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European Management Journal Vol. 14, No. 3, pp. 243-254, 1996 Copyright © 1996 Elsevier Science Ltd

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A Framework for Diagnosing Human Resource Management Practices JEAN-MARIE HILTROP, Senior Partner, InterCultural Consulting, Geneva

Current debate in the area of human resource management is focusing on explanatory links between certain HRM practices and orgarfisational performance, asking such questions as: what are the key HR activities that increase organisational performance7

Jean-Marie Hiltrop of InterCultural Consulting, Geneva, presents a framework to analyse the wide range of HR practices found in organisations, which assists in answering such questions. He suggests ten factors or 'dimensions' which underlie the different approaches to HRM found in organisations. These can be used as a checklist for evaluating the effectiveness of HR practices and of those who implement them. Copyright © 1996 Elsevier Science Ltd

and Lake, 1990; Pfeffer, 1994). As a result, the 'new' debate became:

°~° what are the key HR activities that increase organisational performance?

°1° to what extent can the HR practices of the organisation help to create and sustain 'competitive advantage'7

o:o what are the implications of these theories and models for the HR function?

Introduction

For many years, academics and practitioners have debated how to ensure that the 'human resources' of an organisation '... are used in such a way that the employer obtains the greatest possible benefit from their abilities and the employees obtain both material and psychological rewards from their work' (Graham, 1978). This debate has to led to the formulation of a number of theories or models of 'strategic' human resource management (HRM) which link the HR policies and practices of the organisation with the overall business strategy of the firm (Walker, 1980; Fombrun, 1984; Miles and Snow, 1984). In recent years, however, much of the debate in the area of HRM has shifted attention away from the linkage between HRM and business strategy towards the formulation of various theories and models that postulate explanatory links between certain HRM practices and organisational performance (Ulrich

European Management Journal Vo114 No 3 June 1996 2 43

A FRAMEWORK FOR DIAGNOSING HUMAN RESOURCE MANAGEMENT PRACTICES

Answers to such questions require a framework within which to analyse and discuss the wide range of human resource practices found in organisations (Iles and Mabey, 1992). As Ulrich and Lake point out:

'Having a framework in which to discuss management practices helps avoid the problem of randomly discussing policies and procedures. With it managers are able to assess practices on an ongoing basis. Having a framework also ensures that when organizational strategies are implemented or changes are attempted, the entire set of management practices may be examined, not merely one practice in isolation'.

This article offers a practical framework that managers may use for categorising and assessing their HRM policies and practices. The framework is based on the assumption that there are a limited number of factors or 'dimensions' that underlie the different approaches to HRM found in organisations (Kravetz, 1988; Ulrich and Lake, 1990; Pfeffer, 1994). Exhibit 1 lists ten such dimensions. Clearly, these dimensions are interrelated and their exact number and their labels are somewhat arbitrary. However, taken together, they describe the types of management policies and practices that have been identified in recent studies of what effective organisations do with people and can therefore be used as a checklist for evaluating the effectiveness of HR practices and those who implement them. Let us consider each dimension in turn.

The Reliance on Internal Labour Markets

The first challenge of any business is to find and recruit the people necessary to meet its present and future skill requirements. As a rule, the preferred source of recruitment for an organisation may be internal, in which case job vacancies are primarily filled from the internal labour pool at all but the lowest levels; or it may be external, in which case the organisation is at least as likely to hire talent from outside the company as it is to promote people from within at all levels.

It has been suggested that firms which focus on internal recruitment tend to think of people as valuable assets, with long-term developmental potential, rather than fixed costs, which carry an annual expense (Sonnenfeld et a/., 1988). These companies hire from outside only at entry level and expect a large proportion of their employees to stay through to retirement by developing firm-specific skills and, in many cases, a deep-seated loyalty in their employees. In contrast, organisations which focus on external recruitment are open to external labour markets at all levels, and seek out those employees who will make the largest individual contribu- lions. Recruitment and promotion here behave more along the lines of human capital theory, derived from neo-classical economics, which suggests that employees increase their own market value (and attractiveness to

1. Reliance on internal recruitment and promotion 2. Emphasis on teamwork 3. Strategic career systems 4. Openness and information sharing 5. Decentralisation and delegation of authority 6. Concern for people in the management philosophy 7. Recognition and reward for high performance 8. Rewards for skills and competencies 9. Training and development of employees.

10. A longer-term focus of HR decisions

Exhibit I Ten Dimensions of HR Management

employers) through education and training (Becket, 1964; Wachter, I974). The critical human resource function in the external recruitment firms is employee attraction and selection (to keep the firm fully staffed), rather than retention and development (to keep the staff fully skilled and performing).

Internal recruitment is often viewed to be easier to control and most of the HRM models described in the (predominantly American) literature assume the work- ings of an internal labour market. In addition, relying on an internal labour market tends to lead to the following benefits (Sparrow and Hiltrop, 1994):

• :" It improves morale, commitment and job security of employees.

• :" It provides for more opportunity to assess the abilities of employees accurately given the accrued knowledge gathered over the employment relationship.

• :, It is a less expensive way of resourcing labour than external recruitment and selection.

• :" It concentrates external recruitment activities on entry levels (typically school leavers and graduates), allowing for more specialisation of skill in the HR function.

• "- It affords more opportunity to control salary levels (because there is less need to accommodate external salaries).

The disadvantages are higher levels of 'political' behaviour associated with advancement and the dangers of complacency, conformity and resistance to change as a single mindset besets the organisation (Mathis and Jackson, 1992). It can also lead to the development of work, forces ill-suited to technological and market demands because old ways of doing things become perpetuated. Finally, it often means that changes to HRM systems have to be conducted at the macro-level - bringing about alterations in the whole training and development system - whereas external recruitment may afford a more immediate and localised solution.

Emphasis on Teamwork

Increasingly, teamwork is seen as one of the main building blocks of successful organisations and much

244 European Management JournalVo114 No 3 June 1996


time, effort and resources are being invested in developing and managing cohesive teams (Katzenbach and Smith, 1994) The potential benefits of these investments are numerous and diverse. Perhaps the greatest is the achievement of organisational synergy where the output of the whole team becomes greater than the sum of the individual contributors and in so doing boosts the productivity and creativity of their units and functions. In addition, teamwork can benefit the company and its members in the following ways (Wilson, 1994):

°:° It can be an ideal mechanism for releasing the talents and energies of people to solve problems.

°:° It affords for team members to feed on each other's ideas and to accomplish tasks that are too large or complex for individuals to handle on their own.

°:o Many tasks, problems and solutions are multi- disciplinary in nature, involving a variety of skills and knowledge that no one person possesses.

°~° It can free the organisation by opening channels of communication, breaking down barriers between functions and departments and generally creating a situation where change and new ideas are more rapidly accepted.

oi- In good teams, there is a sense of belonging and not being alone. There is a common aim, which all members share and strive for. Decisions are arrived at by consensus; members have fun together; team roles are operated flexibly; and weaker members are helped and supported in times of difficulty. Teamwork can therefore create loyalty and commitment to the task and organisation.

However, there are disadvantages as well as benefits. One is that relying on teamwork may reduce the individuals' sense of urgency, personal responsibility, and contribution to organisational performance. It also may impact upon the image and power of people in the organisation, leading to the rejection of new methods of assessing and rewarding performance and the resistance to change. The conditions which are most likely to bring about this type of behaviour include:

°:o The need for teamwork is not recognised by those affected by it.

o:o There is an increase in the level of uncertainty relating to the future of jobs, rewards, power and status of individuals.

4° The structure and composition of teams fail to take sufficiently into account the conditions under which people work together and learn from each other within the context of cultural change (Williams, 1991).

Therefore, when deciding to introduce more teamwork into the organisation, careful attention needs to be given to the criteria by which people are assigned, rewarded and promoted. If the benefits of teamwork are very difficult to achieve, the organisation may choose to focus primarily on gaining competitive advantage through individual performance, rather than through teams.

Strategic Career Systems

So far the discussion has focused on two dimensions of HRM: the main source of recruitment used to staff the organisation and the degree of emphasis on teamwork in the corporate culture. Combining these two dimensions of HRM into one model produces the four types of careers systems proposed by Sonnenfeld, et a l . For instance, companies with strong internal labour markets and reward systems primarily based on team contribution have a career system that evoke the image of a 'Club'. These companies are characterised by internal promotion, low membership turnover and, in many cases, a deep-seated loyalty in their employees. Their concem is more with maintaining seniority, commitment, status and equal treatment than with innovation and profitability. In contrast, firms with weak internal labour markets and reward systems based on individual performance behave more like 'Baseball Teams'. They are open to external recruitment at all levels, and seek out those people who will make the largest individual contribution to organisational performance. Like professional athletes, employees in these firms are more loyal to their profession than to the organisation and sell their skills to the highest bidder. The other two types of career systems identified by Sonnenfeld et al. (1988) are called ~Fortresses' and 'Academies'. Their distinctly different features are shown in Exhibit 2.

1. "Academies' • Internal labour markets. • Reward systems based on individual contribution. • Recruitment from the outside only at entry levels. • Low employee turnover. • The key HR function is development. • Typical industries include consumer products and

pharmaceuticals.

2. 'C/ubs '

• Internal labour markets. • Rewards and promotions based on group factors. • High concern with seniority, status and equal

treatment of members. • The key HR function is employee retention. • Typical industries include utilities, government

agencies, insurance.

3. 'Baseball Teams' • Open to all external labour markets at all levels. • Seek out people who make the largest individual

contribution. • The major HR function is recruitment. • Typical industries are consulting, advertising, and

investment banking.

4. 'Fortresses' • Preoccupation with survival. • Group factors dominate the choice of promotions

and layoffs. • Primary emphasis on retrenchment. • Typical industries include textiles and retailing.

Source: Sonnenfeld eta/. (1988)

Exhibit 2 A Careers Systems Typology

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Interestingly, Sonnenfeld et al. (1988) argue there is a strategic parallel between this typology and the four strategic types proposed by Miles and Snow (1978). For example, they suggest that companies which are acting as 'defenders' in their product-market domains tend to have a 'club' career system. Their leaders seek mastery over a narrowly defined organisation. Their focus is on stability and reliability; thus they must develop loyal members committed to maintaining the institution over the long term (Sonnenfeld et aL, 1988). By contrast, the 'prospector' strategy of Miles and Snow (1978) tends to be associated with a 'baseball team' approach to career management because it includes an implicit decision to "buy' rather than 'make' talent. The 'analyser' strategy of many electronics and pharmaceutical firms also leads them to buy talent in order to bring in new blood and stay in the competitive forefront, although as 'academies' they rarely hire from outside beyond the entry level. Finally, Sonnenfeld et aL, (I988) suggest that 'reactor' firms typically have a 'fortress' approach to career management, which means they not only buy but often sell talent into the outside market through layoffs, early retirements and the like.

Openness and Information Sharing

For most people in organisations today, openness is perceived as a vital characteristic which isn't even worth dwelling on. Yet, as Senge (1990) points out, openness is a complex and subtle concept, which can easily be misunderstood as telling the boss what he wants to hear, or simply playing a new, more advanced political game. This, he suggests, is because there are two different aspects of openness: participative and reflective. Partici- pative openness entails the freedom to speak one's mind. It is the most commonly recognised aspect of openness because the theory of 'participative management' (involving people more in decision making) is widely espoused. Reflective openness starts with the willingness to challenge our own thinking, to recognise that any certainty we ever have is, at best, a hypothesis about the world. It involves not just expressing facts and ideas, but examining our own and others' thinking. According to Senge, these two forms of openness are needed. Unless the two are integrated, the behaviour of being more open will not produce real challenge and change.

If openness is a complex and subtle concept, then building an organisational culture characterised by openness may be one of the most difficult tasks of managers. No matter how committed managers are to honesty and forthrightness in all communications, many people are steeped in the habits of political game playing and never see the point of breaking the vicious circles supporting traditional political behaviours. In many ways, however, organisations unintentionally encourage people to choose to withhold information they have, to be cautious and to see openness as a device for manipulating people rather than as a tool for improving human interactions. As Block (1991) says:

'In some organisations people can't have a meeting unless their ideas are outlined on overhead transparencies. Some of this is useful and does facilitate communication. In many cases though, it is overdone and tends to create such structure and formality in a dialogue that real communication, especially about sensitive issues, hardly has a chance. When our need to look good overrides our need for honest communication, then our deeper purpose of building an organisation of our own choosing has been deflected'.

The other side of the coin is that if managers want their people to be more open and honest in their communication, they need to make sure that there is a high degree of consistency between what is said and done. Consistency is critical to create a culture of mutual trust. This is true at every level. Yet, more than one organisation involved in a recent study of European HR practices (Hiltrop, 1991b) pointed to the continued existence of individualised reward systems when corporate strategy demanded more teamwork, and there were several instances where career management policies had so far failed to recognise that lifetime employment was no longer guaranteed.

If people are to be a source of competitive advantage, clearly they must have the information necessary to do what is required to be successful. Unfortunately, managers are very often reluctant to do so. One reason sometimes given for not disclosing information about productivity, profitability and any other aspects of the operation to large numbers of employees is that it may leak to competitors. Numerous studies have shown that this is less of a problem than is sometimes thought. Like Ulrich and Lake (1990), I would not argue that all information should be publicly shared, but it is clear that many managers have a misplaced fear of sharing too much information with their employees. Especially when jobs are at stake, information is too often marked confidential and shared with only a few of the people whose work it will affect. Typically, the only people in the dark are the firm's own employees (Pfeffer, 1994). The consequences can be disastrous. With too little information, employees tend to create and act on rumours and without accurate information, they often attribute unintended meaning to the scanty information they have received. Clearly, then, one of the most important decisions managers must make in all organisations concerns how open to be with employees.

Decentralisation and Delegation of Authority

For many organisations, decentralisation and delegation have been central features of their new management philosophy. Current thinking leads to the removal of as many levels as possible in an attempt to rid the organisation of bureaucracy. This is expected to provide faster communication both up and down the organisation with less chance of distortion. Another benefit of delayerin 8 is that individuals and groups can

246 European ManagementJournalVo114 No 3 June 1996


be more autonomous and responsive to customer needs (Wilson, 1994). Within the general policy guidelines of the organisation, employees at the customer interface are 'empowered' to make decisions that previously would have to be referred to higher levels.

Empowerment, however, is a much broader concept which entails examining and changing many of the policies, practices and systems that govern the design and allocation of work in the organisation. As Wilson (1994) points out:

'real empowerment is not achieved through management decrees or directives, but through reconsidering how people are treated and managed. For empowerment to be effective, organisations and all managers must adopt a style that encourages and reinforces individual growth and teamwork processes. Managers have to set standards, give directions and then allow people freedom to do their work in the way they consider most effective. Managerial control is kept to a minimum while skills such as coaching, facilitation, counselling and mentoring become important. Managers concentrate on assisting people to achieve their objectives rather than telling them what to do and how to do it'.

For many companies and managers, this is a complete reversal of how they have operated in the past. Traditionally, rank and longevity gave the right to command and control subordinates and most people acted in response to this hierarchy. Under the empowerment philosophy, responsibility and authority are delegated to the lowest possible level and management authority is based on personal skills and competency to achieve the aims of the business. These changes to the roles and responsibilities of managers are not taking place without pain. As Mike Arthur - the personnel planning manager at Rover's engine, gearbox and transmission manufacturing plant in the UK - explains:

'Many managers were recruited or promoted at a time when a more directive and autocratic style was demanded from them. Other managers associate 'letting go' with loss of discipline and control. Some worry about whether they will still have a job when their subordinates do what they do now. Most, however, have made, or have started to make the transition and we know of no case where a manager has 'let go' to the team and has then had to revert to the hierarchical structure'.

The evidence is that empowerment works best when it is coupled with rewards for the increased performance decentralisation and delegation can bring as well as training in the skills necessary to take true responsibility for one's own work process (Pfeffer, 1994). And where the management style needs changing, appropriate training and development should be provided to managers. Enhanced communication skills will be particularly critical. After the training is completed, ongoing reinforcement of the suggested management skills and style is needed. Managers should be evaluated, for example, on how well they develop and coach their team and how well they foster initiative and creativity.

Finally, organisations need to review their recruiting criteria and techniques to get the right kind of people and skills. At Rover, they now invite people in for two pre-recruitment clays after vetting them to see if they are suitable. Once that process is complete, new recruits go through an intensive induction programme to under- stand the new corporate culture and who the customers are. No one goes near a job until day four, when they start their own job-specific training. This is radically different from what the Rover Group did in the past. As their production manager puts it: 'In the past we just used to go out there and find people. We didn't really measure their calibre; we just used to get in warm bodies, and with an hour's training they'd be on the line building vehicles'. Clearly, wholly new ways of attracting, selecting, evaluating and rewarding people is needed if the benefits of decentralisation and delegation are to be fully attained.

Concern for 'People' in the Management Philosophy

People are often described as 'our most important asset' in annual reports and company value statements. For some organisations, those are merely empty words that sound nice but are not translated into practice. Other companies however have a culture that clearly makes people the most important asset of the organisation. How? According to Kravetz (1988), such a culture can be built in a variety of ways. For example, companies that demonstrate a strong concern for the personal needs of people typically do the following things:

o:o They make a substantial investment in developing employees.

o:o Show respect for the individual's dignity, self-worth, personal needs and culture.

o:o Openly share important information with employees.

o:o Regularly survey the opinions of employees about the work climate.

o:o Act upon important issues and concerns identified by workers.

o:o Emphasise faimess and ethics in dealing with both employees and outsiders.

Kravetz's study of 150 Forbes 500 companies showed that companies that had such policies and practices were financially more successful than those that did not. Of those companies high in annual sales and profits, a total of 90 per cent had a culture that strongly emphasised concern for people. Only 20 per cent of the less successful companies had such a culture.

However, showing concern for people goes beyond the practices outlined by Kravetz. For example, Levering et al (1984) who investigated 'The 100 Best Companies To Work for in America' found that most of these companies shared six characteristics, which they described as.

European Management Journal Vo114 No 3 June 1996 2,4 7


*~* Making people feel that they are part of a team or, in some cases, a family.

,¢" Informing people of new developments and en- couraging them to offer suggestions and complaints.

*:* Letting employees bid for vacant jobs before hiring outsiders.

,'* Enabling people to feel pride in the products or services they are producing.

'¢* Allowing employees to share in the profits, through profit sharing or stock ownership or both.

The biggest impact on employee satisfaction was made however by reducing status and salary differences between the top management and those in entry-level jobs. A number of writers have referred to this practice as the clan approach (Ouchi, 1981; Beer et aL, 1984). This term means to imply that the organisation works as a social entity based on shared values, shared risks, and shared rewards, and orientated towards a joint or collective achievement. The close relationships and ties among all members of the 'clan' are contrasted to the typical formal and impersonal relationships in bureaucratic organisations.

Although certain aspects of the clan approach would seem easy to implement, the elimination of status symbols is often one of the most difficult things for an organisation to do (Pfeffer, 1994). This is particularly the case in countries with non-egalitarian cultures such as Belgium and France. Hofstede's (1980) work showed that in such cultures, bosses have much more power than their subordinates, power-holders are entitled to privileges, and workers consider bosses as a different kind of person. At a financial institution in Brussels, a strike broke out when top management announced they planned to close the executive dining room. Middle managers claimed that they had reached a level that entitled them to have a separate restaurant, complete with good wine lists, candlesticks and walls covered with original paintings.

Even in these countries, however, the elimination of status symbols is increasingly seen as a key component of creating a more people-orientated culture. This is largely because of the growth of professional jobs and the substantial investment that large companies are making in hiring and training highly skilled employees. In many businesses, professional know-how is the only product or service the organisation provides. To generate and sell this know-how, companies have to take care of the people who have the ability to do so. This means there must be culture that manifests the idea that people are an important asset. In an era in which layoffs and cutbacks are becoming a way of life, this is not an easy requirement. Yet, several leading US companies examined by Kravetz and other researchers during the 1980s were making vigorous efforts to build and maintain a culture that strongly emphasises concern for people. These efforts were often reflected in greater financial success for these companies as well as lower employee turnover rates.

Recognition and Rewards for High Performance

The management of rewards and compensation was once a relatively straightforward process. Salary and job level went hand in hand. Year upon year, employees would climb the corporate ladder, receive a higher salary, collect more benefits and develop a growing sense of job security and career entitlement. For the employer, this system assured that the employee would be loyal to the company, serve with long-term commitment and perform the tasks requested by management. Pay was seen more as a fixed cost than an investment.

In recent years, however, the pressures of increased competition, slow growth, and volatile markets have turned these quiet waters into a continually churning whirlpool of change, rendering traditional approaches to rewards and compensation ineffective or even counterproductive (Berger, 1991). For instance, Kanter (1994) states that 'traditional pay systems are under attack for being neither cost effective nor motivating people to do more'. Similarly, a recent review of research findings by Beer et al. (1984) concluded that:

'despite the enormous amount spent on wages, commissions, cost of living increases, bonuses, and stock options, many studies have shown that in most organisatians 50 percent or more of the employees are dissatisfied with pay, and that this percentage is increasing'.

These findings are particularly disturbing when one considers that pay has been consistently found to be one of the most important job factors to individuals. It is usually ranked first or second among all levels of employees. Apparently, many employees come to work each day believing that their wages are unfair, that pay increases are unfair, and that any improvement in their performance is unlikely to result in better pay.

Denis Crowe (1992), a consultant specialising in reward systems, argues that there are two key reasons for this unfortunate situation:

1.

2.

The failure to design reward systems that underpin and reinforce business strategies. The failure of reward systems based on job evaluation techniques to reward people for individual performance and for contribution to group results.

In addition, Crowe (1992) suggests that many pay systems, both old and new, fail because of poor communications. As he puts it:

'Too often, employees are left to interpret the meaning and intent of changes in the compensation system on their own. Where major cultural change is intended, it is necessary to communicate both the rationale for the changes and the impact that these will have on the staff concerned. Although

24~ European Management JournalVo114 No 3 June 1996


companies of a certain size may well have written statements on a range of pay-related matters, it is rare to find a document which encapsulates the underlying philosophy that drives the remuneration policy'.

To comprehend just what has happened to pay and benefits in Europe and what it means for the future management of human resources, a research team at the Cranfield School of Management surveyed companies in all major West European countries during the 1980s. Their findings suggest that product market pressures and the need to remain competitive in the labour market have exerted a considerable influence on the reward policies and practices of European organisations. The four main trends identified in the study are summarised in Exhibit 3.

By far the most marked development has been the move away from rigid towards flexible pay systems by linking the employees' pay increases more closely to the company's financial performance. This move appears to fulfil two objectives. Some organisations are trying to use pay-for-performance - largely through the introduction of bonuses and extra rewards for exceptional performance - to reinforce their strategy and motivate their employees to devote greater attention and energy to some activities than to others. Others are exploring how increases in variable pay can contribute to their cost reduction programmes.

People, however, are motivated by more than cash. Things like recognition, challenging work assignments and opportunities for self-development matter a great deal for many employees. The Cranfield survey showed that an increasing number of companies are relying on non-financial types of rewards to attract and retain workers (see Exhibit 4). Some employers see the creative use of such rewards as an important feature of competitive reward packages, at a time when they need tax-effective ways to attract key professional and technical staff. Not all companies consider such schemes appropriate. For instance, in the words of Sun Alliance's staff relations manager: "We concentrate on payment in the form of cash rather than gimmicks.'

At the same time, flexible benefit plans (also known as 'cafeteria systems'), which allow employees to decide which elements they want in their compensation package and in what amounts, has received much interest in recent years (Sparrow and Hiltrop, 1994). Employees are thus free, up to an agreed cash ceiling, to make up their own reward packages to fit their needs and desires. Clearly, there are wide individual differences in the preference of people for cash and fringe benefits. There are also differences in the kinds of fringe benefits individuals prefer. Thus, a standardised mix of cash and benefits is unlikely to be attractive to all individuals, so that it may be more effective to allow employees to select individually from a (limited) list of mixed packages until they have spent the total allowable compensation cost.

1. Employers are moving away from rigid pay structures. Variable pay packages are on the increase in all countries, particularly in Sweden and Spain.

2. Pay in some countries is increasingly determined by company policy rather than national or regional pay agreements, one-to-one negotiations with individuals are also on the increase, mostly for managers and professional staff.

3. Fringe benefits are an increasingly important part of reward packages in most countries except France.

4. Profit-sharing is readily available, mostly to managers and professional workers. Bonuses, whether group or individual, and performance- related pay are popular in all countries. Share options are still predominantly a British benefit.

Source: The Price Waterhouse Cranfield Project on International Strategic Human Resource Management, Report 1990

Exhibit :l Changing Pay Practices In Europe

1. British Telecom offers luxury gift items as part of its 'Living our values' initiative to enable managers to show gratitude to employees for such things as continuous improvement and team-work.

2. Teams from British Aerospace receive gold pens, watches, ties and scarves for innovation and creativity. The company says that one idea alone saved them around £30,000.

3. ICL makes around 2,500 gifts each year to employees who demonstrate excellence, particularly in customer care. Since 1984 the company has adopted three levels of award which reflect the employee's level of contribution. Those who rise to gold level, the international tier, are presented with their prize in a European city.

4. Abbey Life's top performers are given the opportunity to attend conventions in exotic foreign locations. The location and length of stay depends on performance.

Source: Hilton (1992)

Exhibit 4 British Examples of Non-financial Benefits

Rewarding Skills and Competencies

In addition to linking pay to performance, an increasing number of companies have relied on alternative criteria for evaluating and compensating workers. One of the most recent criteria, particularly for non-manual workers, is the type of skill or competencies required to achieve certain outcomes within a job.

In skill-based pay systems, employees receive compensation for the range, depth, and types of skills they possess. They are paid for the skills they are

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capable of using, not for the jobs they are performing at a particular point in time. (Ledford, 1991). This is fundamentally different from the conventional system of job-based pay, where employees are paid for the jobs they are performing, not for their ability to perform certain tasks.

Among the firms which first introduced skill-based pay were a few North American pioneers, such as Honeywell Ammunition, Northem Telecom, AT&T, and Polaroid. Recently, however, skill-based pay has spread to European organisations in such industries as insurance, telecommunications, banking, and transport. In Britain, for instance, the National Westminster Bank uses a system of 11 competencies which they feel relate strongly to management performance in a turbulent business environment.

One potential advantage of this approach to compensation is that individuals will no longer be rewarded simply for moving up a hierarchy but will be encouraged to extend their skills, and should they choose to do so, be rewarded for the additional skills they have acquired through increased pay. In addition, as Beer et al (1984) point out, skill-based payment systems might encourage good specialists to stay in these roles rather than to seek management jobs which pay more but for which they may not have talent.

However, this approach is based on an assumption that an organisation can identify and measure the behaviours people need to display in order to do the job effectively and these behaviours can form the basis of reward packages which encourage the development and use of previously underdeveloped and underused skills within a job. In a European context this will increasingly mean designing performance evaluation systems appropriate to the employee with pan-European responsibilities. Traditionally, these employees have been mainly executives, professional staff and technical specialists. Increasingly, they also include skilled craftsmen and technicians.

Training and Development

Historically, employee training and development (ETD) in many organisations have had the relatively short-term aim of enhancing current on-the-job performance, with the important exception of succession planning arrangements for the potential senior managers of the future (Beaumont, 1993). Increasingly, however, organisations realise that ETD forms an important part of the company's overall business strategy and dramatic changes in corporate culture and performance can be achieved by integrating ETD with this strategy. In fact, the results of the Cranfield survey mentioned earlier showed that across Europe more than 60 per cent of employers have increased their investment in managerial and professional training during the last decade.

Over and above the development of managers and professional staff, the ETD of non-managerial staff have also become very prominent in recent years because of their importance for the introduction of new technology and the need for such employees to develop new skills or knowledge in response to new operations, job designs or work flows (Bernardin and Russell, 1993). Changes in organisational structure and strategy also have created the need for organisations to train and develop their non-managerial staff. Witness, for example, the emphasis on extending the range of skills possessed by employees (multi-skilling) in quality improvement programmes and other initiatives to improve individual, team and corporate performance in terms of output, speed, and productivity.

The growing importance of ETD in recent years has been linked to the adoption by companies of a more strategic approach towards HRM. This approach implies that the organisation takes a long-term view of what skills, knowledge and levels of competence employees need and treat their employees as an important resource that needs to be trained and developed. As Keep (1989) notes:

'The use of the word 'resource', as opposed to commodity or cost, implies investment therein. The word management, for its part, implies that strategies aimed at motivation, development and deployment of this resource and its associated investment will be directed in such a way as to maximise its potential. Training is a prime investment in human resources that plays a vital goal in securing these goals. Companies that, for whatever reasons, are inclined to treat their employees simply as a cost or commodity, and who hence fail to invest in training and development activity cannot meaningfully be said to be practising human resource management'.

If ETD activities represent a vital component of strategic HRM, then it is best approached as part of a wider business strategy to align the organisation's corporate mission and goals with the capabilities of its people, and vice versa. This implies that these activities may form part of a systematic process which, as shown in Exhibit 5, consists of the following stages:

Identify and define ETD needs This involves analysing corporate, team, occupational and individual needs to acquire new skills or knowledge or to improve existing competencies. Such a needs analysis is partly concerned with defining the gap between what exists and what is required. However, it is important to avoid falling into the trap of only putting things right that are missing or lacking. Strategic ETD is much more pro-active than fixing today's (or even yesterday's) problems. It is, or should be, more concerned with identifying and satisfying ETD needs for creating and managing the organisation of the future.

Define the learning required It is necessary to define as dearly as possible what skills and knowledge have to be learned by employees at



every level or stage and what attitudes need to be developed. Learning objectives are set which define not only what needs to be learned but also what employees must be able to do better.

Plan the required ETD activities These must meet the needs and objectives by using the fight combination of methods and techniques to enable employees to acquire the skills, knowledge and attitudes they need. Decisions are made at this stage on the extent to which method or activity is the best and most cost- effective way to satisfy the specific ETD needs of the people and the organisation.

Implement the planned ETD activities Ensure that the plan is adhered to and sufficient emphasis is placed on the responsibilities of both managers and employees for making ETD successful.

Evaluate each activity and amend it as necessary The effectiveness of each ETD plan or activity is assessed to determine the extent to which it contributes towards improved attitudes, competency and performance. This is different from interpreting end-of-course evaluations. As Ulrich and Lake (1991) state:

'.4 successful program is measured not by 'smile sheets' at the end of a session but by the ability of the participants to identify and implement changes in their areas of responsibility that will put the firm in a stronger competitive position'.

A Long-term Focus

Another important dimension of HRM is the extent to which the organisation's HR policies and practices encourage managers to take a long-term perspective. As Schuster (1986) points out,

Identify training] needs [

I Define learning requirements I

I I 'o *ro'o'oO I programmes

I

t echniques

I Implement I

programmes

I EvoltJate I Effects

Source: Armstrong, 1993

Exhibi t 5 The P r o o e ~ of P lanned Tra in ing

'In the typical Western organisation the compensation of executives and managers is closely tied into short-term profitability. Some top executives have their annual bonuses tied almost entirely to single-year profitability, and these bonuses may represent two-thirds or more of their total compensation. By contrasL most Japanese managers have their annual compensation determined on the basis of how profitable the company was over a span of at least five or ten years. And their performance evaluation includes an assessment of their ability to generate high levels of commitment, understanding, motivation and morale in the organisation. The Japanese assume that these personal characteristics are the basic building blocks for long term performance and profitability, along, of course, with careful attention to strategic planning and control'.

The advantage of the Japanese approach to reward and performance evaluation is that high levels of commitment, understanding and motivation are likely to be substantially more effective and more difficult to dup- licate than other sources of competitiveness. Unfor- tunately, getting commitment and motivation takes time and, once achieved, these characteristics can easily be lost. By comparison, a piece of new equipment or management information system can be quickly installed, and, once installed, cannot be easily destroyed.

Under the current economic climate, it is almost incon- ceivable that an organisation facing high pressures for immediate cost cutting and improved ROI would decide to abandon short-term objectives or embark on activities that would fail to meet a specific organisation need. As Pfeffer (1994) says,

'In the short term, laying off people is probably more profitable compared to trying to maintain employment security; cutting training is a quick way to maintain short- term profits; and cross-training and cross-utilisation may provide insights and innovation in time; but initially, the organisation foregoes the advantages of more narrow specialisation and the immediate proficiency achieved thereby'.

The role of the HR function in these types of situations is to challenge line managers to think more pro-actively, to question the wisdom of certain actions that have only short-term benefits and to suggest solutions that may be more acceptable to the work force. These interventions may avoid falling into the trap of taking actions that produce immediate productivity and profit advantages, but are damaging the long term. However, questioning the effectiveness of managerial actions is not sufficient on its own. Often, there needs to be further analysis in light of the planned business strategy to determine the answers to the following questions:

1. What sort of people, in terms of numbers, skills and capabilities, do we need in the future?

2. What organisation structure, culture and values do we need in order to support our business strategy?

3. In the light of the assessment of our present internal situation and the external environment, what types of HR policies and practices do we need to get the

European Management JournalVo114 No 3 June 1996 2,5 1


people, structure and culture identified in our answers to questions 1 and 21

This type of analysis emphasises the need for a common understanding of the strategic goals of the business and the means to accomplish them. It also promotes the use of HR practices as tools to create sustained competitive advantage, rather than ends in themselves.

Using the Framework

Overall, the eleven dimensions suggested in this article provide a simple checklist for describing the wide variety of policies and practices employed by companies to attract and retain employees. They may also serve as a framework for diagnosing or benchmarking the human resource activities of a firm. For example, Exhibit 6 shows the profiles of two European airline companies that were compared in terms of their human resource policies and practices, including the extent to which each company offered the following set of benefits to its employees: z

1. Employment security. 2. Opportunities for training and skill development. 3. Internal recruitment and promotion from within. 4. Career development and guidance. 5. Opportunities for skill development and

specialisation. 6. Autonomy and decentralisation of decision-

making. 7. Opportunities for teamwork and participation. 8. Comparative equality of benefits and access to

perquisites for all the employees. 9. Extra rewards and recognition for superior

performance. 10. Openness and disdosure of information about

corporate goals, outcomes and intentions. 11. Proactive personnel planning and strategic HRM.

It can be seen that Company A scores low on several HR dimensions, including the amount of career development, autonomy, and teamwork offered to employees. Very low scores appear also for openness and the extent to which employees are rewarded and recognised for high performance. In contrast, high scores appear for the extent to which the company offers job security and promotes people from within.

Company B deafly has a different profile. High scores appear for many of the dimensions, induding the degree of autonomy, recognition, teamwork, openness and career development that is offered to employees. Like their counterparts in company A, managers in B prefer to recruit from within, as is indicated by the high score on 'internal promotion'. However, unlike its competitor, Company B does not offer much job security to its employees.

The criteria for recruitment, rewards and promotion in these two companies were also very different. As shown in Exhibit 7, Company A scores above the overall mean for the emphasis placed on status and seniority. But very low scores appear for achievement, commitment and intemational experience. In contrast, in Company B it appears that promotions and rewards are based more on performance, commitment, and international experience than on status and seniority.

The differences between these two airline companies support the notion that every organisation has a unique approach to HRM, thereby making firm-to-firm corn-

Index

Promotion Development

i rtorn~

. , , . . . ,

!:!:i: .:q.: , . . * . * . . . . . * , . , * , * , . , , , . . t , ' . ' , ' , . . , . •

. . . . , , . . . % ,

it . ° ° % . . . . , . . % . . , . . . . . . . . . . . % , :.:-:._..~:

• ~lity

II Company A I F'] Company

Exhibi t 6 HRM Prof i les of T w o Air l ine C o m p a n i e s



Index

Exhibit 7 Criteria for Recrui tment and Promotion in Two Airl ine Companies

parisons difficult, even impossible. However, this does not necessarily mean that the underlying principles (or dimensions) on which these practices are based are wrong and useless. Indeed, what is so striking is how stable the basic principles of how to manage people have been over time (Pfeffer, 1994). From this perspective, the ten dimensions of HRM presented in this paper offer a simple framework for comparing the different responses of organisations (or business units) to the economic and social pressures that are affecting their performance. For example, there is little empirical information on the HR practices organisations use to create a learning organisation. As Wick and L~on (1995) point out, discussions of learning organisations too often end up intangible and obscure. Their research suggests that at least five elements are essential for companies to become learning organisations. Together, these elements provide a formula for creating an organisation that 'continually improves by rapidly creating and refining the capabilities needed for future success'. By closely examining each element within that formula, managers can measure and increase the rate of learning within their firm. The framework put forward in this paper could provide the structure for such an examination.

Finally, another application of the framework presented in this paper would be to investigate the relative influence of so-called 'best practices' on different organisational outcomes. Many of the HRM practices identified in the recent literature seem like fads because they often are implemented without much understanding of the underlying principles of human behaviour as well as a tendency to do whatever is popular at the moment, regardless of whether it makes sense in the specific setting or organisation (Pfeffer, 1994). It is this trendiness that makes the task of measuring and demonstrating the effective contribution of HR policies and practices of organisations so difficult. Yet, for many line managers, it is the ability to show that HR adds value, not the rhetoric, that forms the basis of policy

making and which gives HR its place on company boards. If the HR policies and practices are misaligned, or no attempt is made to provide line managers with a framework to assess practices on an ongoing basis, the credibility and influence of the HR function will suffer. The framework put forward in this article may help to avoid these mistakes.

Note

1. The profiling was done by surveying the views of a representative group of employees within each organisation.

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JEAN M. HILTROP, A Beernaertstraat 24, 8400 Oostende, Belgium.

Jean M. Hiltrop is a specialist in the area of human resource management. Previously a Professor at the University of Leuven in Belgium and at the International Institute for Management

Development (IMD) in Switzerland, he has been involved in executive education for many years. He has published numerous articles and books in the area of international human resource management and negotiation, including European Human Resource Management in Transition (1994), The Essence of Negotiation {1995) and The Accidental Manager: Surviving the Transition from Manager to Professional (1996). He also works as a Senior Partner for InterCultural Consulting in Geneva and has conducted numerous workshops and projects for corporate clients in Europe, Asia and the United States. He is currently leading an international research project, which examines the impact of national culture on human resource practices and the effectiveness of transnational organisations.


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