Quality People Management
for Quality Outcomes
The Future of HR review of evidence on people management
Prepared by Wilson Wong, Alexandra Albert, Marianne Huggett and Jane Sullivan
Acknowledgements
The Work Foundation acknowledges a debt to our distinguished panel of experts comprising
academics and practitioners in the field of people management. Thank you for your invaluable
and challenging insights on the issues raised in this report and in the technical papers.
Of course, any shortcomings or oversights remain the sole responsibility of the The Work
Foundation.
Professor Mats Alvesson, Lund University
Mr Stephen Bevan, The Work Foundation, Managing Director
Professor James Buchan, Queen Margaret University College, Faculty of Social Sciences and
Health Care
Dr Helen Francis, Edinburgh Napier University, Director of Edinburgh Institute of Leadership and
People Management
Ms Alison French, Ministry of Defence, Director General for Civilian Personnel
Professor David Guest, Kings College London, Professor in Organisational Psychology & HRM
Ms Karen Jennings, UNISON, Head of Health
Dr Anne Keegan, University of Amsterdam, Associate Professor of Human Resource
Management
Ms Shiree Murdoch, Ernst and Young, People Director
Ms Jackie Orme, Chartered Institute of Personnel & Development, Chief Executive
Mr Peter Reilly, Institute of Employment Studies, Director Research and Consultancy
Mr David Richardson, Innervision
Dr Penny Tamkin, The Work Foundation, Programme Leader – Management and Leadership
Ms Sian Thomas, NHS Employers, Director
Professor Michael West, Aston Business School, Executive Dean
Ms Kirsty Yates, Investors in People UK, Head of Research
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Quality People Management for Quality Outcomes
Contents
1. Introduction: The future of HR
4
2. The players in people management
7
2.1 What do we know about the main players – HR contribution
7
2.2 What do we know about the main players – line managers
9
2.3 What do we know about the main players – leadership
10
2.4 The challenge to HR professionals
11
2.5 What do we know about macro-factors shaping people management?
12
3. The changing employer/employee relationship
14
3.1 What do we know about the people management issues posed by the changing
relationship?
3.2 What do we know about the psychological contract?
14
16
3.3 What do we know about engagement and the changing employee employer
relationship?
17
3.4 What do we know about the importance of ‘voice’ for securing employee
commitment and engagement?
18
3.5 What do we know about the implications of breaching the psychological contract?
19
3.6 What do we know about psychological contracts and organisational culture?
20
4. People management outcomes
22
4.1 The impact of employee engagement on organisational performance outcomes
22
4.2 The impact of skills development on organisational performance outcomes
24
4.3 What role does accountability play in organisational performance?
25
4.4 The impact of effective HRM on productivity and organisational performance
27
4.5 What do we know about the link between innovation and HRM?
28
5. Closing comments
30
References
33
Contact details
42
Quality People Management for Quality Outcomes
3
1. Introduction: The future of HR
Organisations face ever higher expectations of experience, quality and service from both staff
and users – whether as commercial customers or citizen-users.
This is a deeply embedded trend that has combined with the accelerated introduction of
new general purpose technologies and the exponential growth of business expenditure on
intangibles to create the knowledge economy. It is a trend that will continue, even if it moderates
during this current downturn.
HR professionals and the HR function, as the presumed ‘custodians’ of people management,
are therefore confronted with a paradigm shift in how HR should be conceptualised.
People management is now as important a contributor to organisational success as marketing,
finance, or sales – yet HR suffers from a lack of self-confidence, undervaluation by both
practitioners and users, and a confused idea of what its own professional mission should
be. In many organisations HR has tended to focus on the better engineering of technologies
surrounding transactional processes. While some able HR directors through experience and
personal insight have managed to position their teams effectively within their own organisational
context, this ability to support the transformation of people management has not automatically
been translated across the wider system.
The Work Foundation as an independent, ‘agnostic’ voice with no prior alignment to any
particular theory of HR or its function has stepped into the debate supported by a strong
consortium of sponsors from both the public and private sector to ask the difficult questions of
HR and of organisations.
There is a vast amount of literature about managing people at work. This report aims to explore
the existing research on people management, provide a synthesis of what we know and the
strengths and limitations to that knowledge. This will provide the basis for the future direction
of the programme to enable us to answer fundamental questions about how staff should be
managed fairly and effectively and the implications for roles, structures and capability for people
management.
It would be impossible to do justice to such a broad review without developing a framework
from which quite specific questions are posed. The framework for people management outlined
in Figure 1.1 identifies several points of focus which reflect the concerns of HR practitioners
4
Quality People Management for Quality Outcomes
Introduction: The future of HR
when designing HR that is fit for purpose. The review concentrates on academic literature that
examines:
1. The role, capacity and contribution to people management of the senior leadership, the
line manager and the HR practitioner;
2. The relationship between the employer and the employee through the employee value
proposition (or, ‘what’s in it for the employee’);
3. The relationship between people management strategy and policies and outcomes;
4. The people management outcomes prioritised by the sponsors of this programme;
5. The link of good people management to organisational outcomes;
6. The link, if any, between employees that are engaged and other people management
outcomes.
Additional analysis and evidence can be found in the accompanying technical report.
Quality People Management for Quality Outcomes
5
The players in people management
Figure 1.1: Framework for people management
6
Quality People Management for Quality Outcomes
2. The players in people management
Box 2.1 Key findings on people management roles
• There are positive associations between good people management practices and
•
•
•
•
2.1
organisational performance.
HR’s role in contributing to people management outcomes is ambiguous, uncertain and
subject to forces outside practitioners’ control.
HRM is becoming increasingly professionalised.
Concerns abound surrounding the capability of both the line, and HR professionals to
deliver the ‘people agenda’.
It is crucial for effective leadership to include leadership of the values and practices that
shape the organisational climate for HRM.
In the past 15 years, there has been a tremendous growth in research attempting to
What do we
demonstrate that ‘good’ HR practices result in higher organisational performance. On balance,
know about
the hundreds of studies reviewed provide ample evidence that a strong link between good
the main
HR practices and organisational performance exists, without establishing causation in either
players – HR
direction. Of course, there are other factors interacting or contributing to the association which
contribution
are less well understood.
Huselid (1995) set the bar with his paper on high performance working practices and financial
performance of the firm. Delaney and Huselid (1996) found further supporting evidence of
the positive relationship between a set of HR practices and perceptual performance in 590
businesses. Guthrie (2001) surveyed corporations in New Zealand and found that HR practices
related to turnover and profitability. West, et al., (2002) demonstrated strong associations
between HRM practices and patient mortality, a clear and compelling measure for acute medical
services. This line of research, examining HR practices against organisational performance
measures, was confidently summed up by Huselid and Becker (2000) who stated that ‘Based
on four national surveys and more than 2,000 firms, our judgment is that the effect of a one
standard deviation change in the HR system is 10-20 per cent of a firm’s market value’. Huselid
(1995) demonstrated that HR practices could be aligned strategically with corporate objectives
and function as a ‘business partner’ (see Boxall, 2003; Lawler III and Mohrman, 2003; Ulrich,
1997).
The debate about the exact nature of HR strategy and HRM’s relative contribution to people
management outcomes is however difficult to capture, not least because HR’s role is
ambiguous, uncertain and subject to forces shaping business models and organisational design
outside the control of the practitioners.
Quality People Management for Quality Outcomes
7
The players in people management
In defining the role of HR, Legge (1978; 1995; 2001) identified ambiguity of the personnel
role, lack of clarity about success factors for the function and a conflict of allegiances
between the interests of the corporation and those of the employee. One consequence of the
profession’s drive for ‘strategic partner’ status as a measure of acceptance at the top-table is
the marginalisation of HR as employee champion (Ulrich, 1997). Ulrich and Brockbank (2005)
argued strongly that notwithstanding HR’s strategic contributions, employee relations was
central to the function. That meant that HR had the lead in ensuring employees were treated
with fairness and dignity. This approach so prevalent in the HR discourse (eg Purcell, et al.,
2003), however, did not address the inherent conflict between prioritising performance in
high performance, high commitment work practices. There was an assumption that employee
interests and organisational goals could always be aligned though high quality HR practices.
There is some challenge to this unitarist model that excludes the centrality of worker interests
(eg Francis and Sinclair, 2003). There is no literature on HR models recognising the possibility
of conflict between employee interests/well-being and organisational outcomes. Winstanley and
Woodall (2000) have highlighted this contentious gap by identifying yet another absence. In the
current models for SHRM, there is no mention of the ethical dimensions of HR.
Legge argued that under current stakeholder arrangements practitioners would require
an external source of credibility in order to fulfil the promised deliverables of personnel
management, either through a parallel career in organisational development, or by gaining a
strong grounding in social science knowledge and skills (cf. Rynes, et al., 2002). A consequence
of this gap between rhetoric and practice was a vicious cycle of low calibre candidates entering
the profession. Guest and King (2004) revisited her conclusions 25 years after their initial
publication (Legge, 1978) and found that within the profession the issues of role ambiguity,
lack of strategy authority at board level and the vicious cycle remained largely intact (see also,
Watson, 2004).
Nevertheless there has been significant growth in the specialist HR role since 1990, an increase
from 14 – 30 per cent of those responsible for employment relations in the workplace and a
corresponding decrease in general and line management (Guest and Bryson, 2008). This trend
remains significant after controlling for any changes in workplace composition and counters any
suggestion of a decline in the role as a result of devolvement of activities to line management or
the growth of shared services (Guest and Bryson, 2008).
There is little written about the ability of HR professionals to implement and translate people
management policy and strategy but Rynes, et al., (2002) provided a window into HR
practitioners’ capability to do so. The U.S. study revealed that there were wide variances in the
8
Quality People Management for Quality Outcomes
The players in people management
HR leaders’ knowledge about evidence-based practices in HR. The gaps identified between
research and practice were core HR issues – recruitment, motivation using appropriate goalsetting and effective performance management.
2.2
There is a paucity of research available on the role of line managers. In this section, ‘line
What do we
managers’ are those who have staff responsibilities. The role of line managers in translating
know about
policy to performance outcomes has received little attention (Boselie, Dietz and Boon, 2005).
the main
players – line
managers
As people management practices devolve to line managers and are accessed through shared
services, these managers with direct supervisory responsibilities will be the critical link in
how HR practices influence employee attitudes and behaviour (eg Bowen and Ostroff, 2004).
Increasingly, employees experience HR practices through the enactment and leadership of
their line manager. The role of the front line in human resource management harks back to the
turn of the century when the personnel function was administered by foremen and supervisory
staff (see Kaufman, 1993). Within HRM, the discussion in the past 15 years has been ‘returning
HRM to the line’ (Cunningham and Hyman, 1995; Hutchinson and Wood, 1995; McGovern,
et al., 1997; Harris, 2001). As the human resource function has grown, so too have the line
manager’s people management responsibilities expanded beyond the traditional supervisory
role (McConville and Holden, 1999; Hales, 2005). Given the significance of the line managers
in delivering the HR bundle of employee resourcing, performance management and employee
relations, the investigations have also looked at manager behaviour and how this has affected
organisational climate (Purcell and Kinnie, 2006).
The studies on the gaps between HR practices and their enactment as experienced by
employees were usually attributed to the line managers’ lack of capability, disinterest or
conflicting priorities (Grint, 1993; McGovern, et al., 1997; Fenton O’Creevy, 2001; Harris and
Ogbonna, 2001; Whittaker and Marchington, 2003). From surveys of employees’ experience
of managers leadership behaviour (eg Guest and Conway, 2004a), the sense was that there
was a wide variance in responses. McGovern, et al.’s (1997) survey of line managers in seven
companies where the selection, appraisal and development of their subordinates were accepted
by the line as their direct responsibility, revealed that administration of personnel functions
was, in all seven companies, driven by the managers’ individual motivation and commitment.
Limitations of line manager practice (eg patchy appraisals) and the constraints on line managers
(ie failure to formalise the people management role in performance objectives and reward
structure, managerial focus on short-term business targets and delayering of professionals/
managers in organisational restructuring) translated to people management being de-prioritised.
The practice of devolution does not reflect the scenarios promoted by HRM professionals.
Quality People Management for Quality Outcomes
9
The players in people management
This variance is of concern to practitioners given that employee response to HR practices
is at the heart of all HRM performance models (Purcell and Kinnie, 2006), the object being
an affective relationship with the organisation, one complete with commitment and job
satisfaction; precursors to positive discretionary behaviour. This link between the employee
experience of people management and their feelings toward the corporation as expressed in
their commitment to it is underpinned by social exchange theory (Eisenberger, et al., 2002).
Within social exchange theory, Uhl-Bien, et al., (2000) identified the interpersonal relationship
between the line and their subordinate as a factor that could positively influence employee
attitudes. Uhl-Bien, et al., (2000) suggest that ‘more effectively developed relationships are
beneficial for individual and work unit functioning and have many positive outcomes related
to firm performance’. Guest, Conway and Dewe’s (2004) study of 1,000 workers supports this
line of reasoning. In this study, supervisory leadership was the strongest factor associated
with organisation commitment. Kidd and Smewing (2001) found that employees reporting to
supervisors who engaged in feedback and goal-setting behaviours, and/or provided greater
autonomy in the workplace had higher levels of commitment.
The line manager is a crucial contributor in a positive people management equation (see Perry
and Kulik, 2008). Purcell and Hutchinson’s (2007) study on Selfridges’ use of behavioural
selection, training, appraisal, career management and involvement suggested a marked and
measurable positive effect on employee attitudes and behaviour. The studies on line managers
suggest that they are aware that people management is an intrinsic part of their responsibilities
but often they will hold dissonant views on human resource management to those held by the
HR specialists. Arguably, the literature suggests that where line managers fall short is their lack
of HR capability, their prioritisation of operational demands over the HR needs of their reports
and where the HR practices/services do not meet their requirements.
2.3
What do we
know about the
main players –
leadership
Here the focus is on those who have the responsibility for determining the strategic direction of
the business and their leadership role in driving the people management strategies for optimum
performance from the organisation’s human capital – the chief executive officers, chief operating
officers, managing directors, the business founder and others who set the climate for good
people management.
The effectiveness of leadership lies in communicating a vision of where the organisation is
headed, inspiring enthusiasm for that destination while communicating clearly employees’ roles/
contributions to that end and building external alliances and relationships to support the shift in
direction (Yukl, 2002). Implicit in this description is leadership of the values and practices that
shape the organisational climate for HRM.
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Quality People Management for Quality Outcomes
The players in people management
Leadership as an individualised, dispersed attribute for organisational performance is
documented in the research literature (eg Mumford, et al., 2000; Shipton, et al., 2008). Studies
on strategic level management and their role in, contribution to and capability for people
management appears to be a lacunae. There is also a paucity of information about corporate
leaders and their translation of the values that underpin their strategic thinking into people
management outcomes. This may be a reflection of an assumption that leadership of people
management is attributed to specific groups of individuals, primarily HR specialists and line
managers. Perhaps the focus should be leadership in the specific deliverable whatever the
position of the actor/employee? However, given that leaders do manage the vision and symbolic
meaning of strategy, how that is managed in terms of the human resource management is of
importance.
2.4
The challenge
to HR
professionals
Caldwell (2003) suggested that greater organisational complexity, devolution to the line and
flexibility may also be undermining, in the long-run, the foundations of the expertise, status
and credibility necessary to sustain the new HR professional. The move towards embedding
people management into business units, devolving HR to line managers and outsourcing have
translated to a sense of the profession’s ‘powerlessness’ in managerial decision making. In
addition, the inability to maintain the boundaries of their HR expertise in the face of managerial
intervention, the lack of clarity or accountability in specifying the goals, outcomes or contribution
of the HR function and the erosion of the relationship of mutuality between corporation and
employees have affected HRM’s status (Legge, 1978; Caldwell, 2003; see also Francis and
Keegan, 2006). Even where HR functions are centralised at corporate headquarters, the HR
contribution is still derived from a shifting array of expertise (Purcell and Ahlstrand, 1994) and
the profession’s tendency is to identify HR expertise with who controls what HR function rather
than with effectiveness (Ulrich, 1997), resulting in the erosion of expert knowledge, specialist
credibility and a role-based status (Caldwell, 2003).
Guest (1987) saw the future of HRM in ensuring coherence in the strategic integration
of leadership’s vision, HRM issues, strategy and line decision making. Even Guest in his
consequent discourse of high performance working is also sceptical of the prospects [for HR]:
‘For many, the unitarist implications of human resource management could only begin to have
an appeal following a much more radical shift in ownership and control in industry’ (1987).
Storey’s (1992) overt promotion of the connection between strategy and competitive advantage
foreshadows much of the contemporary research into HRM and the significance of the
resource-based view. Ulrich’s (1997) influential prescription that modern HRM was an amalgam
of roles (strategic partner; change agent; administrative expert; employee champion on two
Quality People Management for Quality Outcomes
11
The players in people management
binary axes – strategic vs technical and interventionary vs non-interventionary) was a panacea
for integrating business strategy and people management and laid bare the unsatisfactory gap
between HR rhetoric and reality.
The relentless shift towards strategic HRM and the devolution of operational/transactional
HR (ie selection, assessment, training etc.) down to the line (Torrington & Hall, 1996) by HR
professionals has had mixed results, with differences in perception as to who this process was
empowering.
2.5
What do we
There are many environmental factors shaping the nature of work and this clearly shapes the
roles involved in people management. These include:
know about
macro-factors
shaping people
management?
2.5.1 Legislation
Since 1997, the Labour Government has introduced many changes in UK employment law.
These included enhanced rights for parents, the introduction of a national minimum wage
and the Working Time Directive. Discrimination law was tightened, with protection from
discrimination available on the grounds of age, religion or belief and sexual orientation, in
addition to existing rights covering gender, race and disability. More significantly, the Human
Rights Act 1998 heralded a more pronounced rights-based approach to negotiating competing
demands between state and individual but also corporation and employee. Legislation like the
Data Protection Act 1998 also afforded protection for employees as citizens. These impacted on
the role and structures associated with the professionals covering this aspect of HRM.
2.5.2 Growth of business management education
The growing complexity of the HR function against a background of business management
education (see The Economist, 17 October 2003) saw the increasing professionalisation
of HRM. Evans (2006) outlined the history of the Chartered Institute of Personnel and
Development (CIPD), the professional body for HR practitioners in the United Kingdom. Given
the complex demands on the HR practitioner, professional training must evolve to reflect market
priorities. In management training, for instance, the MBA curriculum had changed considerably
since its creation in the early 20th century. More recently, post ENRON, the US MBA
programmes have emphasised leadership, business ethics and morality (The Economist, 17
October 2003) corresponding with many of the concerns in strategic HRM, save for ethics (see
2.1 above). This might indicate an area of contestation or recognition that people management
was the concern for all managers.
2.5.3 Technology and people management
The development of people management cannot be divorced from technologies of and affecting
12
Quality People Management for Quality Outcomes
The players in people management
production. From Arkwright’s loom to the Ford assembly line to the advent of the BlackberryTM,
many general purpose technologies have and continue to change ways of working and new
ways of organising workers (see Lipsey, Carlaw and Bekar, 2005). For instance, ICT in the
workplace has, inter alia, transformed the relationship between firm and employee, allowing new
measures of productivity, remote working, and so on. ICT is also transforming some HR roles
where software packages and standard operating procedures have enabled globally shared HR
services, impacting on both the numbers and nature of HRM.
2.5.4 The knowledge worker
Today there is free movement of knowledge work that does not recognise geographical
boundaries. In this atmosphere, recruitment is becoming more of a two-way deal where
companies must cultivate their employer brands and working conditions to attract the bestqualified prospects, conscious of their sought-after status and consequent bargaining power
(Michaels, et al., 2001). Within the context of growing individualism in the corporate-employee
relationship, it is interesting that neither Guest nor Storey in their construction of the HR function
permitted any space for unions, joint decision-making or wider concerns about social justice
(Keenoy, 2007); all important considerations in managing these highly mobile professionals. The
tension between pursuing a paradigm of individual employee self-determination and labour as
a function of firm-determined performance measures remains problematic for HR practitioners.
Which values are HRM accountable for – a meaningful compact with the firm to deliver
goods and services in exchange for security (Yousef, 1998) or one where labour is a unit of
production? At the same time, firms are universally proclaiming people as the key to corporate
success.
People management has never been more strategically placed centre stage. These
developments, theoretical models and the manner in which these inform practice, we believe,
have implications for the role of HR and their status as professionals. The negotiation of
the responsibilities to ensure good people management between HR, line and leadership is
currently ill-defined.
Box 2.2 Key issues relating to the relative roles in people management
• The relative roles in people management are insufficiently defined to respond to the
•
•
macro factors shaping people management.
The relentless shift towards strategic HRM and the devolution of transactional HR by
HR professionals has had mixed results.
There remains a lack of confidence in the skills, competence and confidence of HR
professionals, and line managers, to effectively translate organisational and people
strategy, into engagement and high performance.
Quality People Management for Quality Outcomes
13
3. The changing employer/employee relationship
Box 3.1 Key findings on the changing employer-employee relationship
• Employees demonstrate more commitment when their psychological contracts are trust
based, negotiated, collective, broad, equal and long term.
• The psychological contract has been approached by examining context, or by examining
•
the positivistic, causal relationships between formants, the perception of employer by
employee and the behavioural outcomes.
A perceived violation of the psychological contract results in the loss of trust, reduced
performance and behavioural adjustments. Trust is fundamental to the psychological
contract through its enhancement of employee commitment and engagement.
The aim of people management strategy and policy is to support the business objectives of
survival, growth, service and profitability by harnessing the human capital. Understanding what
contributes to the health of the relationship between employer and employee (the psychological
contract) has important behavioural consequences for the organisation. Although we do know
a lot about the content of the psychological contract, there is much to learn about the way
this becomes meaningful to employees. According to Towers Perrin (2007), approximately 20
per cent of the workforce in any country, company or sector are highly engaged which poses
questions about the employer’s understanding and management of their relationship with 80 per
cent of their employees.
3.1
As we saw in the previous chapter, the role of HR in people management is far from stable. Yet,
What do we
many organisations are operating in a cultural lag from the traditional psychological contract
know about
(Noer, 2000). Organisations now employ a multitude of models (part-time, job shares, remote
the people
working, contract, shared services, outsourcing etc) for organising their workforce but, largely,
management
retain the artefacts of a traditional contract (eg career paths, benefits etc) which they cannot
issues posed
(realistically) deliver. HR use concepts like ‘mutual gains’ to describe a power relationship which
by the changing
relationship?
is inherently unbalanced with employers expecting ‘engagement’ with limited guarantee of
delivering employee expectations (eg job security, career path, development).
In managing ‘the deal’, McInnes, et al.’s (2009) study explored the relationship between different
psychological contracts, and their impact on employee commitment. In testing a number
of hypotheses they drew the following conclusions which hold practical implications for the
maintenance of the health of the psychological contract:
14
Quality People Management for Quality Outcomes
The changing employer/employee relationship
• Employees reported stronger affective1 and normative commitment when their contracts
were trust based, negotiated, collective, broad, equal and long term. Both affective and
normative commitment was weaker when the contract was perceived to be imposed,
unequal and short term. They also found that although commitment was positively
linked with fulfilment of the contract, employees’ perceptions of the contract features
contributed to their commitment, regardless of whether the contract was fulfilled.
• They argued for a change in the way that psychological contracts are perceived. The
relational-transactional contract distinction focuses largely on the ‘features’ of the
contract, rather than content.
• They also argued that new contract types might be emerging as a result of changes in
the world of work. For example, they describe the emergence of ‘organisation-centred’
contracts that tend to be imposed and short term, and giving the organisation greater
control (cf. De Vos, Buyens and Schalk, 2001; van den Brand, et al., 2002). Such
contracts might be used with peripheral rather than core employees, who are providing
a necessary but temporary service, thereby ensuring that important but clearly defined
jobs get done without long term commitment or obligation on either side. This research
found that with organisation-centred contracts, employees tended to show less
normative and affective commitment.
• They found further evidence for what Rousseau (2000) calls the ‘balanced’ contract.
Including features from both traditional relational and transactional contracts, these tend
to be open ended in nature but include tangible performance-reward contingencies. It
is thought that these balanced contracts maintain the positive aspects of the relational
contract (trust based etc) with the flexibility required by the modern organisation to
adapt to an ever changing economic environment, thus benefiting both the employer
and the employee.
• They also found evidence of what Rousseau (2005) described as ‘i-deals’ – contracts
that are individually negotiated with employees with the sole purpose of retaining key
people and offering some flexibility to both parties. For example, this might take the
form of an employee negotiating an unpaid sabbatical in exchange for a ‘time specific’
Affective commitment is taken from work by Allen & Meyer (1990) and is the principle that people stay
because they want to. They defined normative commitment as people feeling that they should stay with
an organisation because they ought to. These definitions are now common place in the literature on
commitment
1
Quality People Management for Quality Outcomes
15
The changing employer/employee relationship
period of service at the end. However they also found that i-deals might not always be
in the employees best interest – contracts with these features were found to be highly
linked with normative commitment but not with affective commitment. Thus they argue
‘arranging even an optimal i-deal could result in a commitment based on obligation
rather than desire’, particularly relevant in the context of the current recession.
3.2
What do we
know about the
psychological
contract?
The literature on the psychological contract is divided broadly into two approaches. The
first focuses on the context, employing qualitative, social psychological lines of enquiry on
the processes of contracting (eg Herriot and Pemberton, 1996). The second approach to
psychological contracts can be described as positivistic, examining causal relationships
between antecedents to the formation of the contract (eg organisational climate, HR practices,
expectations of job security, experience of redundancy, chances of alternative employment,
involvement climate), the perception of the employer by the employees (eg fairness, trust and
record of actually delivering on the contract), and the consequent behavioural and attitudinal
outcomes (eg commitment, job satisfaction and effort) (see Guest and Conway, 1997).
3.2.1 Theories of exchange
In the mutual investment model (Tsui, et al., 1997), there is a mutually beneficial transaction
between an employer willing to ensure the well-being of the employee (eg health and wellbeing,
career opportunities, training and appraisal), and an employee who knows what is expected and
offers up the appropriate behaviours to meet those expectations. More directly, HR policies and
practices can and do translate into promises or obligations on the part of the employer in the
employee’s understanding of the contract (Guest and Conway, 1998). In much of the literature,
the psychological contract is viewed as dynamic, and evolving.
Shore and Barksdale (1988) use social exchange theory to discuss the importance of balance
in a psychological contract. In this paradigm the extent of the balance/imbalance is more
important to the nature and health of the contract than the specific content of the contract. From
this perspective high mutual obligations are significantly more likely to lead to better outcomes
for the organisation, such as higher commitment and the associated benefits of discretionary
effort, pro-social organisational behaviours and so on. If balance cannot be achieved longer
term, one or both of the parties will seek to terminate the relationship.
Against the backdrop of negotiating this relationship caused by the changing face of
the psychological contracts, employers have simultaneously sought increasing levels of
commitment from their employees. In recent years, this focus has manifested itself in the drive
to build and harness employee engagement.
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The changing employer/employee relationship
3.3
There is a general assumption in HRM literature that commitment and performance should
What do we
correlate positively. The evidence is at best patchy (Cohen, 1991; DeCotiis and Summers,
know about
1987; Mathieu and Zajac, 1990; Mowday, et al., 1982). However, the work on organisational
engagement
citizenship behaviour and prosocial behaviour does provide some light. Organ (1988) proposed
and the
that citizenship behaviour resulted from perceived fairness in relations between employees and
changing
the organisation. He justified this interpretation by arguing that through ‘fairness’, a social, rather
employee
than an economic exchange relationship developed.
employer
relationship?
In the resource model of human resource management, high employee involvement and
commitment were prerequisites for high performance outcomes (Ferris, et al., 1998). The
classic assumption was that that in return for diligence and loyalty, organisations provided
tenure. In this relationship, trust was a component. Trust was regarded as fundamental to
the psychological contract (Guest and Conway, 1998) and tied to whether the contract was
transactional or relational (MacNeil, 1985; Rousseau, 2004). Atkinson (2007) found that trust
was present in all psychological contracts but cognitive trust and transactional obligations
seemed to operate as hygiene factors. When trust reached the threshold of adequacy, the
relationship might then progress to a more relational level. The question was the price of this
coveted employee commitment.
More recently the emphasis had shifted to employee engagement, defined as ‘the intrinsic
motivation... when behaviour is performed for its own sake rather than to obtain material or
social reinforcers’ (Bateman and Crant, 2003). The Institute for Employment Studies described
an engaged employee as ‘aware of business context, and works with colleagues to improve
performance within the job for the benefit of the organisation’ (Robinson, et al., 2004). It is
attractive to organisations because it sought to harness discretionary effort by creating an
environment where staff were working more effectively, in a more focussed way, rather than
simply longer, harder and faster.
The CIPD Employee Attitudes and Engagement Survey 2007 suggested that just over one third
of employees are actively engaged with their work. Of the three types of engagement identified
in this study, levels of emotional engagement are the highest, with around six in ten employees
being emotionally engaged (feeling engrossed in their work), three in five are cognitively
engaged (focusing very hard on their work) and around four in ten are physically engaged
(willing to go the extra mile). HR professionals are generally pessimistic, and believe employee
loyalty has decreased, largely, due to a loss of trust (Frank, et al., 2004).
Quality People Management for Quality Outcomes
17
The changing employer/employee relationship
3.4
Employee voice through the processes of engagement is one avenue for negotiating the new
What do we
employer-employee relationship, one that has the potential to engender trust. Understanding of
know about
the forms and purpose of employee voice has shifted dramatically over the past 60 years.
the importance
of ‘voice’
for securing
employee
commitment
and
engagement?
In the 1980s and early 1990s, the importance of employee voice was promoted in terms of
the business case rather than employee rights. Management looked to employee involvement
to generate a positive and constructive voice, rather than an independent one (Ackers, et al.,
2004; Gollan & Perkins, 2007). More recently, the expression of ‘voice’ has shifted towards
legally enforced employee rights, for example, the right to request flexible working and to have
non-unionised consultative bodies.
Bryson, et al.’s (2007) definition of employee voice as the ‘institutionalisation of two way
communications between employer and employee designed to reduce transaction and exit
cost for both parties – a form of contractual governance with mutual gains’ is telling. The
implication is that the changing relationship with the employer is transactional, time limited
and with deliverables/outcomes clearly specified. Coats (2004) points out that ‘voice’ is usually
limited to local, operational level discussions. The bigger strategy discussions that impact on the
employee’s work life occur elsewhere and are not always in the best interests of individuals.
The literature strongly suggests that given the declining levels of union membership and the
emergence of various forms of employee representation, coupled with the link between voice
and commitment as pre-requisites for high performance working (eg Pfeffer, 1998) ‘voice’ is an
increasingly important people management issue. There is also the growing support for voice as
part of employee rights within the construct of industrial citizenship through the European Union
(Ackers, et al., 2004). It is not clear from the literature how the different voice mechanisms affect
the psychological contract, and vice versa.
3.4.1 Structural mechanisms for securing commitment
In the process of engaging employees, it is a management competence to ensure that a
sound and shared grasp of what is important to employees is recorded, and that the voice is
consistent, coherent and authentic. Much of the discussion in this section has highlighted the
uncertain negotiation of the mutual gains between employee and the employer, often times
with the line manager as the (sole) agent. Given the need and desire to capture an authentic
employee voice in spite of imperfect power relations between employee and the employer,
a number of complementary structures and process such as works councils (eg Statutory
Instrument 1999 No. 3323) and partnership agreements were created.
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The changing employer/employee relationship
3.5
What do we
In seeking to understand the nature of the new employer-employee relationship, what happens
when the psychological contract is (perceived to be) breached by the employer?
know about the
implications of
As with any relationship, the test is in its violation and the consequences (Rousseau, 1995;
breaching the
Morrison and Robinson, 1997). A perceived violation of the psychological contract has been
psychological
found to result in a loss of trust (Robinson and Rousseau, 1994), reduced performance
contract?
(Robinson and Wolfe-Morrison, 1995) and behavioural adjustments (Nicholson & Johns,
1985). The perception of a breach of employee expectations of the employer (eg job security,
promotion, training and development, failure to administer administrative justice) can lead to
feelings of injustice and distrust (Morrison & Robinson, 1997; Kickul, 2001; Kickul, et al., 2001).
Circumstances like organisational timing (eg mergers) or market factors (eg redundancies,
cutbacks) can lead to feelings that the contract has been broken (Turnley and Feldman, 1999a;
1999b). Unsurprisingly, the employee’s understanding of the commitment to the employer will
affect their response to a perceived breach (eg Herriott, Manning and Kidd, 1997; Rousseau,
2001b; Ang, Tan and Ng, 2000).
Individual determinants of the psychological contract include employee experiences and
expectations prior to employment, during the recruitment interactions, or from experiences
in the course of employment (Rousseau, 2001a). The understanding of the contract may
vary according to individual difference factors such as age, labour experiences, level of
education, union membership or non work commitments/interests (Guest and Conway, 1998).
For instance, there is evidence that older workers lose trust in their organisations when the
perceived contract is violated (Herriot, et al., 1997), while younger workers may have different
expectations (Turnley and Feldman, 1999b; Smithson & Lewis, 2000). This could reflect a more
‘realistic’ understanding of the modern labour market (Brannen, et al., 2002; Harwood, 2003).
Alternatively, it could be argued that a sense of violation is related to different and evolving
expectations or perceived promises, so, for instance, job security is ‘replaced’ with expectations
of challenging assignments (Turnley and Feldman, 1999b). However, Pate, Martin and
McGoldrick’s (2003) study suggests that triggers of violation impinge on employee attitudes but
not on behaviour, trends substantiated by analysis of absenteeism records. The qualitative data
there highlighted two contextual issues to this dichotomy between attitudes and behaviour. The
first of these was labour market conditions and perceptions of job insecurity and second was a
sense of collegiality and pride in the job.
Quality People Management for Quality Outcomes
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The changing employer/employee relationship
3.6
In understanding the offer by the employer, the employee is likely to give regard to the
What do we
organisation’s culture. Briefly, culture is ‘a system of knowledge, of standards for perceiving,
know about
believing, evaluating and acting that is largely tacit but meaningful and relevant to a group
psychological
of people within a defined environment which manifests in behaviour, beliefs and actions
contracts and
recognised by that group and to new members’ (adapted from Allaire and Firsitoru, 1984;
organisational
Becker and Greer 1960; Louis, 1980; Schein, 1991; Sorensen, 2002).
culture?
In forming the psychological contract with the employer, the new employee is likely to pay
attention to a variety of ‘cultural carriers’ (Schein, 1991), described as observable behaviours
or daily enactments; artefacts, which are essentially the constructed social and physical
environment; organisational symbols; language; ideology; and ritual and myth. There is a rich
body of literature suggesting the centrality of organisational culture, values and beliefs (eg
Schein, 1991; Deal and Kennedy, 1982) to organisational performance (eg Bilsky and Jehn,
2002; Sorensen, 2002; Kotter and Heskett, 1992; Gordon and DiTomaso, 1992; Denison, 1990).
Reproducing Schein’s (1991) list of cultural carriers is perhaps the most succinct way to
illustrate the centrality of culture to the psychological contract:
•
•
•
•
What leaders pay attention to, measure, control;
How leaders react to critical incidents and organisational crises;
Role modelling, teaching, coaching, walking the talk;
Criteria for allocation of rewards/status (what behaviour is rewarded, what behaviour is
punished);
• Criteria for recruitment, selection, promotion, retirement and excommunication (what
type of people are brought in, retained, advanced);
• Organisation design and structure (modifying the basic structure might be a way of
changing the norms);
• Design of space, facades, buildings;
• Stories about important events, people;
• Formal statements of philosophy, creeds etc.
From the above, we see that the psychological contract is constantly being re-negotiated. The
employee’s affective response to them can affect levels of engagement and, where sufficiently
incongruent, break the relationship. Section 3.7 makes the links illustrated in Figure 1.1 and
highlights the relationship between organisational culture and values to the employee value
proposition.
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The changing employer/employee relationship
Box 3.2 Key issues in the employer-employee relationship
• As constant changes in the world of work alter the employer-employee relationship,
•
•
•
there is insufficient understanding of how the psychological contract will be perceived.
It is currently unclear how the psychological contract should be negotiated, and
renegotiated, in such a way as to ensure the mutual gains of both the employee and
the employer.
It is unclear to what extent is the failure to generate higher levels of engagement in
the workplace a product of imbalanced or poorly negotiated psychological contracts. A
better understanding of the specific de-railers of the deal is required.
It is unclear how individual employee voice and collective voice mechanisms interact to
influence new and changing employer-employee relationships.
Quality People Management for Quality Outcomes
21
4. People management outcomes
Box 4.1 Key findings on selected people management outcomes
• There is a strong evidence base of the links between high performance HR practices
•
•
•
•
and organisational performance.
The effects of HRM are often found to be greater than other investments such as ICT
and research and development.
Higher skills levels have a positive association with productivity and skills and capabilities
are a significant part of the bundle of HR practices that make a difference to business
performance.
There is sparse academic literature on how HRM affects accountability within
organisations.
HRM creates an environment that fosters innovation and diversity although HR itself is
not usually the source of innovative practice.
People management outcomes are some measures of the efficacy of HR strategy and policy in
encouraging the behaviours seen as precursors to desired organisational performance (client/
customer loyalty and satisfactions, improvements to the bottom line, and where appropriate,
citizen or public value). The people management outcomes that are prioritised in this section
reflect those identified by the programme sponsors as a priority and of common interest. The
focus here is on the following people management outcomes: employee engagement, skills and
capability, accountability, productivity and performance and innovation. These are not an end in
themselves but one of the means to achieving the organisational outcome.
4.1
The impact
of employee
engagement on
Employee engagement is currently a dominant people management outcome and there is a
wealth of evidence suggesting that higher levels of engagement are associated with a number
of positive organisational performance outcomes. Some of the key research in this area is
outlined below:
organisational
performance
outcomes
• Gallup’s research (Ferguson, 2005) found that employee engagement spawned
customer loyalty, business growth and profitability.
• The Institute of Employment Studies (IES, 2007) found higher levels of employee
engagement to be associated with positive performance outcomes – revenue growth,
profitability, productivity, customer satisfaction, labour turnover, retention of staff,
facilitating change and trust and confidence in public institutions.
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People management outcomes
• The Towers Perrin European Talent Survey in 2004, based on 250 companies found a
15 per cent increase in engagement correlated with a 2.2 per cent increase in operating
margin.
• ISR in 2003 compared high-engagement to low-engagement companies over a
three-year period and saw massive differences in performance with low engagement
organisations operating margin at -2 per cent and high-engagement organisations at
+3.7 per cent. Low engagement organisations net profit margin was -1.4 per cent and
high engagement +2.1 per cent (ISR, 2003).
• There is also a substantial body of research that illustrates the ‘service profit’ chain,
demonstrating links between employee satisfaction, commitment to customer
satisfaction and loyalty, and bottom line performance (Borucki and Burke, 1999; Gelade
and Young, 2005; Barber, et al.,1999).
This body of work is consistent with Wall and Wood’s (2005) meta analysis of the links between
HRM and business performance, where 19 of the 25 studies reported some statistically
significant positive relationships between HRM practices and performance. Wall and Wood’s
(2005) analysis of the links between HRM and performance suggest that only two studies
(Cappelli & Neumark, 2001; Ichniowski, et al., 1997) have an authentic longitudinal design on
which causal inferences about the relationship between HRM practices and performance could
justifiably be based. However, Wall and Wood (2005) point out that these studies yield divergent
results, thus limiting the use of these causal findings. Similar small but positive associations are
reported in People and the Bottom Line (Tamkin, et al., 2007).
The links between engagement and people management and organisational outcomes are
compelling enough for organisations to focus HR attention on measuring engagement and
introducing a range of employee engagement strategies. Despite this level of activity, however,
the generally low levels of employee engagement and the difficulty of replicating those who
succeed, require an explanation.
There are a number of studies that highlight the importance of the relationship with leadership/
senior management in engendering employee engagement (MacLeod and Brady, 2007; Towers
Perrin, 2003). However, Towers Perrin also argues that most senior leaders are not up to the
challenge and are failing to meet the expectations of their employees.
Quality People Management for Quality Outcomes
23
People management outcomes
The relationship with the line manager is also identified, both directly and indirectly, as a key
factor in engendering employee engagement. The IES (Barber, et al., 1999) service profit chain
can be traced back to the immediate line manager, whilst their 2007 study places immediate
line management as the third most important factor in employee engagement. In the Corporate
Leadership Council’s model of employee engagement (2004a), the line manager is identified as
driving both rational and emotional commitment. Furthermore, line management that balances
challenge and support is a primary determinant of engagement in Robertson’s (2009) model of
psychological mediators and business unit outcomes.
Therefore, it may be fair to conclude that any deficit in line manager capability, or lack of clarity
of their role in delivering the psychological contract/employee engagement strategies, will be a
factor in the levels of employee engagement in an organisation at any given time.
4.2
The impact
of skills
development
Another important people management outcome is the development of workforce skills and
capability. This has already been mentioned as part of the changing nature of the psychological
contract in Chapter 3, but here we examine the literature specifically in relation to skills and
capability as a people management outcome.
on
organisational
The evidence points to higher skill levels having a positive association with productivity. For
performance
example, the most productive manufacturing organisations tend to have a more highly educated
outcomes
workforce than the least productive equivalent on average, to an extra qualification level (Haskel
and Hawkes, 2003). Other research has suggested that a more highly skilled workforce can
bring other benefits such as enhancing company survival (Reid, 2000) or boosting innovation
(Albaladejo and Romijn, 2001). Other examples of investment in workforce development include
evidence linking attainment of IIP with performance (Hambledon Group, 2000) and a range of
business benefits reported by employers, including improved service quality, increased turnover,
and higher profitability (Hilage and Moralee, 1996).
Much of this literature has been summarised by Tamkin, et al., (2004; 2005). Overall the weight
of evidence and the consistency of the general direction of results – even if not the finer detail
– presents a strong and persuasive case that skills and capabilities as a significant part of the
bundle of HR practices make a difference to business performance.
The importance of skills and career development is also highlighted in the research on the
key drivers of employee engagement. For example, in the IES 2007 model of employee
engagement the most important key driver, feeling valued and involved, is most influenced by
the opportunity for training, development and career progression. Furthermore, opportunities to
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Quality People Management for Quality Outcomes
People management outcomes
learn and develop new skills emerged as one of the top ten key drivers in MacLeod and Brady’s
2007 review of employee engagement, The Extra Mile.
Skills policy in the UK for the past 25 years has focussed very much on skills acquisition,
upskilling or reskilling. This emphasis tends to underplay the issue of how employees’ skills are
deployed in the workplace. The Knowledge Workers Survey (Brinkley, et al., 2009) highlights
a significant minority of workers who believe their current jobs under-use their skills. In this
survey, about 36 per cent of knowledge workers say they are in jobs that under-use their skills,
compared with over 44 per cent of those in jobs with some or little knowledge content.
There are also philosophical differences between training to support employee employability,
and targeted training to support business need, and these may indicate a different form of
psychological contract on offer. Sung and Ashton (2005) demonstrate that in high performance
work organisations (HPWO) skills development is very focused and designed to achieve specific
business outcomes and levels of performance. Learning and development opportunities may be
in line with both organisational and individual need and provide a situation of mutual gain, but
this evidence suggests that for high performance, individual needs for employability take second
place to organisational need. The potential impact of this focus on the changing nature of the
psychological contract should not be overlooked.
The important role that the development and deployment of human capability plays in
organisational performance should not be underestimated. Tamkin, et al., (2004) position this
eloquently with their argument that ‘training and skills focus respectively on the growth and
stock of human capital, but workforce capability also depends on the degree to which this stock
is deployed’. The links between this line of thinking, the employee engagement agenda, and
organisational performance, are clear and once again put line managers in the spotlight.
4.3
What role
does
Whereas corporate governance examines accountability at firm-level, this section considers
individual accountability within an organisation and how increased individual accountability can
lead to enhanced organisational performance.
accountability
play in
The academic literature in this area is generally sparse and mainly has a US focus. It refers
organisational
to both formal and informal accountability mechanisms. Ferris, et al., (2008) suggest that
performance?
performance evaluation is ‘a formal accountability mechanism nested within a complex social,
emotional, cognitive, political and relationship context, which needs careful consideration
and comprehension in order to fully sort out performance evaluation challenges and leverage
possibilities’. Accountability is described in informal terms by Frink and Klimoski (2004) ‘as the
adhesive that binds social systems together’
Quality People Management for Quality Outcomes
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People management outcomes
Ferris, et al., (1995) suggest that accountability can be divided into external and internal
accountability. Whereas an organisation might hold employees formally accountable (external),
a particular individual might not accept that accountability and might not feel accountable
(internal). Hall, et al., (2004) argue that ‘internal accountability is a more theoretically interesting
and relevant construct than external accountability because it relates to the effects on attitudes
and the behaviour of organisation members’.
Siegell-Jacobs and Yates (1996) distinguish between two types of accountability: Procedural
accountability (PA), where evaluation of an action is based solely on the quality of the procedure
that a judge or decision maker uses in arriving at a response, regardless of the quality of the
outcome of that response; and outcome accountability (OA) which is based exclusively on
the quality of the outcome of a response, without looking at the nature of the procedure used
to arrive at that response. Procedural accountability appears to have positive effects on the
quality of decisions (Kiker, Mero and Brownlee, 2002; Rozelle and Baxter, 1981), although
some studies suggest that outcome accountability may actually result in lower quality decision
making (Adelberg and Batson, 1978). Hall, et al., (2007) suggest that ‘disconnects between
aspects of accountability may pressure individuals to behave unethically and seek to rationalise
their behaviours’. This is in line with Smith and Reeves (2006) who suggest, ‘Successful
organisations... recognise that while rules are necessary, they are far from sufficient and that
people believe their eyes more readily than their ears. But the drive to accountability in all
corners of organisational life – what Michael Power calls an ‘audit explosion’ – has meant that
too many organisations are leaning too heavily on the rule book to the detriment of professional
intuition and ethical behaviour’.
Current working practices suggest that the rule book is still dominant. According to the
Knowledge Workers Survey (Brinkley, et al., 2009), workers, regardless of the knowledge
intensity of their work, expressed strong preference for organisations built on mutual trust and
loyalty, with very few respondents stating a preference to work for an organisation bound by
rules and procedures. Unfortunately, this latter characteristic is also the one that most workers
perceive as prevalent in their organisations. Over 60 per cent of knowledge workers said their
organisation was characterised by rules and regulations compared with the fewer than five per
cent who said they preferred such organisations.
So a number of key questions remain unanswered about accountability in the organisation.
For example, what is the difference between accountability and performance management?
What is the link between accountability, performance and ethics? And how clear are the people
management roles and responsibilities for creating an organisational environment in which
staff at all levels are accountable for understanding and delivering, customer/citizen or service
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Quality People Management for Quality Outcomes
People management outcomes
user needs? Who is accountable for holding the organisation to account for how it manages its
people?
4.4
There are many empirical studies, such as those by Delaney and Huselid (1996), Delery and
The impact of
Doty (1996), and Koch and McGrath (1996), which suggest that specific, stand alone HR
effective HRM
practices are associated with organisational effectiveness. Similarly there are many studies
on productivity
and
organisational
performance
which look at HR ‘systems’ encompassing a number of practices, and which suggest that these
systems may have a stronger effect than any one variable (Huselid, et al., 1997; Ichniowski, et
al., 1997; Bae and Lawler, 2000). Positively, there is a vast array of literature demonstrating the
strong association of HRM to productivity. Key research in this area includes:
• Using the UK WERS (Workplace Employee Relations Survey) data Wood, de Menezes
and Lasaosa (2001) found that the implementation of high involvement management
raised the rate of productivity growth.
• Patterson, et al., (1998) found that nearly a fifth of variations in productivity and
profitability were associated with differences in HR practices.
• Huselid and Becker (1996) in the US used a one standard deviation shift in HRM
practices as a benchmark and found that sales per employee rose by $27K and market
value per employee by $15K. This was greater than strategy, R&D expenditure and
technology as a predictor of productivity and profitability changes.
• Guest, et al.‘s (2003) study of 366 organisations concluded that there was an
association between high-commitment HR practices and higher profitability, as well as
lower reported levels of labour turnover in manufacturing, but not in services.
• Guest and Bryson (2008) also analysed WERS data to reveal that, even using the
limited set of HR practices that were collected over a number of the surveys, the
analysis supported the general findings of the major reviews (Boselie, Dietz & Boon,
2005; Combs, et al., 2006) in revealing an association between the adoption of
more HR practices, and measures of comparative labour productivity and financial
performance.
However, the consensus from all of these studies is that high performance HR systems have
economic benefits for organisations in terms of their financial, bottom line performance.
Quality People Management for Quality Outcomes
27
People management outcomes
Furthermore, the effects of HRM are often found to be greater than other investments such as
ICT or research and development.
4.5
This section examines innovation in the context of how it links to HRM, whether HRM enhances
What do we
innovation within organisations, and also whether HR is innovative or is required to be risk
know about
averse and bureaucratic.
the link
between
In the context of HRM and innovation, the main measures of innovation that appear in the
innovation
literature are quality in product innovation and commitment to technical change and production
and HRM?
techniques. Shipton, et al., (2005) distinguish between the different measures of product
innovation, focusing on both innovation in production technology, and innovation in production
processes.
Much of the literature argues that change and innovation fall outside the remit of technical
specialists, such as R&D professionals, and instead involve those at the coalface of
organisations, those who have most knowledge of the task and the technology required to
ensure its effective implementation. According to Shipton, et al., (2006), HRM creates an
environment that fosters innovation. For example, people management practices are thought
to play an important role in fostering innovation because they can signal to employees that
innovative activity will be recognised and rewarded (Laursen and Foss, 2003). Good HRM
should also ensure that all members of an organisation are receptive to, have the necessary
skills to support, and are empowered to instigate change and innovation (Paton and McCalman,
2000; Shipton, et al., 2006). Furthermore, effective HR practices should help employees to
identify new and different opportunities for the future (Shipton, et al., 2006).
Ichniowski, et al., (1997) suggest that production lines with innovative HRM systems have
greater productivity, and lines becoming more innovative in HRM over time showed increased
productivity. Interestingly, Dorenbosch, et al.’s (2005) study found that employees who
perceived HRM practices to be commitment-oriented both ‘felt more ownership for work issues
beyond their immediate operational tasks and showed more innovative work behaviour (IWB)’.
Diversity, in the broadest possible sense, also has a role to play in organisational innovation.
Bassett-Jones and Lloyd (2005) makes the case for embracing diversity management sooner
rather than later, since creativity and innovation are enhanced by the existence of diversity.
He defines diversity management as ‘the aggregate effect of HRM sub-systems, including
recruitment, reward, performance appraisal, employee development and individual managerial
behaviours in delivering competitive advantage through leadership and team work’.
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People management outcomes
Findings about the role of HRM in innovation are interesting when one considers that much of
HR practice has a basis in employment regulation and compliance, with generally risk averse
and overly bureaucratic policies. Guest and Bryson (2008) suggest in their examination of
the longitudinal data of Workplace Employment Relations Survey that ‘personnel specialists,
including qualified specialists, are not the vanguard of human resource innovations’. If anything,
the evidence suggests that they are bringing up the rear, their presence associated with
traditional employment relations, and their time presumably engaged in a range of operational
activities. Legge (1978) had argued persuasively that personnel managers were often not
capable of bringing about the kind of employment relations innovations that seemed to be
required. She suggested that if personnel managers were to establish themselves as credible
players in organisations, they needed to engage in either deviant or conformist innovation.
There are indications in the analysis of WERS data as reported by Kersley, et al., (2006),
that many human resource specialists are beginning to break out of this traditional mould by
devolving certain activities to line managers, and by exercising greater autonomy. New HR
operating models that focus on the deployment of the ‘business partner’ and the development
of shared services to take care of the ‘transactional’ nature of much of the work of the HR
department are partly designed with this goal in mind.
In conclusion, it would seem that there is research evidence to support a link between HRM
and fostering, or suppressing, innovation. Nevertheless there is also evidence that innovative
HR practices are less likely to be driven by HR professionals and as one sponsor HR director
mentioned they are more likely to be characterised by 60 page bureaucratic polices and
procedures.
Box 4.2 Key issues on delivering positive outcomes
• The strong evidence for employee engagement driving improved performance fails to
•
•
•
explain the relatively low levels of engagement as a whole. The identified drivers of
employee engagement are clearly not easy to operationalise.
Learning and development opportunities may provide a situation of mutual gain but
evidence suggests that for high performance, individual needs for employability take
second place to organisational need.
There is limited clarity about who is accountable for holding the organisation to account
for how it manages its people.
Much HR practice has a basis in employment regulations and compliance, with generally
risk averse policies inhibiting HRs potential to foster innovation.
Quality People Management for Quality Outcomes
29
5. Closing comments
Like any navigator, we’ve started with paths well trodden before branching off to lessvisited, but promising ground. From a broad and preliminary review of the literature on
people management, there is a large body of work attempting to link HRM practice to people
management and organisational outcomes. Some measures are unequivocally crisp, like that
of West, et al., (2002) when mortality was used in an acute medical context. Others like Tamkin,
et al., (2008) demonstrate the importance of the association between positive HR practices and
desirable organisational outcomes. In the main, the understandable concern is that the leap
from HR process to profit, or to citizen and public value, must be treated with caution given the
large number of contributory and intermediate factors. Nevertheless, the ever-growing number
of studies examining the association of people management interventions to performance
suggests, on balance, that one can be optimistic that good people management, inter alia, is
an important ingredient in organisational performance. In our opinion, adding to this evidence
base is unlikely to provide the insights required for recommendations for how staff should be
managed fairly and effectively in the future.
Leaving the well-lit paths covered by the literature to explore some of the interstices, what
is clear from the research, and the discussions with academic experts, practitioners and our
sponsors, is that between the parts that we confidently proclaim from research and practice,
to the universe of high performing, engaged, happy employees who deliver services with skill,
competence and wisdom is a chasm of interacting factors and HR interventions (the ‘black box’
as defined by Purcell and others before us). Despite the armoury of tools and knowledge about
people management, and the efforts of many to unpick the mysteries of the ‘black box’, the vast
majority of employees in the UK remain unengaged.
It would be tempting to accept the people management terrain as is, where practice and
strategy are informed by anecdotal evidence and generalisations of the literature. After all, if
the situation described by Rynes, et al., (2002), remains unchanged (where the HR largely
fails to draw on research knowledge – see Section 2.1), the future of HR will remain largely
familiar. The profession will continue to react to external pressures with only limited scope to
be strategic about its own development as a profession. With the exception of a few leading
the way in HR innovation, the value of the HR profession will, in the main, continue to be based
on its leadership in learning and development, talent management, ability to foresee workforce
risks, contain costs and the delivery of bad news to employees within clear risk parameters,
while aiming for/maintaining a place at the top table. There is an unspoken tension with the
uncritical adoption of the SHRM paradigm. That trajectory minimises affective relationships
with employees, communicating through the line and remote service terminals. In effect, HR
is seeking engagement, while itself maintaining a transactional presence in the lives of most
30
Quality People Management for Quality Outcomes
Closing comments
employees. There is much to be gained for people management if HR re-examines/clarifies its
complex role vis-à-vis the other players.
The future of HR programme was built on the premise that practice and strategy could be
informed by re-examining the interstices (between theory and practice) and by standing back to
question some of the fundamental assumptions and givens that pervade people management.
The review (including the technical report) lays the foundation for that inquiry.
The review has opened up several paths less trodden. One that interested the programme
sponsors is the issue of implementation. Is the weak link the enactment of policy and strategy
by the line? Intervening at this point presupposes that there is a unitary perspective to people
management in organisations and that all line managers are adept at (or at least competent
in) people management. Intuitively, the response from our expert advisory group and from
the sponsors was that not everyone has the aptitude for managing people. That reaction
has implications for, inter alia, strategy, policy, reward, career development, structure and,
potentially, limits HR’s scope for devolution.
Implementation as the focus for the programme ignores the fact that at the centre of the people
management industry (practitioners and consultants alike) is the individual employee, with all
the potential to active engagement but also the will to thwart and subvert (perhaps with good
reason). Focusing on implementation presupposes the employer knows and understands what
motivates their employees to give of themselves towards organisational goals. An exploration
and evaluative framework that includes the employee perspective is crucial, or it may lead to
the simplistic conclusion that the fault is the line managers’ inadequate translation of policy.
This is based on the pervasive assumption of management intervention being the main tool,
but that is only part of the equation. The literature on high performance working depends on a
healthy relationship between employer and employee. Without an appreciation of what inspires
employees to go beyond the transactional, implementation is only a reactive tool to a business
imperative.
In the extensive consultations with our expert panel and sponsors, it became apparent that
the sponsors spoke of the relationship largely in terms of ‘the deal’ while the expert panel
was more concerned with the accountability and protection of employee intentions over and
above compliance. There are fundamental questions about the way theory and discourse (‘the
rhetoric’) have shaped the understanding of HRM in both groups, and how this influences
practice.
Quality People Management for Quality Outcomes
31
Closing comments
What is not examined reflectively is the psychological contract between employee and
employer. The concept of the psychological contract appears to have passed its sell-by date in
current HRM discourse and yet, underpinning these practical concerns with high performance
is the employees’ interpretation of ‘the deal’ and employees’ clarity on what they expect
in exchange for ‘their deal’. Given that Towers Perrin (2003) has estimated that employee
engagement in any organisation at a given time is as low at 20 per cent, to what extent are the
current people management practices and agents able to deliver employee engagement without
fundamental insights into how employees perceive ‘the deal’?
As the review in Chapter 3 shows, much is known about psychological contracts, in particular,
the content (eg pay, autonomy, trust, organisational support etc). What is less clear is how
employees negotiate an inherently unequal relationship and from the employers’ perspective,
what is realistic when attempting to manage that relationship.
It is clear from the literature that both culture and values are fundamental to the employees’
experience of and understanding of the organisation. If ‘the deal’ is indeed ‘managed’, it is not
clear who is accountable for ensuring that there is consistency between the espoused values,
the culture and the deal as experienced by employees. What happens when this translation
goes wrong? What, if any, is the role of voice, partnerships and mutuality in the formation of
the deal? And in negotiating the deal with employees, how focussed is the organisation on the
desired outcomes, and how confident are organisations that the deal is the right one?
Against this backdrop of a constantly evolving relationship between employer and employee –
and one that is likely to continue to evolve over time – there is relatively little understanding of
the relative roles, responsibilities, and capabilities of the main people management agents (HR,
the line, leadership) in delivering high performance.
The HR practitioners’ clarion call to arms usually looks like an engagement ‘transformation’
and, in practice, most employees are adept at adjusting to organisational changes. Before
the transformation panacea is applied, perhaps a fresh understanding of why the employeremployee relationship works is necessary, if the goal is sustainable high performance. Within
the context of The Work Foundation’s philosophy of Good Work, this programme aims to further
the understanding of what makes for good people management starting from its raison d’être,
the well-being of the individual worker.
32
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