1. DEBATES IN HRM
The world in which human resource managers exist and with which they interact is continually changing, generating new issues and conundrums to consider. While in most cases managers have a fair degree of choice about how to deal with new ideas and new sets of circumstances, the choices themselves are often difficult. Our final task in this opening chapter is to introduce readers to a number of these issues in general terms. All raise themes to which we will return at various stages later in the book.
In one way or another all the major debates that occupy HR professionals, analysts and commentators concern the appropriate response to the major trends which are evolving in our business environment. But people differ in their analysis of the extent and nature of these developments and this colours their ideas about whether or not radical change in the way that people are managed is or is not appropriate. Here we can usefully distinguish between three separate fields of debate.
The first is concerned with understanding and conceptualising the nature of current responses. How are organisations dealing with the issues that they face in terms of the management of their people? Are they developing new approaches that differ fundamentally from those that have been established for some time or are we witnessing a more steady, considered evolution of practice?
The second field of debate concerns what HR managers should be doing. Are new or radical changes in policy and practice necessary? Or is the correct response to environmental developments the further refinement of more familiar approaches? Further debate concerns the extent to which the answer to these questions is broadly the same for all employing organisations or whether it differs quite profoundly from industry to industry or firm to firm.
A third debate is oriented towards longer-term future developments. Many believe and have argued persuasively that we are currently witnessing changes in our business environment which are as fundamental and significant as those which accompanied the industrial revolution two hundred years ago. They further argue that the world of work which will emerge in future decades will be wholly different in major respects from that we currently inhabit. It follows that those organisations which ‘see the future’ most clearly and change accordingly stand to gain most. But are these predictions really accurate? Could the analysis on which they are built be faulty in key respects?
Of course it is also possible to ask rather different kinds of questions about the HR practices that are being, will be or should be developed, which in turn lead us to engage in various types of debate. Some, for example, focus exclusively on the requirements of the organisation and the search for competitive advantage. What can the HR function do that will maximise organisational growth, effectiveness and efficiency? However, many also like to think more broadly and to concern themselves with the impact of employment practice on the workforce and on society in more general terms. Hence we also engage in debates that are essentially ethical in nature or which have a prominent moral, sociological or political dimension.
1.1. Key environmental developments
The major trends in our contemporary business environment are well understood, well documented and uncontroversial. People differ, though, in their understanding of the speed of change and of the extent to which all organisations are or will be affected. As far as product markets are concerned the big trend is towards ever more intense competitive pressures, leading some to argue that we are now entering the era of hypercompetition (Sparrow 2003, p. 371). This is being driven by two major developments, the significance of which has increased considerably in recent years.
First, we are witnessing moves towards the globalisation of economic activity on a scale that has not been experienced before in human history. More and more the markets for the goods and products we sell are international, which means of course that competition for those markets as well as our established ones is also increasingly becoming international. Large organisations that were able to dominate national markets a decade or two ago (many owned and operated by governments) are now mainly privately owned and faced with vastly more competition from similar organisations based all over the world. This has led to consolidation through the construction of global corporations and strategic alliances whose focus in terms of people management is also international.
The second major antecedent of hyper-competition is technology, which moves forward at an ever-accelerating pace year by year. Developments in information technology, energy production, chemical engineering, laser technology, transportation and biotechnology are in the process of revolutionising the way that many industries operate. It is partly the sheer pace of change and the need for organisations to stay ahead of this very fast-moving game which drives increased competition. Being the first to develop and make efficient use of new technologies is the means by which many organisations maintain their competitive position and can thus grow and prosper.
But IT, and in particular the growth of e-business, is significant too because it has the potential vastly to increase the number of competitors that any one organisation faces. This is because it makes it much easier for customers and potential customers to compare what a particular organisation can offer in terms of price and quality with what others can offer.
What does this mean in practical terms from the point of view of the HR manager? First, it means that practices continually have to be developed which have the effect of enhancing an organisation’s competitive position. Ways need to be found of improving quality and of bringing to market attractive new products and services, while at the same time ensuring that the organisation remains competitive in terms of its cost base. Second, it means that a good deal of volatility is the norm and that change, often of a profound nature, is something that people working in organisations must expect and be ready for. So a capacity for organisational flexibility has become central to the achievement and maintenance of competitive advantage. Third, there are direct practical outcomes. For example, HR managers have to learn how to manage an international workforce effectively and how best to attract, retain and develop and motivate people with those relatively scarce skills that are essential if an organisation is effectively to harness and deploy evolving technologies.
For the HR manager, however, unlike colleagues in other areas of management, responding to product market developments is only part of what is needed. Other major environmental trends are equally important and must also be understood and built into decision making. There are two areas that are particularly important:
- labour market trends
- the evolution of employment regulation
Developments in the labour market are significant partly in terms of the numbers of people and skills available, and partly in terms of attitudes towards work and the workplace. Major developments appear to be occurring in both these areas. Many industries, for example, have found themselves facing skills shortages in recent years. The impact varies from country to country depending on relative economic prosperity, but most organisations in the UK have seen a tightening of their key labour markets in recent years. Unemployment levels have remained low, while demographic trends have created a situation in which more older people are retiring than younger people are entering the job market. There are all kinds of implications. For a start, employers are having to make themselves more attractive to employees than has been necessary in recent years. No longer can they simply assume that people will seek work with them or seek to remain employed with them. In a tight labour market individuals have more choice about where and when they work, and do not need to put up with a working environment in which they are unhappy. If they do not like their jobs there are more opportunities for them to look elsewhere. So organisations are increasingly required to compete with one another in labour markets as well as in product markets. This has implications for policy in all areas of HRM, but particularly in the areas of reward, employee development and recruitment.
Labour market conditions along with other social trends serve to shape the attitudes of people towards their work. In order to mobilise and motivate a workforce, HR managers must be aware of how these are changing and to respond effectively. One of the most significant trends in recent years, for example, has been a reduced interest on the part of employees in joining trade unions and taking part in their activities. A more individualistic attitude now prevails in the majority of workplaces, people focusing on themselves and their own career development rather than standing in solidarity with fellow workers. Another well-documented trend is the increased desire for employees to achieve a better balance between their home and work lives and their increased willingness to seek out employers who can provide this.
The growth in the extent and complexity of employment regulation is a third area which HR managers are obliged to grasp and the elements of which they must implement in their organisations. Prior to 1970, with one or two exceptions, there was no statutory regulation of the employment relationship in the UK. An individual’s terms and conditions of employment were those that were stated in the contract of employment and in any collective agreements. The law did not intervene beyond providing some basic health and safety protection, the right to modest redundancy payments and a general requirement on employers and employees to honour the contractual terms agreed when the employment began. Since 1970 this situation has wholly changed. The individual contract of employment remains significant and can be enforced in court if necessary, but there has been added to this a whole range of statutory rights which employers are obliged to honour. The most significant are in the fields of health and safety, equal pay, unlawful discrimination and unfair dismissal. Much recent new law such as that on working time, family-friendly rights, consultation and discrimination on grounds of sexual orientation, age and belief has a European origin, and a great deal more can be expected in the years ahead.
Debates about how HR managers are and should be responding to these various trends form the focus of much of what follows in this book and you will find a much more detailed treatment of some in other chapters. The international dimension, for example, is discussed in Chapter 4 and ethical matters in Chapter 30. We focus on the work-life balance in Chapter 31, on labour market trends in Part 2 and on regulatory matters in Part 5. Below we briefly set out the main contours of three specific debates that have a general relevance to many of the topic areas we discuss later.
1.2. The psychological contract
According to many, one consequence of these evolving environmental pressures is a significant and fundamental change in what has become known as ‘the psychological contract’. This refers to the expectations that employees have about the role that they play and about what the employer is prepared to give them in return. Whereas a legal contract of employment sets out terms and conditions of employment, remuneration arrangements and the basic rules which are to govern the employment relationship, the psychological contract concerns broad expectations about what each party thinks it will gain from the relationship. By its nature the psychological contract is not a written document. Rather, it exists entirely within people’s heads. But this has not prevented researchers from seeking to pin it down and to track the extent to which we are witnessing ongoing change in established psychological contracts.
While people disagree about the extent to which this change has in fact occurred, there is general agreement about the phenomenon itself and the notion that an ‘old’ psychological contract to which generations of employees have become accustomed is being superseded to some extent by a ‘new’ psychological contract which reflects the needs of the present business environment. From the employee perspective we can sum up the old psychological contract as follows:
I will work hard for and act with loyalty towards my employer. In return I expect to be retained as an employee provided I do not act against the interests of the organisation. I also expect to be given opportunities for development and promotion should circumstances make this possible.
By contrast, the new psychological contract takes the following form:
I will bring to my work effort and creativity. In return I expect a salary that is appropriate to my contribution and market worth. While our relationship may be short term, I will remain for as long as I receive the developmental opportunities I need to build my career.
A switch from the ‘old’ approach to the ‘new’ involves employers giving less job security and receiving less loyalty from employees in return. Instead, employees are given developmental opportunities and are expected to give the employer flexibility. The whole perception of the employment relationship on both sides is thus radically different. Moreover, moving from old psychological contracts towards new ones is a problematic process that involves managers ‘breaching’ the established deal. This is likely to lead to dissatisfaction on the part of employees who are affected and to some form of collective industrial action in unionised settings.
The big question is how far has a change of this nature actually occurred? Are we really witnessing a slow decline in the old psychological contract and its replacement by the new one, or have reports of its death been exaggerated? On this issue there is a great deal of disagreement. Many researchers claim to have found evidence of substantial change in many industries, particularly as regards reduced employee loyalty (e.g. Coyle- Shapiro and Kessler 2000, Maguire 2002). Yet others, notably Guest and Conway in their many studies conducted on behalf of the Chartered Institute of Personnel and Development (CIPD), have found relatively little evidence of any change in the state of the psychological contract. Their findings (e.g. Guest and Conway 2000 and 2001) suggest that while some change has occurred in the public sector, perceptions closer to the ‘old’ psychological contract remain a great deal more common than those associated with the ‘new’ approach.
It is difficult to reach firm conclusions about why these very marked differences of opinion exist. It is possible that the old psychological contract remains intact for most people, but that a significant minority, particularly managers and some public sector workers, have had to adjust to profound change. It is also possible that organisations have tried to move away from the old approach towards the new one, but have found it difficult to take their employees with them and have thus sought other methods of increasing their competitiveness. A third possibility, suggested by Atkinson (2003), is that the differences in the conclusions people reach about this issue derive from the methodologies they adopt when studying it. She argues that large-scale studies which involve sending questionnaires to employees have tended to report little change in the state of the psychological contract, while smaller-scale studies based on interviews with managers and trade union officials tend to report the opposite.
1.3. Best practice versus best fit
The debate between best practice and best fit is an interesting one of general significance which has consequences across the field of HRM. As well as being a managerial issue it concerns one of the most significant academic controversies in the HR field at present. At root it is about whether or not there is an identifiable ‘best way’ of carrying out HR activities which is universally applicable. It is best understood as a debate between two schools of thought, although in practice it is quite possible to take a central position which sees validity in both the basic positions.
Adherents of a best practice perspective argue that there are certain HR practices and approaches to their operation which will invariably help an organisation in achieving competitive advantage. There is therefore a clear link between HR activity and business performance, but the effect will only be maximised if the ‘right’ HR policies are pursued. A great deal of evidence has been published in recent years, using various methodologies, which appears to back up the best practice case (e.g. Pfeffer 1994; Huselid 1995; Wood and Albanese 1995; Delery and Doty 1996; Fernie and Metcalf 1996; Patterson et al. 1998; Guest and Conway 2000). While there are differences of opinion on questions of detail, all strongly suggest that the same basic bundle of human resource practices or general human resource management orientation tends to enhance business performance in all organisations irrespective of the particular product market strategy being pursued. According to David Guest this occurs through a variety of mechanisms:
human resource practices exercise their positive impact by (i) ensuring and enhancing the competence of employees, (ii) by tapping their motivation and commitment, and (iii) by designing work to encourage the fullest contribution from employees. Borrowing from elements of expectancy theory (Vroom 1964, Lawler 1971), the model implies that all three elements should be present to ensure the best outcome. Positive employee behaviour should in turn impact upon establishment level outcomes such as low absence, quit rates and wastage, as well as high quality and productivity. (Guest 2000, p. 2)
The main elements of the ‘best practice bundle’ that these and other writers identify are those which have long been considered as examples of good practice in the HRM field. They include the use of the more advanced selection methods, a serious commitment to employee involvement, substantial investment in training and development, the use of individualised reward systems and harmonised terms and conditions of employment as between different groups of employees.
The alternative ‘best fit’ school also identifies a link between human resource management practice and the achievement of competitive advantage. Here, however, there is no belief in the existence of universal solutions. Instead, all is contingent on the particular circumstances of each organisation. What is needed is HR policies and practices which ‘fit’ and are thus appropriate to the situation of individual employers. What is appropriate (or ‘best’) for one will not necessarily be right for another. Key variables include the size of the establishment, the dominant product market strategy being pursued and the nature of the labour markets in which the organisation competes. It is thus argued that a small organisation which principally achieves competitive advantage through innovation and which competes in very tight labour markets should have in place rather different HR policies than those of a large firm which produces low- cost goods and faces no difficulty in attracting staff. In order to maximise competitive advantage, the first requires informality combined with sophisticated human resource practices, while the latter needs more bureaucratic systems combined with a ‘low cost – no frills’ set of HR practices.
The best fit or contingency perspective originated in the work of Joan Woodward and her colleagues at Imperial College in the 1950s. In recent years it has been developed and applied to contemporary conditions by academics such as Randall Schuler and Susan Jackson, John Purcell and Ed Lawler. In addition, a number of influential models have been produced which seek to categorise organisational contingencies and suggest what mix of HR practices is appropriate in each case. Examples are those of Miles and Snow (1978), Fombrun et al. (1984) and Sisson and Storey (2000) – a number of which we look at in more detail in Chapter 2.
To a great extent the jury is still out on these questions. Interestingly, however, some subfields in HRM are dominated by best practice thinking, while others broadly accept best fit assumptions. A good example of the former is employee selection (see Chapter 8), where for decades researchers have debated which of the various selection methods that can be used (interviews, psychometric tests, assessment centres, etc.) is ‘best’ in terms of its predictive validity. An example of the latter is the field of reward management (see Part 6) where no single best approach has yet to be identified, it being generally accepted that different situations require different types of reward package to be provided. When it comes to research on the HR function as a whole proponents of both the ‘best practice’ and ‘best fit’ perspectives can draw on bodies of empirical evidence to back up their respective positions and so the debate continues.
1.4. The future of work
Debates about what will happen in the future are inevitably speculative and impossible to prove one way or the other, but a great deal of attention and government research funding is currently being devoted to this issue. It matters a great deal from a public policy point of view because judgements about employers’ human resource needs in the future must determine decisions about education and training now. Government actions in the fields of economic policy, employment legislation and immigration are also affected. We review these debates in detail in Chapter 34. Our purpose here is to summarise some of the key arguments that are put so that you can appreciate their relevance as you read our book.
A good starting point is the work of influential writers such as Charles Handy (1994 and 2001), Jeremy Rifkin (1995) and Susan Greenfield (2003). In different ways they have argued that the product market forces identified above will lead in future decades to the emergence of a world of work which is very different in many respects from that which most in western industrialised countries currently experience. Both the type of work we do and the nature of our contractual arrangements will, it is argued, change profoundly as we complete our journey out of the industrial era and into a new postindustrial age.
The first consequence will be a marked shift towards what is described as knowledge work. In the future, it is claimed, most people will be employed, in one way or another, to carry out tasks which involve the generation, interpretation, processing or application of knowledge. Automation and the availability of cheaper labour in developing countries will see further declines in much manufacturing activity, requiring the western economies to create wealth from the exploitation of scientific and technological advances. It follows that many more people will be employed for their specialist knowledge and that far fewer routine jobs will exist than is currently the case. Demand for professional and technical people will increase, while demand for manual and lower-skilled workers will decrease. It also means that competitive advantage from an employer’s perspective will derive from the capacity to create and deploy knowledge more effectively than others can.
The second major claim that is made is that the ‘job’ as we have come to know it will become rarer and rarer. In the future many fewer people will occupy defined jobs in organisations. Instead we will tend increasingly to work on a self-employed basis carrying out specific, time-limited projects for organisations. This is inevitable, so the argument goes, in a highly volatile business climate. Organisations simply will not be able to offer long-term guarantees of work and so will be forced to stop offering contracts of employment in the way that they currently do. The future is therefore bleak for people who want job security, but bright for those who are happy working for many employers and periodically re-educating themselves for a new type of career.
In many respects these arguments are persuasive. They are based on a rational analysis of likely developments in the business environment as globalisation and technological advances further evolve. They remain, however, highly controversial and are increasingly subject to challenge by researchers who argue that change on this kind of scale is not currently happening and will not happen in the near future.
A prominent critic of the views expressed by the predictors of radical change is Peter Nolan (see Nolan 2001 and Nolan and Wood 2003), who argues that the case is often overstated to a considerable degree:
Change is evident, to be sure, but the shifts in the patterns and rhythms of work are not linear, pre-determined by technology or, as some writers have uncritically assumed, driven by universal trends in market globalisation. (Nolan and Wood 2003, p. 165)
Instead, according to Nolan and his colleagues, we are witnessing the resolute continuation of established approaches and some reversal of trends that began to develop in the 1980s and 1990s but which have since petered out. Job tenure in the UK, for example, has risen significantly in recent years while the proportion of people employed on fixed- term contracts and a self-employed basis has either fallen or remained broadly stable. While we are seeing a slow growth in the proportion of people employed in professional and scientific roles (from 34 per cent to 37 per cent in the 1990s), there is no fall occurring in the number of lower-skilled jobs. Indeed, the proportion of people employed in relatively low-skilled jobs in the service sector is growing quickly. Critics of Handy and the other futurologists have thus identified a gap between a rhetoric which emphasises fundamental change and a reality which gives little support to the view that we are in the process of shaping a ‘new world of work’.
These different conceptions of the future may well derive from a preference for a focus on different types of environmental development. A reading of the major contemporary product market trends can easily lead to predictions of radical change. The twin forces of technological advance and globalisation do indeed point to a transformation of many aspects of our lives. But trends in employment are equally determined by developments in the labour market and regulatory environments. These suggest a strong preference on the part of both employees and law makers for a continuation of traditional approaches towards employment.
2. A PHILOSOPHY OF HUMAN RESOURCE MANAGEMENT
The philosophy of human resource management that is the basis of this book has been only slightly modified since it was first put forward in 1979 (Torrington and Chapman 1979, p. 4). Despite all the changes in the labour market and in the government approach to the economy, this seems to be the most realistic and constructive approach, based on the earlier ideas of Enid Mumford (1972) and McCarthy and Ellis (1973). The original was:
Personnel management is most realistically seen as a series of activities enabling working man and his employing organisation to reach agreement about the nature and objectives of the employment relationship between them, and then to fulfil those agreements. (Torrington and Chapman 1979, p. 4)
Our definition for the fifth and sixth editions in 2002 and 2005 was:
Human resource management is a series of activities which: first enables working people and the organisation which uses their skills to agree about the objectives and nature of their working relationship and, secondly, ensures that the agreement is fulfilled. (Torrington, Hall and Taylor 2005, p. 14)
This remains our philosophy. Only by satisfying the needs of the individual contributor will the business obtain the commitment to organisational objectives that is needed for organisational success, and only by contributing to organisational success will individuals be able to satisfy their personal employment needs. It is when employer and employee – or business and supplier of skills-accept that mutuality and reciprocal dependence that human resource management is exciting, centre stage and productive of business success. Where the employer is concerned with employees only as factors of production, personnel management is boring and a cost that will always be trimmed. Where employees have no trust in their employer and adopt an entirely instrumental orientation to their work, they will be fed up and will make ineffectual the work of any HR function.
Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.