Chapter 21

Is Human Resource Management in Crisis?

Paul R. Sparrow

Crisis, What Crisis?

• The field faces a challenging new agenda in the context of having handed significant power over to line managers within organizations that are finding it difficult to implement existing changes operating in an environment of much backward-looking and defensive thinking and analysis, and a political environment in which people say one thing, but behave in ways that say something else

Central Themes in HRM at the Millennium

• Many relationships are now being changed:– What we want out of work, how we maintain a sense of

individuality in a world where we either increasingly subsume our life to more intense employment, or face no employment at all

– Our relationships with other individuals in a work process that can be altered in terms of social interactions, time patterns and geographical location

– The co-operative and competitive links between different internal and external constituents of the organization in their new, more flexible, forms

– The relationships between key stakeholders and institutions such as governments, unions and managers

Unpleasant Truths and New Realities

• HR practitioners have a role in getting the important issues of trust and voice on to the agenda

• Risk of creating unrealistic performance expectations because internal problems associated with creating the necessary changes in culture and systems are obscured and glossed over.

• The more tightly integrated HR practitioners become with the strategic process of their firm, the more the limits to their power, knowledge and influence in managing such consequences are exposed and the more obvious becomes the confusion over their identity.

• Senior management roles are becoming increasingly divorced from those of middle managers and require a very different set of skills and competencies

Unpleasant Truths and New Realities

• Senior managers can break (or make) HRM systems as there is less formalized policy, but then so too can the behavior of work teams

• Organizations have more autonomy and power to shape the nature of their own HRM agenda

• Sustained developments to the HRM role become near impossible while there are ‘financial systems that fail to reward companies making hard-to-measure investments in their workforce, and macroeconomic policies that penalize companies that try to provide long term commitments to their employees’

Unpleasant Truths and New Realities

• Dealing with the changes in self-esteem, community and social identity is inescapably painful

• Individual and the organization cannot resolve these issues themselves

• A new social context is necessary

The HRM Movement

• Reflecting the ‘human resources’ versus ‘resourceful humans’ critique of HRM, there has been an increasing tension between the human resource requirements of a flexible organization and the organization requirements of a flexible human resource

End of Jobs and the Redesign of Organization Coordination Systems

• Two dimensions raise difficulties for HR practitioners:– the shift away from the jobs-based systems to person-

based systems; and– radical changes in the location and nature of co-ordination

within the organization structure

• Rewards failure because pay systems do not reflect strategic thrusts towards quality, team working and competition based on time

• A shift to person- as opposed to job-related performance management systems has become inevitable

End of Jobs and the Redesign of Organization Coordination Systems

• It is no longer jobs which have value, but people.• New organizational forms are being created• HR practitioners face major problems when they

consider the sort of people needed to manage in the new organizations

• Managers design outward-facing processes by applying an inward-looking and cost-saving mindset. We recreate in the new systems a microcosm of the very mentality that caused the problem in the first place, only now it is designed into the very architecture and process of the organization

New Psychological Contracts and the Refragmentation of HRM

• New HRM structures and systems are needed to re-engage employees, rebuild trust, and to involve, motivate and empower them.

• Changes to their job content cannot be introduced without parallel flexibilities in structure, information systems, rewards and so forth

• Organizations seem to be seeking seven discrete but parallel flexibilities: numerical, functional, financial, temporal, geographical, organizational and cognitive

New Psychological Contracts and the Refragmentation of HRM

• ‘Representational learning’ (words, concepts, constructs and language) and ‘behavioral learning’ (changes in values and actual patterns of behavior) We fail to find ways of converting these words into substantive changes in behavior

• Questions about the contribution and competence of HR practitioners or being better titled the ‘human remains department’

New Psychological Contracts and the Refragmentation of HRM

• Three streams of investigation:– a questioning of the technical validity of many central HRM

tools and techniques;

– attempts to demonstrate a link between HRM practices and organizational performance; and

– a growing theoretical sophistication about the role of HRM as part of a resource-based understanding of organizational strategy

• Increasing tension between the need for a ‘Wow factor’ (need for line managers to exclaim ‘Wow’ at first glance of the latest offering from the HR department!) and the requirement for ever-more sophisticated, detailed and complex techniques that actually work and provide solutions to complex organizational problems

New Psychological Contracts and the Refragmentation of HRM

• There is a continued search for the business case that good people management is also good business management.– Sophisticated tests for a relationship between

‘bundles’ of ‘high performance work practices’ and organizational performance

– Resource-based theory (RBT) and the attention now given to understanding how the platitude that ‘people are our source of competitive advantage’ has a basis in reality.

New Psychological Contracts and the Refragmentation of HRM

• Human resource strategists have to focus on the competency of the total pool of human capital within the organization, as this is now the resource that makes up competitive advantage

• Twin objectives of creating advantage through people and creating advantages for people

Rethinking the Basic HRM Role and Contribution

• Judge HRM practices against their ability to deliver a deal, not against the deal they deliver

• Added costs come through having to supervise the psychological contract

• We need to rethink the nature of trust both in organizations and in the nature of HRM

Rethinking the Basic HRM Role and Contribution

• Distinguish between the influences on employee well-being that accrue from trust as a state of mind, and the actions and overt behaviors that result from the process of trusting

• Three types of trust:– Process-based trust: recurring exchanges create ongoing

expectations and norms of obligation about what is felt to be fair

– Characteristic-based trust: beliefs about another’s trustworthiness that results from a perception

– Institutional-based trust: trust in the integrity and competence of informal societal structures

Rethinking the Basic HRM Role and Contribution

• Three incremental trust processes:– Deterrence or calculus-based trust consistency of behavior

which shows that people will do what they say they will do.– Loss of future interaction with others must be seen to

outweigh the profit potential that comes from violating expectations

– Deterrence requires a close monitoring and the ability to tell each other when a violation has occurred, and the potentially harmed person must be willing to withdraw benefits or introduce harm to the person acting distrustfully

Breaking the Chain: Developing Meta-Standards for HRM

• The overall social contract sets the context for, and increasingly influences the success of, the organization’s HRM policies and practices

• ‘Employability’ is ‘an ill-thought through concept infused with more hope than substance’

• Norton-Kaplan Balanced scorecard model views strategic objectives from four perspectives: financial, customers, internal processes and organizational learning

Unraveling HRM Contribution

• A more qualitative approach is now needed

• We must show how the potential loss of future interaction with employees outweighs the profit potential that comes from violating expectations

Deterrence-based Insights into the HRM Contribution

• Linkages between good HRM and good performance are becoming harder to prove

• The challenge is to recapture the organizational learning• There is a conflict between many current organization

design decisions and the requisite levels of trust needed to make them effective. Costs are incurred through:– higher transaction and control costs

– mis-calculations about employees’ level of capability and potential for exercising responsibility and self-direction

– lost opportunity costs of operating with a low-trust workforce in a world of increasingly high-risk, high-trust business relationships

Deterrence-based Insights into the HRM Contribution

• Find ways of ensuring that proper notice is taken of the employee contribution to organizations, and that short-term financial solutions are not allowed to dominate management decisions

• Commitment to a professional and proactive HR philosophy