emphasis on strategic roles.

One interpretation of these developments is that the HR function is finally gaining prized strategic involvement giving it credibility and power in organisations. However not only do we need to separate the rhetoric from real changes, but these developments in the function are not without their problems. As Hope-Hailey et al. (2005) suggest on the basis of their investigation into the banking industry, the HR function may be able to become more strategic, but the employee experience may deteriorate. The concentra­tion on strategic roles appears to have gone hand in hand with the abandonment of the role of employee champion. There is considerable evidence to suggest that the employee champion role is still equated with tea and sympathy, and that concern for employee well-being is seen as a signal that the HR function is being dragged back to its old wel­fare role (see, for example, Francis and Keegan 2006; Beckett 2005; and Pickard 2005), with consequent loss of status and credibility. In an interview one senior CIPD adviser stated that ‘nobody wants to be an employee champion. They all think it’s ideologically unsound’ (Francis and Keegan 2006).

In case studies of the HR function in large local authorities Harris (2006) found increas­ing use of self-service and outsourcing which appeared to undermine the role of employee champion. She suggests that as the HR function becomes distanced from the workforce and line managers, the consequent loss of knowledge on operational issues means that the function is less able to act as an employee advocate. She found that employees were less likely to see HR as a form of support and advice and suggests they are more likely to approach the union or use legal redress, making the employment relationship more adversarial. She proposes that this loss of touch hinders rather than enables a strategic role.

Along the same lines Francis and Keegan (2005) in their research, which involved interviews with key CIPD staff, HR practitioners, HR course leaders, students and union representatives, found the employee champion role was disintegrating in almost all of the organisations they looked at. They found growth of the business partner role and the parallel restructuring of the HR function which appeared to downgrade the employee-facing role, a reduction in the number of HR specialists (as can be seen also in our Window on practice examples) and the devolution of face-to face HR to line man­agers. They identified a loss of employee trust and confidence and a cost to employee well-being. Respondents believed employees were losing out because line managers did not have time to prioritise HR issues, or their training, and often HR advisers were geographically distant. As HR specialists vanish, they suggest, employees are more likely to turn to unions for support and advice.

The unions are already aware of this trend and Harry Donaldson (Regional Secretary of GMB Scotland) commented that unions were worried about HR shifting its focus away from the workforce and away from ‘traditional HR’ which was associated with welfare and trust. Given that line managers do not always have the necessary skills, he suggested that the chasm thus created between HR and the workforce would be filled by the unions (People Management 2005a).

Not only do these developments have potential consequences for employees, they also have consequences for HR practitioners. Francis and Keegan (2006) found that HR practitioners do not consider employee champion roles as career-enhancing moves, and in 2005 Francis and Keegan reported that HR professionals were further concerned that the ‘people’ element of the job was diminishing. They suggested the people ele­ment is a key reason why many enter the profession, and that changes are resulting in disenchanted HR professionals. In addition they found evidence of an increasing split between strategic and non-strategic HR roles. Not only does this split hinder strategic parts of the role and therefore the fulfilment of the HR role overall, but HR professionals perceive that people are parachuted into the top HR jobs from outside the profession (Francis and Keegan 2006), a development which clearly limits career progression for HR professionals.

In terms of the HR function as a whole devolution (to line managers) and decentral­isation (from the centre to specific business units) create problems for consistency and integration. Caldwell (2003) also suggests that the decentralisation of HRM to the business unit level has resulted in HRM being under more pressures associated with costs, value and delivery and suggests that this has been the driver for the fragmentation or balkanisation of HR into specialist subtasks with some parts outsourced externally or to the line. Caldwell suggests that the main risk here is de-professionalisation of the function, and that decentralisation may cause the HR contribution to constantly shift, thereby diminishing the clarity of its role or function. He suggests that the function remains dogged by ambiguity and conflict.

There is however a view that Ulrich’s work has been misinterpreted and that by roles he meant tasks to be achieved rather than discrete jobs. In spite of this the current focus on Ulrich’s roles and structures appears to be based on the assumption that what is good for the organisation is good for the employee. Francis and Keegan (2006) put this well when they say that current models, like earlier ones, are premised upon the assumption of mutuality of interests between all stakeholders – employees, managers, consultants and HR professionals. And Hope-Hailey et al. (2005) suggest Ulrich’s conception of roles is at best unitarist or at worst naive. The emerging consensus appears to be that there is too much emphasis on models and not enough on skills, people and delivery in context, and that there is a need for the HR function to be agile and flexible in response to the needs of the organisation and consequently for the less rigid application of models (see, for example, CIPD 2006a).

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.

HR administration, for example pensions, payroll and recruitment, has typically been outsourced. But more specialist aspects have been subject to outsourcing too, such as training and legal work. IDS (2003) argues that the delivery channels for outsourcing HR administration involve e-HR and HR service centres. We will deal with these separ­ately, while recognising that there may be some overlap in approach.

The drivers for outsourcing HR are frequently quoted as reducing costs and improv­ing service delivery. Outsourcing appears to encourage the measurement of the value of HR, and IDS (2003) suggests that this comes about through the need for service-level agreements and key performance indicators with a greater focus on customer satisfac­tion. Cooke et al. (2005) in the USA identify a wide range of benefits from outsourcing such as allowing a firm to concentrate on its core business; gaining from the specialist supplier’s economies of scale and learning from them; shifting the burden of risk and enabling greater numerical flexibility; and the ability to keep costs down due to competitive tendering processes. Outsourcing has also been introduced as a vehicle for effecting changes that would be hard to implement internally. For example in large organisations outsourcing has been used to bring different parts of the organisation together to reduce costs, apply common standards and share best practice (see, for example, Pickard 2002), and to provide access to innovative IT solutions. A further advantage that is claimed is that the internal HR function can now concentrate on driving the direction of HR rather than carry out more mundane tasks.

However, time is needed to select and develop a relationship and trust with a service provider. Rippin and Dawson (2001) also identify the importance of fit with the service provider and warn that organisations choosing to outsource in order to save costs should not expect immediate returns. Outsourcing the whole of HR (sometimes called end-to-end outsourcing) is also a very different proposition from outsourcing differenti­ated activities, which has been happening in an ad hoc manner for a much longer time. Blackburn and Darwen Borough Council, for example, has outsourced all its HR to Capita, including strategic HR (IDS 2003), which is the one part that most organisations retain in-house. Main (2006) suggests the lack of success of some outsourcing experi­ences is due to the fact that outsourcing is seen as a way to get rid of a problem (such as cost and inadequate computer systems) and the view that once activities are outsourced management responsibility for them ends. He suggests all this has hampered the devel­opment of end-to-end outsourcing, and that, as an alternative, companies have gone for shared service centres and have outsourced separate HR functions such as training, administration and payroll to separate providers.

Some organisations have clearly experienced advantages from outsourcing, although many of these are based in the USA and there is a question as to the extent to which such an approach should be applied in the same way in the UK. Hammond (2002), using sur­vey evidence, reports that firms in the UK are resisting outsourcing. He argues that BP experienced only limited success when it outsourced to Exault, and that outsourcing is a different proposition for such big companies as opposed to smaller organisations. This same survey found that managers have a number of fears about outsourcing HR, such as loss of control, loss of the personal touch and doubts about the quality and commit­ment of external staff. However, the research reported was commissioned by Northgate Information Solutions and this fact needs to be taken into account when interpreting the results, as this company has a product to sell. John Hofmeister, director of HR at the Royal Dutch/Shell group, attacks outsourcing as leading to the corrosion of HR departments, and he argues that only high levels of internal HR staffing can lead to and maintain high levels of HR practices (People Management 2002). In a slightly different vein Gratton (2003) argues that outsourcing combined with other trends such as devolu­tion fragments the HR function, and she identifies a growing alienation between dif­ferent providers (outsourcing agencies, line managers and remaining specialists in the HR function). She argues that HR would provide greater added value as a unified whole than when broken down into different fragments. Gratton proposed four mechanisms through which the function can be integrated to provide greater added value. The four mechanisms are: operational integration (e.g. using standardised technology to present a consistent front to the employee); intellectual integration (through a shared knowledge base); social integration (meaning that the function has a clear sense of where it is going and there is collective buy in to performance); and emotional integration (using bonds of friendship and reciprocity and a sense of shared identify and meaning). One of the major challenges is for the HR function to pull together the separate outsourced and segmented elements (CIPD 2006a).

Such outsourcing has been dogged with many problems, to the extent that some organisations have brought HR back in-house (see, for example, CIPD 2006a), and Brockett (2006b) quotes Marcia Roberts (Chief Executive of the Recruitment and Employment Confederation) as saying that as a potential outsourcing agency for recruit­ment ‘you often find yourself replying to tenders and dealing not with HR but with the purchasing department – which is more likely to be concentrating solely on cost’. In terms of possible adverse consequences Cooke et al. (2005) identify the potential loss of skill, knowledge and capacity, a reduction in the quality of services, the loss of employee morale, short-term disruption and discontinuity, and damage to long-term competitiveness. It has been suggested by a senior HR practitioner that outsourcing is ‘not a threat for the function or the business, but a threat to the individual’ (CIPD 2006a, p. 5).

In spite of these concerns, it is predicted that outsourcing will continue to increase, in particular outsourcing overseas – sometimes referred to as ‘offshoring’, although in some cases this form of outsourcing may be to wholly owned subsidiaries or may be the movement of an internal service centre (Crabb 2003). India is a favoured destination but Eastern Europe is also popular. However, cultural and legal differences will inevitably restrict the range of activities that can be successfully outsourced in this way. The popu­larity of the outsourcing idea is underlined by the fact that the CIPD now runs a course entitled ‘Outsourcing HR’ to help specialists understand the procurement process. According to a recent survey (CIPD 2006c) there is only a minor interest in offshoring HR compared with other functions, with just seven per cent claiming to have done this or to be planning to do this.

Key issues for implementing the offshoring of HR include a careful choice of partner so that there is sufficient fit, clear performance specifications, IT system compatibility, reassurance regarding the impact on HR staff, line managers and employees, promotion of new arrangements, good contract management and monitoring of performance.

Case 32.2 on this book’s companion website, www.pearsoned.co.uk/torrington, focuses on HR outsourcing.

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.

Some organisations argue that a better alternative to outsourcing is to use an HR service centre or shared service centre (see, for example, Pickard 2002). Shared service centres are sometimes referred to as partnership service centres or insourcing, depending on the circumstances. For example the Window on practice shows how Rotherham Borough Council has entered into a strategic partnership with BT.

IDS (2003) suggests that developing an HR service centre is often the linchpin in a company’s drive to achieve a more efficient form of HR delivery, and suggests that this is primarily achieved by streamlining and centralising routine HR processes and transactions. In addition such a service centre is usually the primary point of reference for line managers with HR queries. The benefits IDS identifies are savings from lower transaction costs, the removal of unneeded duplication, a more consistent HR approach across the whole of a company and an HR service which is more customer focused and more responsive to business needs.

Service centres may be HR centres or may be a shared centre with other functions, such as IT or finance. Other terms used are ‘HR call centre’ or ‘client centre’. In terms of operation many centres have staff based in the ‘back office’ dealing with administration and transactions, and different staffing for the ‘front office’ where enquiries from line managers are handled. Alternatively staff may be organised in teams by specialist function or client group (IDS 2003). Staff at the service centre would have electronic access to personal employee details and HR policies and so on.

One of the advantages of such centres is the metrics that can be derived to assess their performance. Examples are call waiting time, call count, call length, time taken to resolve queries, accuracy and satisfaction measures from users. There is usually a system of escalation where queries can be fed up to the next level if the original call centre operator cannot resolve them, so for example there would be access to a functional specialist for non-routine or complex queries.

One form of shared services is to have an online or e-HR self-service system, as in the RBS example in the Window on practice above. Such systems may offer cost saving advantages, but can pose special problems of their own inducing feelings of remoteness, dehumanisation and lack of customer friendliness. People Management (2006a) reports on a study by Roffey Park Institute which investigated line manager perceptions of e-HR. The two negative aspects reported most frequently were that line managers felt they had insufficient training on the system, and that employees were penalised when they did not keep their records up to date. Managers also felt that they spent too much time on HR administration and that on-line help available was of poor quality. We explore different aspects of e-HR in more detail in Chapter 33.

The problems with the service centre structure are that local knowledge and business solutions may be lost in the changeover, many low-level administrative roles are created with little potential for career development and there may be an obsession with measurement at the expense of service delivery.

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.

There is a wide range of ways in which technology can contribute to the HR function and we have discussed many of these so far in this text, for example the use of techno­logy to enhance recruitment and selection activities and to widen the range of learning experiences, and a broad summary of the potential uses of technology to support HR activities is given in Table 33.1.

In this section therefore we will focus on technology as a means of providing and manipulating HR information via HRIS (human resource information systems) and technology as a means of delivering HR as in e-HR which we touched upon in Chap­ter 32. In the latter part of this chapter we will see how such systems also have the potential to provide a major input into Human Capital Measurement (HCM)

1. HRIS

HRIS, in one form or another, have been around for about three decades, and debate continues about how they are and should ideally be used. Early systems were basic administrative tools containing employee data, with operational, analysis, modelling, and interactive facilities gradually being exploited over time. However Ball (2000) found that HRISs were still being used primarily for administrative rather than analytical ends and exploitation remains painfully slow and patchy. One of the key attractions of tech­nology for the HR function is that it can reduce time on administrative chores to free this up for more strategic activities. However the introduction and enhancement of HRIS is usually accompanied by staff cuts, and Gardener and her colleagues (2003) found that although the technology did free up time in one sense it also created a need to spend time on IT support and training.

In terms of the contribution that technology makes to the HR function, Zuboff (1988) makes a very useful distinction between automating current activities, so that they are done more efficiently and require fewer staff, and informating. This latter is explained as supplying new forms of information which requires new ways of thinking, for example by carrying out activities in a different way, carrying out new activities, integrating data across the whole organisation, making access to the data available to different users, rather than replicating current activities and ways of doing things. The tendency to automate rather than informate severely restricts the potential of any HRIS.

If we link this view of the potential of technology with the HR capability model of Reddington et al. (2005), the variable contribution of HRISs to HRM becomes clearer. Reddington et al. suggest that three primary drivers promote HR capability:

• ‘operational’ (i.e. improving cost effectiveness by reducing the costs of its services and headcount);

• ‘rational’ (i.e. improving its services to employees and line managers who are increas­ingly demanding); and
• ‘transformational’ (i.e. addressing the key strategic drivers of the organisation).

Automating in Zuboff’s terms clearly addresses the operational driver, and we have seen evidence of this in reducing HR headcounts, and automating may also make some contribution to the rational driver. Informating, however, is essential to progress the transformational driver and also to satisfactorily progress the rational driver, and this is essential for HRISs to make a significant contribution to HCM. So if technology is to make a real contribution to the HR function we need to go beyond automating. The evid­ence for this is patchy but there are some good examples of new approaches, if we think more broadly of the examples of the use of technology we have quoted in previous chapters. But these are often highlights in an overall picture of basic provision.

In the 2005 CIPD survey on People Management and Technology (CIPD 2005) just over three-quarters of the respondents reported use of an HRIS, and just over half of these had a single integrated HR system, but few (16 per cent) were integrated with other IT systems in the wider organisation, which is important for informating. The three key functions of an HRIS were reported as absence management (85 per cent), training (75 per cent) and reward (75 per cent), and these are also the three most likely to be run as an integrated system within HR. Analysis showed that the greater proportion of func­tions that are integrated as part of the HRIS, the more likely that the system would be used to aid human capital reporting, comply with supply-chain partner requirements, improve profitability, reduce headcount and deliver against economic criteria. Interest­ingly, respondents said that if they were to introduce their system again almost three- quarters would seek greater integration and more clarity with providers; slightly fewer respondents said they would arrange more training.

The five most popular reasons for introducing an HRIS are: improving quality (91 per cent), speed (81 per cent) and flexibility (59 per cent) of information, reducing the administrative burden on the HR department (83 per cent) and improving services to employees (56 per cent). Again there is more evidence of automating than of informating. In terms of who the intended users of the HRIS are, 99 per cent identified members of the HR department; 46 per cent identified line managers elsewhere in the business, while 32 per cent included employees. This suggests that some progress is being made in this respect towards informating. Tansley and colleagues (2001) provide an excellent insight into an organisation trying to develop an HRIS intended to encourage transformational change in the organisation and going beyond automating. This system is shown in the next Window on practice.

2. e-HR

One of the difficulties with e-HR is that it can be defined in a wide range of ways. It can include HR and corporate intranets containing static information, interactive HR and corporate intranets, email-based initiatives and the Internet. The emphasis here is on intranets. The CIPD (2005) found that 71 per cent of respondents claimed their organ­isation had an intranet with an HR facility, with larger organisations being more likely, not surprisingly, to have them. Of respondents 98 per cent say that the main purpose is to provide access to HR information and 88 per cent say it is to provide a facility for downloading forms. An intranet can also allow employees the facility to interact with the system to input information or make choices where applicable, which the CIPD terms an HRSS (HR self-service) system. Twenty-two per cent of respondents had such a system. CIPD survey’s findings on the purpose of introducing such system are shown in Table 33.2.

The CIPD found that access to such self-service systems was limited as only 64 per cent of organisations reported that all employees have access to this, and only 32 per cent said that all employees have been trained to use the system. As with other initiat­ives, much of the drive for such systems has come from the need to liberate the personnel function from its administrative tasks to allow it to focus on more strategic matters (Trapp 2001) and indeed the CIPD found that this was precisely the view of its respond­ents. Some identified problematic aspects such as the need to spend more time on the computer, leaving less time for face-to-face activities. Another disadvantage cited was software costs and training time to use such systems. Such systems are often introduced along with HR service centres, the intention being that the system should be the first port of call, before the service centre. In this way the pressure on service centres should be reduced in the long run. Different surveys have produced very different results con­cerning the extent of use (see, for example, Trapp 2001; compare this with IRS 2002b), and we will not dwell on the figures. However, it is generally agreed that more sophist­icated applications are still not very common and are most likely to be found in IT or related companies. IRS (2003) found that improvement in communications (73 per cent) was most frequently cited as the specific reason for introducing e-HR, followed by reduc­tion of routine administration (60 per cent), whereas only 37 per cent said they were looking specifically for cost savings. Tyler (2001) also suggests empowering employees as another reason for introduction. In terms of the static information they hold, intranets are likely to contain HR policies, rules and regulations, details of training courses, stand­ard forms, staff handbooks, induction information and information on benefits.

More sophisticated systems include such features as the ability to update one’s per­sonal details (password access), reviewing and changing the flexible benefits that one has chosen, checking one’s remaining leave entitlement and requesting leave, submitting expense claim forms, asking questions (such as pension projection figures), performance management and salary review tools. IRS (2002b) identifies three user groups of such systems: HR service centres or the HR function, line managers and employees. In terms of employees such systems are often referred to as self-service or self-management systems.

Some of these applications will clearly require changes in the organisational culture. In addition there are concerns about the loss of the personal touch and security of information (Trapp 2001). There are also issues about the access to computers and the computer literacy of some staff. Some companies have introduced kiosks where computers can be used by a range of staff, but there are issues about the extent to which staff will prefer to use their coffee breaks booking holidays on the computer.

Web case 33.1 on this book’s companion website, www.pearsoned.co.uk/torrington, focuses on the use of technology in HR.

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.

1. MEASURING HR AND HUMAN CAPITAL

The research referred to in previous chapters (especially Chapter 11 on Strategic aspects of performance) has a very clear focus on identifying and measuring a range of best practices in terms of workforce organisation and management (such as self-managing teams, high training spend, reduced status differentials) and relating these to impact on productivity and profitability. This is a very specific approach to ‘proving’ that HR practices affect bottom-line performance. In this chapter we later focus on this type of measurement in the context of specific organisations, but we begin by taking a wider perspective and will review a broader and simpler range of measures which are used to demonstrate how the HR function and HR capital contribute to the organisation.

HR measures are sometimes talked about in the context of measuring the contribu­tion of the HR function. An example of such measures might be the staffing costs of the HR function, recruitment speed, training delivery, management satisfaction with HR advice and services, and so on. The Window on practice provides one of many approaches to such measurement.

Such factors are clearly the responsibility of the people in the HR function and are under their control. They are designed to show how the HR function adds value to the organisation and can provide a way of capturing how that value is improved over time. Most HR measures, however, are within the control partly of members of the HR function, and partly of others in the organisation, particularly where HR is devolved to line managers. For example absence and employee turnover are typical measures in many organisations. But to what extent are absence levels, for example, the result of the absence policy (and HR may or may not have designed this alone)? Other factors that may have an effect are: the way the policy is implemented by line managers, the influence of other policies (such as work-life balance), the influence of the way that work is structured and commitment to peers (as for example in self-managing teams)? The list could go on. It could be argued that the HR function has an ultimate responsibility for all of this. In reality, however, this is not a tenable view. There is also a very great emphasis on partnership in HR, requiring many activities to be business driven and owned rather than HR driven and owned. Thus many HR measures represent aspects of human capital in the organisation on which the HR function has some influence. IRS (2002a) in its survey found that respondents commented on the inherent difficulty of identifying the contribution of the HR function in many measures.

We move on now from the specific contribution of the HR function to discuss human capital measurement (HCM), which has attracted considerable attention, with some organisations setting up dedicated roles and units to undertake HCM, either within or attached to the HR function. We identified broadly above the ultimate purpose of measurement in that it identifies the contribution of people to the performance of the organisation and enables the organisation to improve this contribution. This contribu­tion is as we have noted previously very difficult to disentangle from other factors in the situation and is also difficult to measure quantitatively. As we showed in the earlier part of this chapter many HRISs still focus on administration at the expense of analysis and evaluation, thereby possibly limiting what the organisation can achieve in this area. We have discussed previously the nature of human capital and the resource-based view (in Chapter 2) and human capital and knowledge management (in Chapter 12) and it may be useful to read or re-read these sections before moving on.

There is considerable evidence that there exists no single measure or set of measures that represent the value of human capital in the organisation (see, for example, Kingsmill 2003). This is largely because every context is different and, as Elias and Scarborough (2004) discovered, different organisations are driven by different things in their human capital measurement. They found that approaches differed in two significant ways. One major area of difference concerned whether the whole or part of the workforce was covered in human capital reporting; the other concerned whether a strategic, holistic and aggregate (such as balanced scorecard) approach was taken or whether individual aspects were reported. Interestingly they found that most organisations in their sample reported on individual aspects. CIPD (2006b) identifies three different levels of sophist­ication of human capital data: basic; intermediate and higher, which we explain below.

At a basic level it is suggested that actions include the collection of basic data (see the examples discussed above) and the use of existing data to communicate to managers essential departmental information on such matters as absence, accidents, turnover and so on. In addition trends and patterns in the data are identified and causes investigated. The outcome of this exercise is to provide measures of efficiency and effectiveness so that identified problems can be tackled, for example to reduce absence or accidents or to improve the diversity profile. These basic measures represent the ‘individual’ measures that Elias and Scarborough (2004) found to be most common.

At an intermediate level CIPD (2006b) suggests that actions involve designing data collection for specific human capital needs, such as designing an employee attitude survey to measure satisfaction, and then using this data to inform the development of people policies and procedures. In addition correlations are investigated, say, between levels of satisfaction and potential antecedents such as levels of training, flexible working, line manager coaching, and so on. The final action is to communicate to line managers which processes influence desired outcomes such as satisfaction, and therefore highlight the value of these processes. The outcome at this level is to provide measures of processes in order to aid the design of the most appropriate HR model for the context, and to communicate to managers why the processes are important and what they can achieve, as well as how to implement them.

At the higher level CIPD suggests that actions include the identification of key per­formance indicators in relation to business strategy and the collection of qualitative and quantitative data specifically to measure these, and to feed these data into a model such as the balanced scorecard. Managers are then provided with a range of indicators on a range of measures which they can use to monitor the progress of their department. The resulting data can be used to inform decisions and communicate human capital mea­sures to a range of audiences. The outcome at this level is to identify the drivers of the business, to provide better informed internal decision making and to report externally on progress in relation to strategy.

We focus on simple basic measures initially and then move to the higher-level ones.

1.1. Frequently used basic measures

IRS (2002a) divides measures into hard and soft measures, with training days, for example, being a hard (objective) measure and employee satisfaction, for example, being a soft measure. In its survey IRS found that employers most frequently calculated absence rates (96 per cent), employee turnover (98 per cent) and expenditure on training (88 per cent). However, these figures are based on a small sample, so actual percentages should be treated with caution. Other popular measures were employee relations indicators (such as number of grievances and tribunal cases), training days, cost to fill vacancies, time to fill vacancies, HR costs as a proportion of profit or total costs and time spent communicat­ing with staff. Only nine per cent of the organisatons surveyed measured productivity.

In terms of soft measures, IRS (IRS 2002a) found that 85 per cent of the sample mea­sured employee satisfaction, 72 per cent measured line manager satisfaction, 68 per cent measured senior manager satisfaction and 60 per cent measured customer satisfaction. Employee satisfaction was considered to be the most effective soft measure.

Such measures are frequently collected in an ad hoc manner, are not integrated or tied in with business strategy and may not result in action being taken. The CIPD Factsheet (2006b) on human capital provides a very useful framework in which to understand the different areas of human capital that may be evaluated. CIPD suggests that the data col­lected fall under five broad headings: performance data; demographic data; recruitment and retention data; training and development data; and opinion data. In the following section we give some examples of the more popular and simple measures using the categorisation proposed by the CIPD (2006b).

Performance data – specific example: absence analysis and costing

CIPD suggests that performance data may include performance management data, productivity and profitability data, customer satisfaction and loyalty data. Absence and attendance clearly comes into this category. For aggregate analysis the absence rate is the number of days of absence, that is, when attendance would have been expected, of all employees. The absence percentage rate is this figure divided by the total number of actual working days for all employees over the year, multiplied by 100. This simple percentage figure is the one most often used and enables the organisation’s absence level to be compared with national figures, or those of other organisations in the same sector.

The absence frequency rate is the number of spells of absence over the period, usually a year. Comparing this and the absence percentage rate gives critical information about the type of absence problem that the organisation is experiencing.

Absence data, as well as enabling external comparisons, can be analysed by department, work-group, occupation, grade and so on. In this way the analysis will throw up problem areas, and additional analysis can be undertaken to try to identify the causes of differing levels of absence in different parts of the organisation. The data may be supplemented by information from questionnaires or interviews with employees or line managers.

The purpose of producing this information is to understand the causes and extent of absence in order to manage it effectively. So, for example, such analysis may result in a new absence policy, employee communications about the impact of absence, appro­priate training for line managers, changes to specific groups of jobs and the introduction of a new type of attendance system such as flexitime. The information provides a base for future monitoring. Absence data can be analysed further to provide benchmarks of ‘high’, ‘medium’ and ‘low’ absence levels in the organisation, and can be used to set improvement targets. This analysis can also be used to trigger specific management actions when an employee reaches different benchmark levels. For example, a trigger may be the number of days or number of spells per year or, as in the Bradford factor (see Figure 15.2 on p. 345 for the formula), a combination of both.

The costing of absence needs to have a wider focus than just the pay of the absent individual. Other costs include:

• line manager costs in finding a temporary replacement or rescheduling work;
• the actual costs of the temporary employee;
• costs of showing a temporary employee what to do;
• costs associated with a slower work rate or more errors from a temporary employee;
• costs of contracts not completed on time.

These costs can be calculated and provide the potential for productivity improvement.

Performance data – specific example: relating the workforce to organisational performance

Various analytical methods relate the contribution of the workforce to organisa­tional performance. This analysis can be used to control headcount, and to measure organisational effectiveness and compare it with that of similar organisations. The information can also be used to communicate to employees what their contribution is to the business. Turnover per employee and profit per employee can be calculated in order to monitor performance and to demonstrate to each employee the importance of cost consciousness. If an employee of an organisation employing 3,000 employees realises that profit per employee is only £900 this means far more to that individual than expressing profit as £2.7 million. Cost consciousness suddenly becomes important as the fragile and marginal nature of profits is demonstrated. A further calculation expresses the cost of employees in relation to the total costs of production. To work this out, turnover less profit (that is, the cost of production) is compared with employee costs (salary plus on-costs). The percentage of production costs accounted for by employees will vary markedly according to the nature of the business. For example, in some pharmaceutical businesses people costs will account for 70 per cent of all production costs (due to a heavy emphasis on research and development) whereas in a less people-intensive busi­ness, as found in other parts of the manufacturing sector, people costs may only account for around 15 per cent. Changes in the percentage of people costs over time would need to be investigated. People costs are a good way of communicating to employees just how important they are to the success of the business.

Demographic data – specific example: equal opportunities analysis

CIPD defines these as data on the composition of the workforce, and these may include equal opportunities analysis which aims to provide an organisational profile of, most frequently, ethnic origin, gender, age and disability. The resulting percentages from this can be compared with national and local community figures to give an initial idea of how representative the organisation is. Further analyses break these figures down to compare them by department, job category and grade. It is in this type of analysis that startling differences are likely to be found, for example as shown in Figure 33.1.

The information gleaned can be used to:

• question the extent and spread of disadvantaged groups in the organisation;
• identify specific barriers to a more representative spread;
• formulate appropriate policy and action plans;
• set targets to be achieved and to monitor year on year compared with these base figures.

Other analyses can be carried out to show promotion, internal moves and second­ment figures for disadvantaged groups compared with advantaged groups, for example white males. Further mention is made of these and the recruitment system in the following section.

Recruitment and retention data – specific example: turnover analysis and costing

We cover this aspect in Chapter 9 on Staff retention.

Training and development data

Typical training and development data include annual training days per employee, training spend per employee, existence of personal development plans for what percent­age of the workforce and for which job roles, and the elapsed time between an employee joining an organisation and being involved in an induction programme. Other measures may cover the number of accredited or trained coaches and mentors, or the competencies/ skills of staff as judged by a variety of measures.

Opinion data

Whilst opinion survey data are not new, considerably more attention has been given to such data of late. For example in the National Heath Service there is an annual employee opinion survey which focuses on employee views of hours worked, appraisal, training, teamwork, injuries, harassment, work-life balance, job satisfaction, work pressure, intention to leave, quality of leadership, and positive feelings within the organisation, as well as other issues. Hospital Trusts are able to compare their ratings against the national picture and can also break down their data by job type.

Basic measures can be benchmarked externally against other similar organisations which would allow a meaningful comparison, such as competitors. They can also be benchmarked internally by comparing departments, different locations and so on. IRS (2002a) found that around one-third of the organisations it surveys regularly carried out external benchmarking and the same percentage regularly carried out internal benchmarking.

Whilst the measures described above can clearly add value, much of this work is done in an ad hoc manner and lacks strategic integration. We turn now to the higher, strategic end of the spectrum of HCM.

1.2. Strategic frameworks and scorecards for HCM

Higher-level approaches are more representative of human capital management, which the Accounting for People Task force defined as ‘an approach to people management that treats it as a high level strategic issue rather than an operational matter “to be left to the HR people” and seeks systematically to analyse, measure and evaluate how people policies and practices contribute to value creation’ (Kingsmill 2003, p. 5). The emphasis is not just on measurement, but on using this measurement approach as a management tool for effecting change and improvement. Such an approach addresses the problem often found in measurement, namely that the wrong things are measured (see, for example, Chartered Management Institute 2006, quoted in IRS 2006; Gratton 2004).

Through the use of a strategic framework or model the organisation can identify what drives the performance of employees in relation to the organisation’s strategy. These drivers can then be expressed as a range of measures with indicators, and targets can be set at about the levels that need to be achieved. These targets are often cascaded down to employee level, and form the base for the ‘hard’ metrics approach to perform­ance management as opposed to the ‘soft’ good management approach to performance management which we discussed in Chapter 13.

There are a variety of models that can be used and Matthewman and Matignon (2005) identify six such frameworks: the human resource benchmarking model; the bal­anced scorecard; the human capital monitor; the human capital index; the engagement model; and the organisational performance model. We look at the Human Resource Scorecard and Mayo’s Human Capital Monitor in more detail below, and the Window on practice is about the Royal Bank of Scotland Group who use the engagement model.

 

Considerable attention has been given to the use of scorecards, such as the balanced scorecard (Kaplan and Norton 1992) and, later, the HR scorecard (Becker et al. 2001), in linking people, strategy and performance. These are perhaps the best-known score­cards, but many different scorecards have been developed over the last decade or so. Such scorecards utilise a range of measures of HR which are viewed as critical to the suc­cess of the business strategy, and which move the process of measurement on from an ad hoc to a strategic and integrated approach. Kaplan and Norton widened the per­spective on the measurement of business performance by measuring more than financial performance. Their premise is that other factors which lead to financial performance need to be measured to give a more rounded view of how well the organisation is per­forming. This means that measures of business performance are based on measures of strategy implementation in a range of areas. Kaplan and Norton identify three other areas for measurement in addition to financial measures: customer measures, internal business process measures and learning and growth measures. In each of these areas critical elements need to be identified and then measures devised to identify current levels and to measure progress. Some organisations implementing this scorecard have developed the learning and growth area to include a wider range of HR measures.

Becker et al. (2001) argue that it is important to have a ‘measurement system [that] convincingly showcases HR’s impact on business performance’ (p. 4), otherwise, they argue, the HR function cannot show how it adds value and risks being outsourced. The system they suggest focuses on ‘HR architecture’, and by this they mean the ‘sum of the HR function, the broader HR system, and the resulting employee behaviours’ (p. 1). This is therefore a broad view of HR measurement, as we discussed at the beginning of this chapter. Becker and his colleagues have designed a seven-step process to clarify and measure HR’s strategic influence:

Step 1. Clearly define business strategy in a way that involves discussing how the strategy can be implemented and communicated.

Step 2. Develop a business case for HR as a strategic asset explaining how and why HR can facilitate business strategy – Becker and his colleagues suggest how current research relating HR to firm performance can be useful here.

Step 3. Create a strategy map – which should involve managers across the organisation, and needs to address the critical strategic goals, identify the performance drivers for each goal, identify how progress towards goals can be measured, identify barriers to goal achievement, identify required employee behaviour for goal achievement, question
whether the HR function is developing employee competencies and behaviours needed to meet the goals, and if this is not happening, what needs to change.

Step 4. Identify HR deliverables from the strategy map – which may include perform­ance drivers and enablers; for example low turnover, high levels of specific competencies and so on may be needed to reduce product development time.

Step 5. Align HR architecture with the deliverables in step 4. Policies can be developed to result in these deliverables – for example policies encouraging low turnover may be supported by family-friendly and work-life balance policies, diversity policies, career development opportunities and so on.

Step 6. Design a strategic HR measurement system. This requires that valid measures of HR deliverables are developed. For example in specifying low turnover it would be important to identify which particular staff groups this applies to, whether voluntary turnover only is to be calculated, whether internal job moves are included and so on. Step 7. Implement management by measurement – Becker and his colleagues suggest that once the measurement system has been developed this can then become a powerful management tool.

In designing measures Becker and his colleagues suggest that HR efficiency as well as deliverables need to be measured. Efficiency measures tend to be cost measures, for example cost per new hire, or HR cost per employee. They suggest that these are both lagging indicators. Leading indicators can also be measured. These are defined as measures of ‘high-performance work system’ and HR system alignment. The high- performance work system appears to be defined in terms of best-practice-type measures, for example hours of training received each year by each employee, or percentage of the workforce regularly undergoing annual appraisal. HR system alignment indicates the extent to which the high-performance work system is tailored to business strategy via supporting each HR deliverable. Useful lists of HR deliverables and efficiency measures can be found in Ulrich (1997).

An alternative framework for monitoring, measuring and managing human capital is the ‘human capital monitor’ and this has been developed in the UK by Andrew Mayo (2001). The human capital monitor is designed to connect the intrinsic value of the human capital in the organisation with the working environment. It includes processes and systems which impact on employees’ behaviour together with the value that is created by people. As with the previous models discussed this is not specifically designed for the HR function to monitor itself. The model adds together the value of people as assets (box 1) and the motivation and commitment (box 2) to produce the people contribution to added value (box 3). The model is shown in Figure 33.3.

The first box in the model, people as assets, provides a method of balancing people costs with a measure of the value that they contribute. Mayo argues that calculating the value of people is important for four reasons. First, resourcing decisions should be about more than just cost; second, it is important to understand relative values of individuals and teams; third, it helps make informed investment decisions showing the relative benefits of investing in people as opposed to other assets; and finally, it enables the company to monitor whether its talent is increasing or decreasing. To demonstrate the types of meas­ures that Mayo suggests, we use the example of capability, where the following measures are provided: personal behaviour; business and professional know-how; network of con­tacts; qualifications and experience; attitudes and values. In terms of maximising human capital we will look at potential. Here Mayo suggests that success in acquisition could be measured by total human asset worth, average IAM (individual asset multiplier) of new recruits and the increase in strategically important core capabilities. The drivers for acquisition of potential include employer brand and acceptance rates, among others.

We turn now to the second box concerning motivation and commitment. Here Mayo suggests such measures as absence levels, satisfaction surveys, attrition rates and reasons for leaving, among others. He suggests five influencing factors as listed in the model, and for the work group, for example, he proposes two measures: team assessments of work­ing practices and a team stability index.

In the final box, people contribution to added value, Mayo suggests that the focus should be on wealth creation, which is a much broader concept than profit, as some of the wealth created can be reinvested in the business. To this end he compares a conven­tional income statement with a value-added financial statement, which goes beyond seeing people as just costs. In assessing current value Mayo suggests that work needs to be analysed into work which creates value and non-value added work (such as re-doing work, duplication, computer downtime, cross-charging and so on), and that the per­centage of each type of work needs to be a focus. He argues that building future value is dependent on innovation and that measures of this need to be derived.

Case 33.2 on this book’s companion website, www.pearsoned.co.uk/torrington, focuses on human capital.

2. HUMAN CAPITAL REPORTING

Elias and Scarborough (2004) liken internal and external human capital reporting to management accounting and financial accounting, in that the first is internal and aimed at managing the organisation in an increasingly better way whereas the second is for external consumption. Currently there is minimal external reporting of human capital but a greater extent of internal reporting, which we suggest is a necessary precursor.

The British government’s White Paper, Modernising Company Law (2002), suggested that the largest 1,000 companies should publish an annual operating and financial review (OFR), and experts believed this would need to include a review of the ways that employees are managed (People Management 2002a). However this planned requirement has now been scrapped and a simpler version will now be required which meets the min­imum demands of the EU Accounts and Modernisation Directive (EAMD) (Scott 2005). The report now required is entitled the ‘Business Review’, forms part of the Director’s Report, and actually came into force in April 2005. The Business Review requires ‘a bal­anced and comprehensive analysis of the business’, and that human capital management issues should be included ‘where material’. The scrapping of the OFR raised fears that human capital reporting would have less priority in the business; however the Business Review does apply in some form to all organisations except small firms. Angela Baron suggests that the better the information an organisation has on its human capital the more likely it is that business benefits will accrue (Manocha 2006), and it has been sug­gested that many companies that have prepared for the OFR will go ahead and produce the more extensive report. The Department for Business, Enterprise and Regulatory Reform (DBERR) has not discounted the possibility of the OFR being resurrected.

Matthewman and Matignon (2005) state that human capital reporting needs to be tailored to the goals, needs and character of each organisation. However the variety of internal and voluntary external reporting appears to be one of the factors that seem to hold back some form of mandatory external reporting. Whilst the Kingsmill Report (2003) declared that there could be no single approach to HCM others have not given up on this. For example Ruth Spellman of the IiP has set up a Human Capital Manage­ment Standards Group with the aim of establishing a universal set of metrics which can be used by organisations of any size and in any sector (IRS 2006). A less ambitious pro­ject is in the public sector where the Public Sector People Management Association is currently developing a template to allow all local authorities to evaluate the impact of human capital (Stuff 2007).

Other barriers to external reporting have been identified by Elias and Scarborough (2004) as a lack of interest among important external audiences, and Huselid (2003, quoted in Stiles and Kulvisaechana 2003) suggests a major problem is the lack of sophis­ticated HRISs and a fear that human capital information is too sensitive to reveal to competitors. In addition he suggests that there are concerns from unions and employees that such information might be divulged. The type of information which is most likely to be reported externally, according to Huselid, includes the percentage of employees in stock plans; average pay; revenue per employee; training expenditure and compensation.

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.

1. THE FUTURE DEMAND FOR WORKERS

If current trends are maintained we can expect to see continued increases, year on year, in the number of jobs being created by British organisations. In 2006 there were 37.1 million people of working age in the UK, of whom 30.8 million were in work. Around 1.5 million were unemployed and actively seeking work, while a further 7.9 mil­lion people of working age were defined as being ‘economically inactive’ (ONS 2006a). The total number of jobs has grown steadily in recent years to reach its current peak of 26.7 million. The figure decreased during the recessions of the early 1980s and early 1990s, but the long-term trend has been upwards for over sixty years.

Importantly, this increase in the amount of employment in the UK has occurred at a time when many major industries have seen the introduction of labour-saving techno­logies and when millions of jobs have effectively been ‘exported’ to developing countries where labour costs are much cheaper. Major industrial restructuring has occurred, yet the demand for labour over the long term has increased steadily. Provided the economy continues to grow, we can thus expect to see further increased demand for people on the part of employers over the coming decade.

But what sort of skills will employers be looking for? Here too long-term trends paint a clear picture which there is every reason to believe will continue for the foreseeable future. The official method used to classify occupations in the UK was changed in 1999, so it is not possible to make a precise comparison of today’s figures with those produced by government statisticians before then. Nonetheless an obvious long-term pattern can be seen in the two sets of statistics presented in Tables 34.1 and 34.2. These show a pro­nounced switch occurring over a long period of time, and continuing strongly in more recent years, away from skilled, semi-skilled and unskilled manual work towards jobs which require higher-level and more specialised skills. The major growth areas have long been in the professional, technical and managerial occupations.

The change in the occupational profile of the UK workforce has largely been driven by the revolutionary shift that has occurred in the nature of our industries during the past thirty years. In 1978, which was the first year that data was collected on employment by sector, seven million people worked in manufacturing and a further one and a half million in the energy, water, farming and fishing industries. These have all hugely declined since then. Manufacturing now employs only three million (12 per cent of all jobs). Agriculture and fishing account for just 200,000 jobs; energy and water for fewer still (see Figure 34.1). The big growth areas have been in retailing, distribution, hotels and restaurants, finance, business services, public administration, education and health. Employment in the finan­cial services sector has grown especially quickly, more than doubling since 1978.

In the most recent years the biggest growth areas in terms of jobs have been in the public sector. Public sector employment fell during the 1990s. Having peaked at 5.9 mil­lion in 1991, it reached a ‘low point’ of 5.1 million in 1998 before climbing back to 5.9 million again. Over 300,000 new jobs have been created in the NHS since 1998 and over 200,000 in education. The expansion of local and central government has led to the cre­ation of 128,000 jobs, a further 45,000 being created in the police service (ONS 2006a, p. 26). Another major employment trend since the 1970s has been a substantial growth in the proportion of people working in small businesses. The small firms sector now employs 55 per cent of the UK workforce.

One of the most vigorously contested debates among labour market economists con­cerns the nature of the skills that employers will be looking for in the future, a debate that has very important implications for government education policy, which, as a result, is itself controversial (see Grugulis et al. 2004). In recent years a highly influential group has argued that in the future economies such as the UK’s will see a speeding up of the trends identified above. Influenced by figures such as Manuel Castells of Berkeley University in California, it has become common for policymakers to believe that a ‘new economy’ is rapidly developing which will increasingly be dominated by companies which are ‘knowledge-intensive’ in nature. According to this ‘upskilling thesis’, lower- skilled jobs will be rarer and rarer in industrialised countries. Because they can be done far more cheaply in developing economies, they will increasingly be exported overseas.

It follows that the governments such as the UK’s should prepare the workforce as best it can for the challenges of a ‘high-skill, high-wage economy’ in which those who do not have a relevant higher education are going to struggle to make a living. Hence we see the rapid expansion of universities, heavy investment in schools and the provision of all manner of schemes designed to equip unemployed people with new skills.

Critics of Castells tend to look to the writings of a very different American academic guru figure – Harry Braverman. His theories derive from a Marxian perspective as well as from observations of the activities of corporations in the 1960s and 1970s. This contrasting ‘deskilling thesis’ argues that businesses competing in capitalist economies will always look for ways of cutting their labour costs, and that they do this in part by continually reducing the level of skills required by the people they employ. It follows that, far from leading to a demand for higher-level skills and knowledge, the advent of an economy based on information and communication technologies will over time reduce such demand.

Both schools draw on widely documented trends to back up their positions. The upskillers draw attention to the fact that the major growth areas in labour demand are in the higher-skilled occupational categories. Demand for graduates is increasing, demand for lower-skilled people is less strong, and is decreasing in some industries. They also draw attention to the emergence of skills shortages in many industries as employers find it steadily harder to recruit people with the abilities and experience they need.

By contrast, the downskillers draw attention to the growth of call-centre-type opera­tions which use technology to reduce the amount of knowledge and expertise required by customer services staff, and to the increasing use of bureaucratic systems which reduce the number of situations in which people have a discretion to make decisions. They also point to the strong growth in industries such as retailing and hotels which are characterised by employment of people who need only be low skilled and who are relatively low paid. They thus forecast a situation in which the workforce is heavily overqualified and in which graduates are increasingly employed in jobs for which no degree is necessary. They also argue that many of the ‘skills’ that employers say are in short supply are not in fact ‘skills’ at all, but are merely ‘attributes’ or ‘characteristics’. The target here is an evolving business language that refers to ‘communication skills’, ‘interpersonal skills’, ‘teamworking skills’, ‘problem-solving skills’ and ‘customer­handling skills’. These, it is argued, have nothing whatever to do with a knowledge- based economy and cannot be gained through formal education.

As with all debates that concern the likely future direction of society, it is difficult to reach firm conclusions about this debate. However, in truth what appears to be
happening is that we are seeing the emergence of an ‘hourglass’ occupational structure in the UK in which half of the jobs are of the ‘high-skill/high-pay’ variety, and the other half are ‘low skill/low pay’ (Grugulis et al. 2004: 6). The metaphor of the hour­glass was originally advanced by Nolan (2001). But it has been popularised and expanded in the highly influential article by Goos and Manning (2003) entitled ‘McJobs and Macjobs: the growing polarisation of jobs in the UK’. What seems to be happening is the following:

• Increasing numbers of people are being employed in relatively highly paid, secure, professional and managerial occupations in the finance, private services and public sectors.
• Lower-skilled jobs in manufacturing along with many lower-paid clerical and admin­istrative roles are being ‘exported’ to countries in Eastern Europe and South East Asia where cheaper labour is readily available.
• But, at the same time, the growing number of higher-paid people are using their dis­posable income to purchase services which cannot be provided from overseas. Hence there is a simultaneous and rapid growth in demand for hairdressers, beauticians, restaurant workers, and people to work in the media, tourist and entertainment- oriented industries.
• There also remains a great demand for, and shortage of, some groups of skilled workers – plumbers, builders, decorators, etc., whose jobs also, by their nature, cannot be so easily exported.

For the foreseeable future, therefore, we are likely to see growth in demand both for people who have gained a higher education or who have specialised higher-level skills and for people who have strong interpersonal skills (or attributes) to work in the expanding personal services sector. From a public policy point of view, this means that government is broadly correct to put more investment into higher education, but that it is equally important to make available high-quality, specialised forms of vocational education so that the future needs of all industrial sectors are properly provided for. This latter area is one in which the UK has been conspicuously weaker than other European countries for many years.

2. THE FUTURE SUPPLY OF WORKERS

The UK population currently stands at 59.8 million. This accounts for 13 per cent of the European Union population, eight per cent of the total European population and just under one per cent of the world’s total population. Unlike that of most European coun­tries, the UK population is currently growing (Jeffries 2005). This is for two reasons:

1. Birth rates currently exceed death rates. Each year approximately 700,000 babies are born in the UK, while 615,000 people die – a net gain of 85,000 people.
2. Each year it is estimated that around 150,000 more people migrate into the country than emigrate out of it. Total immigration is now in excess of half a million a year.

The population is therefore growing at a rate of nearly a quarter of a million people each year (ONS 2006b). Official estimates state that the total UK population will reach 65 million by 2050, but this figure will be reached a good deal sooner if current levels of immigration continue. This upward trend in the UK population represents a reversal of the position in the in the 1970s and early 1980s – a period of substantial net emigration and relatively low birth rates.

The birth rate increased substantially after the Second World War and continued at relatively high levels until the late 1960s. Over a million babies were born at the peak in 1964. This created the large ‘baby boom’ generation who are now in their forties and fifties. From 1964 onwards the UK saw a sharp decline in its birth rate, which reached a low point in 1977 when only 657,000 babies were born (i.e. fewer than the number of deaths). This was due in part to the relatively low number of births in the country in the war years (1939-45), in part to the wide availability of the contraceptive pill and abor­tion, and partly to changes in social attitudes leading to later marriages. The downward trend was reversed somewhat in the 1980s as the baby boomers had children, but fertil­ity rates remain at relatively low levels historically. As a result of these patterns, we have an ageing population. There are many more people in the UK in their forties and fifties than there are in their twenties and thirties (see Figure 34.2).

This will mean that there are many more retired people in the future than there are at present, but at the same time the number of adults of working age is projected to increase rather than decrease. Official estimates state that there will be 40.5 million people who are over school leaving age and below retirement age in 2020 as a result of continued net immigration and the equalisation of male and female state pension ages at 65 from 2010. The average age of this group will increase substantially because there will be a higher proportion of older people in the workforce and because younger people are projected to choose to stay on in full-time education for longer, on average, than they currently do (Smith et al. 2005). We can thus conclude with a degree of confidence both that the supply of labour will increase in the coming two decades and that the profile of the workforce will age significantly.

However, there are important regional differences that it is important to note. The structure, density and growth of the population are by no means likely to be uniform across the whole country. The highest concentrations of older people, for example, are in the resort towns along the south and eastern coasts. Christchurch in Dorset is officially the ‘oldest’ place in the UK where 33.2 per cent are entitled to draw a state pen­sion. By contrast, pensioners are few and far between in inner London. Tower Hamlets boasts the lowest proportion (only 9.8 per cent), but the numbers are also low in some commuter towns close to London and in cities with large student populations.

The highest concentrations of children are found in Northern Ireland where fertility rates are much higher than elsewhere in the country, while young adults are concen­trated in university towns and cities, reflecting the fact that there are now 1.4 million full-time students in the UK. As far as England is concerned, between the 1930s and 2001 the major trend was a movement of people from the north of the country to the south, the southern regions gaining 30,000 people a year on average during this period. Since 2001 there has been an apparent reversal of this long-term trend, the north gaining 35,000 people per year at the expense of the south (Champion 2005). However, as a result of migration and falling fertility rates the populations of Scotland and Wales are both falling. In both countries there are considerably more deaths than births each year and relatively high levels of net emigration.

We can also predict with some certainty that there will be greater diversity among the workforce in terms of ethnicity and national origin as a result of net immigration.

All around the world international migration is increasing. As far as the UK is con­cerned this means that the long-term trend is towards greater levels of both emigration and immigration (Horsfield 2005). Until the early 1990s the UK had been broadly in bal­ance as far as international migration was concerned for around twenty years. Indeed, for much of the 1970s and during the early 1980s more people left the UK each year than entered it. Since 1993 this trend has changed. Every year there are now substantially more immigrants than emigrants, a gap which widens year on year. People leaving the UK tend to be older on average than the new arrivals. Many leave in order to retire in sunnier climes, while others seek new opportunities in Australasia, the USA, Canada and EU countries. A fair proportion of annual emigration each year involves people who were born overseas returning to their countries of origin, for example following a period studying in a UK university. Historically the main source of immigrants into the UK has been from new Commonwealth countries such as India, Pakistan, Bangladesh and from the Caribbean. However, more recently we have seen a substantial growth in people arriving from other developing countries (such as Somalia) and especially from the countries which joined the European Union in May 2004 (i.e. Poland, Slovakia, Hungary, Cyprus and the Baltic states).

As a result of net immigration the proportion of the UK population which was born overseas increases each year, the vast majority of these people being of working age (Randall and Salt 2005). At the time of the 2001 census just under five million UK resid­ents had been born overseas. This represents 8.3 per cent of the population. This is a great deal higher than was the case at the time of previous censuses. In 1991 the figure was 6.7 per cent, and in 1951 only 4.2 per cent. Here too, however, there is consider­able regional variation. Forty-eight per cent of immigrants arriving in the UK settle in London and the south east of England, the largest numbers settling in inner London. The London borough of Brent boasts the highest proportion of foreign-born residents (46.6 per cent). By contrast, the lowest levels (under 3 per cent) are found in the English- Scottish border regions.

If current trends continue the supply of labour across the UK as a whole should be sufficient to meet the growing demand for labour. Chronic skills shortages will be avoided provided government and employers continue to invest in the education and develop­ment of people. Importantly, in these respects the UK is a great deal better placed than many of its competitor countries where the population is falling and is ageing at a far faster rate than is the case in Britain. Fertility rates in many southern and eastern European countries have now fallen well below 1.5, meaning that each couple produces on average fewer than 1.5 children. A fertility rate of 2.1 is required to maintain a stable population, yet it is 1.32 in Germany, 1.28 in Italy, 1.27 in Spain and only 1.26 in Poland (United Nations 2005). In the UK immigration allows the maintenance of steady popu­lation growth, despite historically low fertility rates (1.66 in 2006). This is in contrast to the position of many countries where immigration rules are more restrictive or where low wages and relatively high unemployment make them less attractive to economic migrants.

The statistics suggest, however, that employers in many regions will continue to face some skills shortages. Provided unemployment remains relatively low, this will tend to push wage rates up beyond the rate of price inflation. The result, as has been the case for the past fifteen years, will be greater pressure on organisations to improve labour productivity by reorganising, merging to achieve economies of scale and outsourcing activities where they can be supplied more efficiently by external providers. It will also be necessary for employers willingly to employ more older people than they have tended to be accustomed to doing. Indeed, in order to meet their demand for labour it is likely that organisations are going to have to target older groups and take steps to make employment attractive to them. There are three distinct groups who have not tradi­tionally found themselves to be in great demand by recruiters:

• people over the age of fifty who are still working,
• people who have taken early retirement/redundancy,
• people who are over the state retirement age.

In the case of the first group, traditional full-time jobs will be sought. The others are more likely to be looking for part-time work or some other form of flexible working. Research strongly suggests that most people have a preference for phased retirement as opposed to full-time work until a retirement day and then leisure (HSBC 2006). Employers who can provide flexibility of this kind will be in a far stronger position to compete for the services of older workers than competitors who do not. Another con­sequence of an ageing population will be the presence among younger employees of more people with responsibility for caring for elderly relatives. Attracting and retaining them will also require flexible working options.

Aside from flexibility, the other major element that needs to be in place in order to attract and retain older people is a culture which fully respects and values their contribution. A great deal of research has been carried out in recent years looking at attitudes to older workers among managers and younger employees. The conclusion is that people commonly stereotype older workers, just as they tend to stereotype young workers. Older workers tend to be seen as being reliable, stable, mature and experi­enced, but also as difficult to train, resistant to change, over-cautious, poor with tech­nology, slow and prone to ill health. Organisations which are serious about employing more older people will need to tackle such stereotyping and to ensure that opportunities for development are provided for people of all ages.

However, at the same time, employers need to recognise that people do change as they age and do contribute different qualities than younger colleagues. They thus need to be managed somewhat differently from an HR perspective. It will be necessary, for example, to tailor reward packages to suit the needs of older workers as well as younger ones. Clearly this will include pension arrangements, but may also incorporate other benefits which older employees value more than younger employees such as health insurance.

Organisations often seek a workforce which reflects its core target market. This is particularly true of creative and media industries which need younger employees to ensure that they are in touch with the needs, aspirations and concerns of people in the key 18-30 group. This is a major source of age discrimination in the labour market which is likely, over time, to change. Instead of seeking employees who match their consumers by age, employers will want people of any age who reflect the values and attitudes of more broadly-aged target markets.

The changes to HR practice required as a result of increased numbers of workers from overseas are less profound but equally important. The key here is to make sure that the organisation both gains and retains a reputation for fairness in its labour markets. Once an organisation is perceived to be prone to acting in a discriminatory fashion towards members of ethnic minorities or migrant workers, the reputation is hard to shake off, making it harder to recruit and retain a skilled workforce. In this area perceptions of managers about the fairness of their policies and practices is irrelevant. The perception of the target labour market is all that matters, so we can expect to see organisations in the future ‘bending over backwards’ to ensure not just that they are committed to equal opportunities and diversity, but that they are seen to be too.

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.

While there is general agreement among commentators about the nature of the work we will be carrying out in the coming decades and the profile of the workforce that will be employed to carry it out, there is considerable disagreement about the types of contract (both legal and psychological) that will be prevalent. For some years now a diverse group of futurologists have gained considerable influence by predicting substantial changes in this area. The most prominent figure in the UK is Charles Handy, who has published a series of books in which he argues that radical change is in store (see Handy 1984, 1989, 1994 and 2001). A broadly similar analysis has been developed by Davidson and Rees Mogg (1997), Rifkin (1995) and Bridges (1995), and more recently by Susan Greenfield (2003a and 2003b). While each of these writers, and others who have advocated the evolu­tion of a similar future for the world of work, justify their conclusion somewhat differ­ently, all predict a switch in the dominant form of work from employment to various forms of self-employment. Moreover, where employment continues, people will be far more likely to work from home (connected to others electronically) and to work for small, highly specialised companies and will neither have nor expect long-term job security.

For Handy the future is one in which portfolio careers will dominate. People will move from employer to employer regularly, often working for two concerns at the same time. There will be periods of self-employment and periods of employment, the con­ventional working life being likened to that of an actor auditioning for work and moving from production to production on stage, screen and television. There will be periods in between assignments when we will be under-employed, and other periods when we have more than enough work on our plates. Davidson and Rees-Mogg (1997, p. 237) prefer the example of film production companies which assemble a group of tal­ented specialists to work on a project, but when it is over ‘the lighting technicians, cameramen, sound engineers and wardrobe specialists will go their separate ways’. Others, including Greenfield (1993, p. 92) go further in arguing that ‘the concept of the “job” as we know it may disappear altogether’ and that ‘firms will perhaps bid for employee time almost on a day-to-day basis’. Insecurity of employment, according to this view, will soon become the norm.

The analysis on which these writers base their predictions is thoughtful and logical and can be persuasive. At root they all argue that greater volatility in the world of employment is inevitable as organisations experience increasing volatility in their product markets. Because employers will no longer operate in markets which are at all stable and pre­dictable, it follows that they will be unable to guarantee any kind of stable employment. For most analysts, increased volatility is seen as being a product of increased competition. Sparrow (2002) uses the term ‘hyper-competition’ to describe a business environment in which lean, highly productive organisations make use of the latest information and communications technologies to sell their goods and services to anyone, anywhere in a fast-evolving, knowledge-based global economy. In such a world, it is argued, no organ­isation can be viable if it burdens itself with large numbers of dependent employees expecting to enjoy lengthy, stable careers. Instead organisations will continually be expanding and retracting, forming and dissolving, and hiring different people, with dif­ferent skill-sets on an ‘as needs’ basis. Greenfield’s conclusion is the same, but for her the change will arise not as a result of increased competition, as she predicts greater cooperation and less competition, but simply because increased technical specialisation will mean that the most efficient and effective enterprises will be those which are small and highly flexible. Rifkin argues that traditional jobs will disappear because technological advances will create a world in which machines do many of the jobs currently performed by people. His future is a world of under-employment in which there are not enough jobs to go round, forcing a large proportion of the workforce either into self-employment or into a working life of short-term employment as and when opportunities arise.

A number of arguments have been advanced in opposition to this radical vision of an employment-free future world of work. Nolan (2004) has led the assault in the UK, drawing on empirical data indicating that in most respects, despite evidence of increased volatility in product markets, traditional, long-term, full-time employment is showing no sign whatever of withering away. Indeed, in some respects the trend is towards greater security, albeit in smaller enterprises. He is contemptuous in his criticisms of those who continue to peddle what he sees as misleading myths:

Scarcely a week passes without a well-paid visionary heralding the demise of paid work and employment or the growing salience in the new economy of the ‘free-worker’. Attention to detail is invariably slight. The great variance in the patterns of work and the consequences of past upheavals in employment are routinely ignored. (Nolan 2004, p. 7)

He goes on to make reference to the real trends that are observable in both the UK and the USA, to many of which we have referred in this and in earlier chapters:

• employment levels (i.e. the number of traditional jobs) are rising and not falling;
• the vast majority of workers continue to be employed in permanent jobs;
• job tenure rates have remained broadly stable for decades;
• around a third of the workforce has been employed (already) for ten years or more by their current employer;
• self-employment has not grown appreciably over the past decade;
• the number of temporary workers has fallen substantially over the past ten years.

While this evidence is very convincing, it is too early to condemn Handy, Rifkin and Greenfield as having been hopelessly wrong in their predictions. It is possible that over the coming few decades they will be proved right. But it is fair to point out that, at least in the case of Handy, the same claims were being made twenty-five years ago about what the world of work would be like today, and in many respects the opposite has turned out to be the case.

One possible reason that the predictions of these futurologists may prove to be inaccurate is their over-reliance on an analysis of what is likely to happen to product markets, ignoring in the process other determinants of employment arrangements such as labour market pressures and the regulatory environment. The evidence suggests that they are right about increasing competition and the need for organisations to become more specialised, flexible and productive, but that they are wrong to ignore other factors in the evolving business environment which serve to push organisations in an opposite direction to that which they would prefer given a free hand. For example, it is very often claimed that in the future, because employers will be unable to guarantee long­term employment, they will instead provide their workers with a capacity for greater ‘employability’. People will be recruited and motivated, not with the promise of job security, but with skills development and work experience which will help them to build successful portfolio careers. This is a logical prediction if it is assumed that employers do not have to compete with one another for relatively scarce skills. However, as we have seen throughout this book, in recent years the trend has been towards tighter labour markets in which people increasingly have a choice about where they work and are willing as well as able to switch employers when they become dissatisfied. It is at least arguable that most would-be workers prefer secure employment to employability and portfolio career-building. If so the organisations that will be most successful in attracting and retaining people will be those which maximise job security by offering employment on a permanent basis.

Moreover, in a world in which the quality of staff increasingly provides the key to achieving competitive advantage, it is probable that employers will prefer to nurture high levels of commitment and discretionary effort from their people, rather than hiring and firing them on an as needs basis. In other words, employers may well conclude that a committed, productive workforce is not compatible with highly flexible organisation structures, and that the former is a better route to establishing competitive advantage than the latter.

The potential influence of regulation also needs to be taken into account. In the UK there is general agreement among employers and the political establishment that the best way of securing high levels of employment over the long term is to minimise labour mar­ket regulation so as to free businesses of costs which make them less competitive inter­nationally. However, much employment regulation now originates at the European level and would not, for the most part, be on UK statute books were it not for Britain’s mem­bership of the European Union. The political establishments of the other larger EU countries have tended to take a different view, believing increased social protection to be necessary as a means of promoting greater security of employment. A perception of insecurity, in their view, tends to reduce people’s willingness to spend and to put their savings in riskier types of investment vehicle. The result is less economic growth and a greater propensity to stagnation and recession (European Commission 2000). The out­come, as we have seen in recent years, has been a plethora of new employment legisla­tion aiming to increase security by making it increasingly hard for employers to hire and fire either cheaply or easily. This creates a situation in which any journey on the part of employers towards much more flexible organisational forms is made harder both to embark on and to complete.

Finally it is necessary to point out that some economists are increasingly questioning the commonly held view that the business environment of the future will necessarily be characterised by greater volatility, at least as far as the western industrialised countries are concerned. Indeed already they observe far greater levels of economic stability pertaining in countries such as the UK and the USA that have moved farthest down the road away from manufacturing and towards the establishment of knowledge-based service industries. Kaletsky (2006), for example, argues strongly that manufacturing activities are the major source of volatility and that exporting these overseas, leaving home-based employees to focus on product design and marketing, actually serves to guarantee greater security of employment in a global economy. He gives the title ‘platform companies’ to organisations like Nokia, Dell and L’Oreal which sell their products internationally, but subcontract the entire manufacturing process to other companies:

Because the manufacture of physical goods is the most volatile and capital-intensive part of the business process, outsourcing [overseas] does not just transfer jobs and factories – platform companies also outsource to China and other developing countries much of the economic volatility that goes with capital investment, inventory cycles and the unionised factory environment. (p. 21)

Could it be therefore that long-term, stable employment, far from being consigned to the dustbin of history, will actually become more common in the future as organisations increasingly outsource the more volatile elements of their operations and concentrate instead on higher-skilled, value-adding activities? Only time will tell, but an analysis of the major current labour market trends is consistent with this possibility.

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.