Summary Strategy and Human Resource Management (Boxall)

This summary of Strategy and Human Resource Management by Boxall is written in 2013-2014.

Chapter A – The goals of HRM

A.1 – Defining human resource management

- HRM: Refers to all those activities associated with the management of work and people in organizations. Human Resource Management.

A.1.1 – HRM: an inevitable process in organizations

It is virtually impossible to grow businesses without employing people. HRM is a process that accompanies the expansion of organizations: it is a correlate of entrepreneurial success and organizational growth.

A.1.2 – HRM: managing work and people

Our conception of HRM covers the policies and practices used to organize work an to employ people. HRM encompasses the management of work and the management of people to do the work. Work policies and practices are to do with the way the work itself is organized. Employment policies and practices, on the other hand, are concerned with how firms try to hire and manage people: recruiting, selecting, deploying, motivating, appraising, training, development, retaining individual employees, informing, consulting, negotiating, disciplining, terminating contracts and downsizing.

A.1.3 – HRM: involving line and specialist managers

HRM is an aspect of all management jobs. In this book, the word ‘HRM’ is used to refer to the totality of the firm’s management of work and people and not simply to those aspects where HR specialists are involved.

A.1.4 – HRM: building individual and workforce performance

HRM can usefully be understood as a set of activities aimed at building individual and workforce performance. On the level of individual performance, HRM consists of managerial attempts to influence individual stability (A), motivation (M) and the opportunity to perform (O).

P = f(A, M, O)

Individuals perform when they have the ability to perform (A), the motivation to perform (M) and the opportunity to perform (O). Figure 1.1 on page 5 shows the AMO model of individual performance. HRM is not the only factor influencing the AMO variables. The quality of information systems and the level of funding available are also influencers.

Figure 1.2 on page 6 shows the role of HRM on the collective level. HRM plays an important role in building workforce organization and collective capabilities and the general climate of employee attitudes. It typically includes attempts to build work systems that coordinate individuals in some kind of way, such as permanent teams, finite project groups and virtual teams.

- Critical mass: The stock of knowledge and skills managers need to fulfil the firm’s mission.

HRM needs to be understood as a management process that operates on more than one level. HRM is about building both human capital and social capital.

A.1.5 – HRM: incorporating a variety of management styles and ideologies

In the larger organizations, it is quite common for one approach to be taken to managing managers, another approach to permanent non-managerial employees and yet another to temporary and contract staff.

- Employment subsystems / Human resource architecture: The management chooses different HR systems for different groups based on their strategic value and the uniqueness of the skills that each group possesses.

- HRM definition by Storey: A distinctive approach to employment management, one which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques.

A.1.6 – HRM: embedded in industries and societies

HRM has been criticized by scholars for focusing too much on the firm and ignoring the wider context of the markets, networks and societies in which the firm operates. The different HR strategies of firms are better understood if they are examined in the wider context that helps to shape them. HRM is profoundly affected by the characteristics of the industries in which the firm choose to compete. Four types of technology:

- Craft: Products are made in small, distinctive, customized batches.

- Machine tending: Production is highly mechanized.

- Assembly line: Workers are located along a conveyer belt which propels the partially completed products towards them.

- Continuous process technology: 24/7 production, highly automated.

The problems of how best to motivate workers naturally vary across these working conditions.

HRM is also deeply affected by differences between societies. Nations provide a range of resources that affect workplaces and workforces: physical infrastructure, political and justice system, economic system, general education and social order.

A.2 – What are the goals of HRM?

HRM covers a broad range of activities associated with managing work and people and shows a huge range of variations across hierarchical levels, occupations, firms, industries and societies. It is therefore difficult to define the goals and objectives of HRM. However, we can analyze the goals of HRM in terms of two broad categories: economic and socio-political.

A.2.1 – Economic goals of HRM

Cost effectiveness

- Economic viability: A firm generates a return on investment that its shareholders consider acceptable or which meets the obligations it has to its bankers and other lenders. It is not essential for a firm to maximize profits but it is essential to provide investors and lenders with the kind of financial returns that sustain their commitment to the organization. Shareholders and other finance-providers form part of the political coalition of stakeholders that sustains a firm.

Management must meet four fundamental conditions in order to build a viable business model:

1. Managers must develop products or services that an economically worthwhile group of customers wants to buy.

2. The organization must implement its marketing promises.

3. The firm must hire and manage the kind of labour it needs in a way that is affordable.

4. The firm needs the financial backing that will make its marketing, production and human resource management possible.

Cost-effectiveness is a dual concept. It incorporates the idea that firms need people who are effective, who are skilled at what the firm needs them to do, while also motivating them to perform at a cost that the firm can afford to pay. A viable model of HRM is one that delivers on the grounds of both effectiveness and cost.

It is wrong to confuse wage levels with unit labour costs or to confuse cost minimization with cost effectiveness. It depends on the type of firm which level of labour cost will be suitable. HRM is concerned with making labour productive at an affordable cost in the industry concerned.

Organizational flexibility

- Short run responsiveness: Attempts to bring about greater numerical flexibility and greater financial flexibility.

- Long run agility: A more powerful, but rather ambiguous, concept. It is concerned with the question of whether a firm can build the ability to survive in an environment that can change radically.

A key challenge to the agility of manufacturing firms in recent times has come from the major cost differences between companies with the operations in the developed world and those with operations in newly industrializing nations.

Human resource advantage

A firm has some kind of human resource advantage when it build a superior, hard to imitate capability through the special quality of its human resources. This can be broken down into two dimensions:

- Human capital advantage: The firms employs more talented individuals than its rivals.

- Organizational process / social capital advantage: Occurs in those firms that have developed superior ways of combining the talents of individuals in collaborative activities.

A.2.2 – Socio-political objectives of HRM

Social legitimacy

Firms are economic actors, but they operate in societies, in which there are laws that attempt to control how managers employ people and in which there are customs or widely shared expectations, for how people should be treated in the workplace. This means that some degree of social legitimacy must also be seen as a motive in HRM. There are social differences between nationalities.

Three pillars of institutions:

- Regulative pressure: Different codes of employment law.

- Normative or moral pressure: Social values and norms around how to treat people in the workplace.

- Cultural cognitive pressure: The ways in which people customarily think and behave in a society.

Employers are concerned with ensuring their social legitimacy while simultaneously pursuing cost effective HRM. Compliance is the baseline legitimacy goal for employers who wish to avoid prosecution and bad publicity, a risk in any society in which labour laws are efficiently enforced.

Managerial power

Power can have negative connotations, but it can have positive effects at an appropriate level. Managers need the power to act, they need some degrees of freedom or the job is impossible.

- Agency theory: Managers are seen as agents whose interests overlap with, but also diverge from, those of the firm’s principles or owners. Managers can use their power to pursue their own interests, including their personal rewards.

The tendency of management is to act, to enhance its power base, something which can have both positive and negative consequences for the organization.

A.3 – Strategic tensions and problems in HRM

If organizations fail on the two criteria, economic and social, they will generally not survive.

A.3.1 – The problem of labour scarcity

One of the main problems facing management stems from the fact that firms need to compete not only in product markets but also in labour markets. Labour scarcity is a problem that can afflict entire industries and not simply undercapitalized firms or new firms struggling for recognition. Some industries have difficulties in finding enough employees, because of working conditions, long working hours, etc. Labour scarcity is a multi-layered problem, it can cause severe problems at organizational, industry and societal levels.

A.3.2 – The problem of labour motivation or control

A second problem is keeping workers motivated, once they are hired. Motivation is a fragile variable. The employment contract involves an ongoing, unpredictable interaction between the parties. However, it is impossible to predict what will happen between the employee and employer over time. So, a contract of employment is inherently incomplete, as it cannot cover all possibilities.

Employees with critical know-how are difficult to replace and have therefore power. On the other hand, the employer has great economic power. It pays to think of employment relationships in terms of a bargaining model: they depend on each other.

- Labour Process theory (LPT): This theory analyses the tensions between employer attempts at control and worker resistance.

Organizational psychologists emphasize fairness or equity concerns in the workplace, to build trust and positive motivation.

A.3.3 – Change tensions in labour management

Change often creates tension and dilemmas within management strategy. A firm needs to be flexible, however, temporary employment contracts have many disadvantages.

- Labour hoarding: Employing all labour on well-paid, permanent contracts to build a loyal workforce.

The authors describe two examples in the book where dilemmas arise.

‘Capitalism is a system in which employers require workers to be both dependable and disposable’. This phrase reflects the dilemma of firms: the balance between stability and flexibility and trust and confidence.

A.3.4 – Tension between management power and social legitimacy

Unions play a major role in influencing firms and their social legitimacy.

- The International Labour Organization (ILO): the tripartite UN agency that brings together governments, employers and workers of its member states in common action to promote decent work throughout the world.

A.3.5 – Complexity and politics in management

Executives from other departments, for instance marketing and production, will clash as they have different interests and goals. Efficiency is the goal of one department, while customer service or quality is the goal of another department. These goals will clash and can lead to serious politics in the firm.

A.3.6 – Variations in institutional supports and societal resources

Firms are not masters of their own destiny in HRM even if managers perceive the issues well and want to act effectively. They depend on institutional supports and societal resources.

Chapter B – Strategy and the process of strategic management

B.1 – Strategic problems and the strategies of firms

B.1.1 – Defining strategy: misunderstandings

1. It is unhelpful to equate strategy with strategic plan.

- Strategic plan: A formal document setting out an organization’s goals and initiatives over a defined time period. Mostly found in large organizations. However, small firms do have a strategy.

- Strategy: The set of strategic choices that is revealed in the characteristic ways it behaves.

The authors of the book argue that strategy is best discerned in behaviour, not in formal planning documents.

2. We need to be careful with the popular distinction between strategy and tactics or between strategy and operations.

Many of the largest firms have structured their internal management development programmes so that new recruits with management potential are required to spend time learning what matters to the firm’s customers, suppliers and employees. Fundamental disciplines in the business model: marketing, production, finance and HRM. See figure 2.1 on page 43.

B.1.2 – The problem of viability

The most critical challenge that a firm faces, is that of survival: the problem of becoming and remaining viable in its chosen market. In order to be viable, firms require table stakes.

- Table stakes: A set of goals, resources and capable people that are appropriate to the industry concerned. Decisions are make-or-break factors, they can keep the firm viable.

There are four critical elements in a viable business model, which are interrelated: marketing, production, finance and HRM. Figure 2.1 is a simplified representation of the complex reality, but it highlights the fact that there is no solution to the problem of viability without capable people. A suitable way of managing work and people is necessary. All the elements should be put together in a profitable and sustainable way.

B.1.3 – The problem of sustained advantage

Firms that survive are engaged in a struggle to build and defend competitive advantages: sustained competitive advantage. It can be good to think of barriers to imitation, so that competitors can’t imitate your advantage.

- Schumpeterian shocks: Capitalism involves gales or creative destruction.

- Low road HR model: Executives are not convinced that commitment and working in a cooperative way will support cost reduction. A more contingent approach to employee interests and aim to remain union free, something that can help to enhance flexibility.

- High road HR model: Executives see their business model of cost reduction as consistent with fostering individual commitment and working in a cooperative, mutual gains approach with unions. This means working with employees to find ways of reducing non labour costs while enhancing service performance.

B.1.4 – The strategies of firms

The best strategies are those which reach beyond the problem of viability to master the second order problem of sustained advantage. Strategies can emerge in a stream of action (emergent strategy) or planned by management. Defining a strategy includes critical choices about ends and means.

- Business strategy: The strategy is the strategy for the whole of the business, for all the critical functions it needs and how they should relate to each other.

- Competitive strategy: The strategy concerned with the marketing goals and policies embedded in the business strategy: with what customers are targeted, with which products or services, and with how the firm positions itself in relation to competitors for these customers.

Firms are neither fully constrained by their environment nor fully able to create it: hyper-determinism – hyper-voluntarism.

B.2 – The process of strategic management

- Strategic management: A process of strategy making, forming and if the firm survives, of re-forming its strategy over time.

B.2.1 – Strategic management and human cognition

- Human cognition: A psychological term for thinking processes, for our ability to process information and make decisions.

- Bounded rationality: Human beings are subject to bounded rationality. We can’t know everything about our environment, we are limited in the number of variables we can actively work on. Herbert Simon.

Box 2.1 on page 52 summarizes eight cognitive issues human face affecting strategic management.

B.2.2 – Strategic management and organizational politics

Firms are coalitions of stakeholder groups, so we must expect that any major initiative involves political management, particularly where investors must be persuaded to support the initiative or where employee groups are being asked to make changes that threaten their interests. Firms are dependent on stakeholder groups (suppliers) and stockholders (financial capital).

- Groupthink: Executives close down debate prematurely and take decisions with negative consequences, because they are afraid of introducing conflicting opinions.

B.3 – The role of HRM in improving strategic management processes

What can be done to improve the quality of strategic decision making in firms?

B.3.1 – The importance of executive recruitment and development

The greater the uncertainty and discretion involved in work, the more important it is to hire or develop people of high ability, with a well-rounded intellectual and emotional profile, who have a capacity to think critically, creatively and flexibly. Constituting and renewing the top team, including the chief executive, should be regarded as the most strategic concern of all in human resource management.

B.3.2 – The role of team building

Selection practices that assess person-job fit and person-team fit and team building activities for existing teams will improve the strategic management process.

Figure 2.1 on page 58 describes several strategy making styles.

Firms should have a mix of strategy-making abilities in order to survive. Belbin argues that the most effective management teams enjoy a healthy mix of complementary teamwork styles.

Table 2.2 on page 60 describes several team roles (Belbin).

B.4 – Conclusions

A firms needs an appropriate set of goals and a relevant set of human and nonhuman resources, a configuration or system of ends and means consistent with its survival in the context in which it operates.

Chapter C – ‘Best fit’ or ‘best practices’?

One important message to HR directors is to integrate HR strategy with the wider business strategy.

- Best fit school: Associated with the contingency approaches. It argues that firms must adapt their HR strategies to other elements of the firm’s strategy and to its wider environment. What a good HR strategy is, depends on the environment/context.

- Best practices school: A form of universalism. It argues that all firms will be better off if they identify and adopt those HR practices which are shown to be best for organizing work and managing people.

C.1 – Defining strategic HRM and HR strategy

The application of the word ‘strategic’ implies a concern with the ways in which HRM is critical to the firm’s survival and to its relative success.

- HR strategy: A firm’s pattern of strategic choices in labour management (including critical ends and means).

- Job evaluation systems: Allocate jobs to pay grades based on the skill, effort and responsibility they involve.

Box 3.1 on page 66 describes three sets of questions for a review of HR strategy in a firm:

1. Strengths and weaknesses in human resources.

2. Competitive risks and potential in HRM.

3. Assessment of strategic HR management processes.

Some complications in our conception of human resource strategy:

1. We should not assume that HR strategies are uniform within firms. It is better to think of HR strategy as a cluster of HR systems.

2. Difficulties arise with multidivisional firms, operating across a variety of markets.

3. Firms that compete across national boundaries have to deal with local conditions.

Box 3.2 on page 68 summarizes the key characteristics of human resource strategy.

C.2 – Strategic HRM: the best-fit school

The best-fit school implies that managers inevitably tailor their HRM to their specific context. Firms under perform and may fail if they do not adapt to their environment and if they fail to integrate the different parts of the business effectively. The best-fit literature contains both broad analytical models and more specific theories.

C.2.1 – Best fit: broad analytical frameworks

Figure 3.2 on page 69 shows the Harvard map of the HRM territory.

This framework implies that managers in firms are encouraged to set their own priorities in HRM based on a consideration of stakeholder interests and situational factors. HR outcomes are seen as having long-term impact on organizational effectiveness and on societal and individual well-being.

The authors of the Harvard framework tried to integrate bureaucratic, market and clan models of HRM.

- Bureaucratic model: A model concerned with control and efficiency, using traditional authority and such staples of personnel management as job descriptions and job evaluation to provide order and equity.

- Market HRM approach: This model aims to treat employees more like sub-contractors, fostering short-term exchanges and performance-related pay systems.

- Clan HRM systems: These systems are seen as building more diffuse kinship links, fostering shared values, teamwork and strong commitment in organizations seeking long-term adaptability.

Combining aspects of two or even three models is seen as useful when facing complex environments.

The main message is that HR strategic can and should be very based on contextual factors and that firms should aim to develop a relatively consistent style. HRM policies need to fit with business strategy and with situational constraints, while also envisaging a role for management values.

The framework by Baron an Kreps advises managers to consider the impact of five forces on HR policy choices: (1) the external environment (social, political, legal and economic), (2) the workforce, (3) the organization’s culture, (4) its strategy and (5) the technology of production and organization of work.

C.2.2 – Best fit: research and critique

1. Societal fit

Societal fit is about the question of whether organizations adapt to the characteristics of the societies in which they are located and whether they are wise to do so. The behaviour of firms is heavily shaped by labour law and all firms ought to comply with it if they wish to be responsible corporate citizens. Societal fit in HRM relates to a range of economic and social factors that extend well beyond the law.

- Culture: Collective mental programming. The conditioning we share with other members of our nation, region or group, but not with members of other nations, regions or groups. He distinguishes several factors:

1. Individualism – Collectivism.

2. Low in power distance – High in power distance.

3. Uncertainty avoidance – No uncertainty avoidance.

4. Masculinity – Femininity.

5. Long term orientation – Short term orientation.

2. Industry fit

While societal fit emphasises the way national features affect HRM, the notion of industry fit encapsulates the relationship between firms and the economic, technological and socio-political factors that are specific to their particular industry: labour intensive, technological intensive, etc. The higher the quality of the service, the higher will be the price of it and the greater will be the investment in recruiting, paying and developing the people who deliver it. However, industries are not all the same, they consist of clusters of firms (low costs, differentiation, etc.) with different target groups.

3. Organizational fit

Managers should mould their HR strategies to fit in with other critical features in their business. There is strong support for the idea that the size of an organization makes a major difference to the kind of HR practices management adopts and to the level of formalization involved in HRM. The second type of organizational fit is that HRM varies across organizational life-cycle stages (birth, growth and maturity).

Managers should do whatever it takes in HRM to enable the firm to meet the customer needs it is targeting. Clarifying points:

1. There should be a match between HR practices to the marketing strategy of a particular business unit.

2. Managers should manage core operating workers: those most intimately involved in making the product or providing the service.

Desired competitive advantage -> required employee skills and behaviours -> supportive HR practices -> HR outcomes. Figure 3.4 on page 81.

C.3 – Strategic HRM: the best-practice school

This approach implies that all firms will see performance improvements of they identify and implement best practices.

It is difficult to define what the best practices are and for whom the practices are the best. Not every stakeholder will benefit from a decision.

C.3.1 – Best practice: micro foundations and macro models

There are a lot of micro aspects of best practices. In the selection area for instance, hardly anyone would advocate unstructured interviewing over interviews carefully designed around job-relevant factors.

- HR systems: Aggregations of HR practices that managers have built over time to organise the work and manage the employment of a major workforce.

The level of HR systems is more macro level. The idea that HR systems should be synergistic (bundled or clustered) to reinforce desired effects is something that the best practices school and the best fit school share. Research is not empirical, but normative: what ought to be.

Table 3.1 on page 88 shows Pfeffer’s seven HR practices.

This list is a desire to carefully hire and develop talented people, organising them and employing them.

- High commitment management: This model emphasizes on winning employee commitment to the organization’s goals through positive incentives and identification with company culture rather than trying to control their behaviour through routine, short cycle jobs and direct supervision.

- High involvement work systems: The emphasis is on redesigning work to involve employees more fully in decision making and on the skill and motivational practices that are needed to support this process.

- High performance work systems: The emphasis is on increasing employee involvement in decision making and companion investments in employee skills and changes to performance incentives to ensure they cam undertake these greater responsibilities and want to do so.

C.3.2 – Models of best practice: research and critique

1. There is too much diversity in lists of best practices.

2. There is not an explanation how a best practice works.

3. Best practices are different across countries.

Table 3.2 on page 91 lists some key differences in employment relations in three national contexts.

C.4 – Conclusions

The authors believe that the best fit school is better than the best practice school. However, there are definitely elements of the best practice school that can be used:

1. There are elements of the micro domains of HRM that are valuable.

2. It is clearly possible to identify HR systems that embody a set of principles while fostering astute local adaptations in different production sites around the world.

3. There is scope to identify some general principles in HRM.

Figure 3.5 on page 95 shows the debate between best fit and best practices.

1. A good performance in HRM involves dealing with multiple goals.

2. The pursuit of economic and social/political goals means that firms inevitably adapt their HRM to their specific context and they are wise to do so. Law of context.

3. All models of HRM work through their impacts on employees.

Chapter D – Sustained competitive advantage

D.1 – The resource-based view of the firm: origins and assumptions

Edith Penrose argues that the firm is an administrative organization and a collection of productive resources’, distinguishing between physical and human resources. Many years later, her views and work were brought within the mainstream of strategic management theory.

- Resource based perspective: Focuses on the ways in which firms might build unique clusters or bundles of human and technical resources that generate enviable levels of performance. The quality of the management process and of the firm’s workplace culture are seen as major factors that explain enduring differences in business performance.

However, some criticisers argue that the RBV focuses too much on the internal side of the firm. Resources are not valuable in and of themselves, but because they allow firms to perform activities that create advantages in particular markets. It lacks some context.

Figure 4.1 on page 100 shows the internal and external dimensions of the strategic problem.

D.2 – Resources and barriers to imitation

In the RBV, resources are not simply understood as assets in the formal accounting sense, but include any feature of the firm with value creating properties. This includes employees, talents, interactions, etc.

- Competitive advantage: A firms has that advantage right now, but others are able to copy.

- Sustained competitive advantage: Rivals cannot copy the advantage and its almost unable to compete away, despite best efforts.

Desirable resources are inimitable, non substitutable and appropriable.

- Valuable: Capable of delivering superior competitive results.

- Inimitable: Very hard to imitate or copy, either directly or indirectly.

- Appropriable: Capable of benefiting the firm’s shareholders.

- Schumpeterian shocks: The propensity for capitalism to generate gales of creative destruction. Radical breakthroughs which disturb technologies or basic concepts of business.

D.2.1 – Unique timing and learning

RBV theorists argue that a sense of time and place matters to be successful: if you are not there at the time things are happening, you cannot expect to be successful. First mover advantages, path dependency.

D.2.2 – Social complexity

Social complexity is also a barrier to imitation. Networks, complex patterns of teamwork and coordination, etc. are examples of social complexity within a firm and functions as a barrier to rivals.

D.2.3 – Causal ambiguity

Ambiguity about the cause-effect relationships involved in the firm’s performance is an inevitable outcome of firm growth. It can take some time to figure why an established firm has become successful and to discern how successful it really is. As suggested in chapter 2, human rationality is always bounded, so the ambiguity barrier is a bit overrated.

- Balanced scorecard: Advocates of this scorecard argue that giving enough effort, it should be possible to evolve a broad theory of how the business works or might work better.

D.3 – Competencies, table stakes and dynamic learning

Building core competencies in a firm, which are superior to those of rivals, will bring a competitive advantage.

- Core competence: A bundle of skills and technologies that enables a company to provide particular benefits to customers.

Box 4.2 on page 106 shows some other characteristics of core competences.

Companies should understand their core competences, so they would not get left with outdated products. This theory is more knowledge-based, rather than product-based.

- Core capabilities: Knowledge sets composed of four dimensions:

- Content: (1) Relevant employee skills and knowledge & (2) technical systems.

- Process: (3) Managerial systems & (4) values and norms.

Box 4.3 on page 107 explains the four dimensions of core capability.

Even there is a low causal ambiguity and there is a good understanding of why a firm is successful, it is still hard to copy the unique path and social complexity.

D.3.1 – Table stakes and distinctive capabilities

- Table stakes: Features of the business which enable participation in the industry but which do not make the firm distinctive or account for superior performance. Enabling capabilities.

- Core capability: Superior and cannot easily be imitated.

- Supplemental capability: Add value to core capabilities, but can be easily copied.

- Enabling capability: Necessary conditions of being in the industry.

It is important to understand that these capabilities are dynamic. A capability can change over time from core capability, to enabling capability, because it has been copied by another firm.

Figure 4.2 on page 110 shows the three types of capabilities.

D.3.2 – Competitive dynamism: the role of knowledge and organizational learning

The RBV encourages researchers to focus on knowledge and its creations and exploitation within firms. However, the fundamental issue is how to build (dynamic) capacity for learning. The knowledge based view argues that knowledge and brainpower of employees is the only substantial source of competitive advantage.

D.4 – HR strategy, competitive parity and sustained advantage

Two key questions raised by the RBV:

1. What is it that can be valuable about human resources?

2. How might a firm develop and defend these sources of value?

Identifying what is most valuable and protecting it with barriers to imitation is at the heart of resource based thinking.

- Human capital: The quality of the individual human talent recruited to the firm and retained in it.

Firms which recruit and retain exceptional individuals have the possibility of generating human capital advantage.

- Tacit knowledge: Non verbalized or even non verbalizeable, intuitive knowledge.

- Explicit knowledge: Specified either verbally or in writing, computer programs, patents, drawings or the like.

The quality of human relationships within the firm or the culture play a major role whether or not firms make outstanding returns from their human capital.

- Passing game: Teams may have highly talented individuals but their capacity and willingness to play together is vital if they are to achieve outstanding results.

Human resource advantage is a product of highly talented people and an exceptional working environment: HRA = f(HCA * OPA)

Figure 4.3 on page 115 shows the HR architectural perspective.

Quadrant 1 – Commitment based HR: For employees whose skills are critical to a firm’s core or distinctive capabilities.

Quadrant 2 – Productivity based HR: For employees whose work is valuable in the labour market but not unique.

Quadrant 3 – Compliance based HR: Employees whose skills are low in value and generic are prime candidates for contracting out.

Quadrant 4 – Collaborative HR: Employees whose skills may be unique in some way, but not directly instrumental for creating customer value.

This model offers a way of helping firms to distinguish which types of HR system are appropriate for which kinds of human capital.

D.5 – Conclusions

The resource based perspective is an important lens for understanding how firms might build competitive advantage. It focuses on the ways in which they can develop valuable resources and erect barriers to imitation of them, so that a superior performance is maintained despite the best efforts of other firms to copy or outflank the resources that underpin it.

Chapter E – Work systems and the changing economics of production

There are two key elements to each HR system: the kind of work organization involved and the employment practices that are used to hire and manage the people doing the work. Work systems involve choices about what work needs to be done, about who will do it and about where and how they will do it. Work systems vary enormously across industries and occupations and are linked to economics of production. This chapter is about linking work systems to the economics of production.

E.1 – Work systems in manufacturing

E.1.1 – The origins and evolution of the factory system

Workers who specialised at a simple set of tasks learnt to do them quickly and their rate of production would rise.

- De-skilling work: Breaking down the work into the simplest tasks.

- Mechanistic model of work design: Managers did the thinking and directing while workers were required to obey instructions and mind the machines. A pattern of low trust of workers and high trust of managers.

The rise of factories caused more emphasis on efficiency and simple tasks (de-skilling) for workers. Henry Ford linked highly specialised job to the moving assembly line, creating the basis for speed up and massive productivity improvement. Mass production.

E.1.2 – Political and trade union challenges to the factory system

Work systems matter enormously to workers, as it affects the level of skills needed, the extent to which individuals can use their abilities and their levels of job satisfaction and job loyalty. From the late nineteenth century, governments, disturbed by threats to social order, began to enact progressive labour legislation supportive of worker rights. Unions were strong and did achieve some improvements, such as internal labour market.

- Internal labour market (ILM): The idea is to minimise market influences. A system of bureaucratic rules for defining jobs, allocating workers to them, enhancing employment security and determining pay.

- Job enrichment: Improve satisfaction with the work itself and thus employee commitment.

Box 5.1 on page 132 shows some recommended strategies to create a more motivational model of work design.

E.1.3 – Competitive challenges to Fordism and scientific management

Lean manufacturing and total quality management took their toll, by surprising Western manufacturers by the way in which quality improvements could reduce waste and costs.

E.1.4 – The development of high-involvement work systems

Western firms tried to adopt Japanese techniques of just-in-time manufacturing and moved away from low-discretion work systems, towards high involvement work systems. Work redesign and training enabling production operators to solve technical problems, reduces reliance on the need to call in specialist technicians for problem solving and thereby enhances productivity. The productivity benefits come from two sources:

1. Time savings. The more that machine operators are empowered to address routine machinery problems, the quicker the response to these problems and the lower the amount of machine downtime.

2. Anticipatory. More effective use of the capacity of operators for learning: operators who enjoy greater empowerment learn more about the reasons why faults occur in the first place and find ways to reduce their incidence.

- PIRK model: Model in which high involvement work processes encompass workplace power (P), information (I), rewards (R) and knowledge (K). High involvement work processes empower workers to make more decisions, enhance the information and knowledge they need to do so and reward them for doing so.

Figure 5.1 on page 136 shows the conceptual model of high involvement work processes.

Integration forms of HIWSs:

1. Reintegration of mental and manual work.

2. Efficiency improvements associated with combining specialist work roles within operational teams.

3. Build social capital across organizational boundaries when manufacturing workers are linked to suppliers and customers.

4. Attempts to better integrate workers into cultural or organizational fabric of the firm, rather than treat them as outsiders or lesser citizen.

HIWSs can bring improvements in employee autonomy, greater development and use of their skills, and greater financial rewards, which appeal strongly to workers, significantly lifting their job satisfaction.

E.2 – Globalisation, market reform and production off shoring

Globalisation has made a major impact in those manufacturing industries where technology has been less successful in automating production and thus the ratio of labour costs to total cost remains fairly high. Especially in the Western countries, labour costs are relatively high compared to, for instance, China. Such market differences in labour costs place intense pressure on the cost structures of labour intensive operations in the advanced industrial nations. Some nations have build in barriers/regulations for ‘cheaper’ countries to protect their own industry. This is also true for public sectors. Pressures from other countries or nations cause market reforms and sometimes production off shoring.

E.3 – Work systems in services and the public sector

Services differ from manufacturing:

1. Services are more labour intensive than manufacturing.

2. The balance between tangibility and intangibility in the product is different. Services are generally more intangible.

3. Services are typically produced and consumed as and when customers demand them.

4. Customer self service plays a large role in routine or low cost services.

Table 5.2 on page 148 shows Herzenberg’s typology of work systems.

Table 5.3 on page 149 shows types of work design in private sector service.

1. Mass service markets.

2. A mix of mass markets and higher value added segments.

3. Highly differentiated markets.

The interaction with customers and the level of knowledge needed for this encounter is critical in services.

E.3.1 – Mass service markets

In mass service markets customers often co produce the service, such as pumping their own fuel at a gas station. Work design here typically involves one of two types of the Herzenberg framework: Taylorism. Which means scripts, standardised, evaluations, efficiency, etc. Cost savings.

E.3.2 – Mass service markets with some quality differentiation

More firms are finding segments in the market where customers will pay a premium price for a better quality of service. The service is generally mass service, but also offers extra service or quality. Figure 5.2 on page 152 shows a framework of competitive differentiation through HR strategy in a luxury hotel. Investments are more justified for higher value added segments in these services.

E.3.3 – Highly differentiated service markets

Workers in high skill services typically have advanced educational qualification and discretion. There are huge differences between the work systems in highly differentiated service markets and mass service markets. Customers also pay much more for differentiated services.

E.3.4 – Public sector services

Also the public sector is influenced by economic and globalization factors, since they have to downsize and cut costs. However, the public sector is more bureaucratic and have different work systems or HR policies. It is starting to be more semi autonomous (table 5.2). In the Western countries, more and more people argue that the government is too big and costs too much (for instance in America). These pressures influence the HR policies and work systems in the public sector.

Chapter F – Managing employee voice

This chapter focuses mostly on how much influence employees have over decisions that affect them at work have and should have.

F.1 – The contested nature and changing contours of employee voice

- Employee voice: A new term covering all types of opportunities where employees can have their say and exert some influence over workplace decisions that affect their interests. However, voice is meaningless when the message is ignored.

- Participation: A process that allows employees to exercise some influence over their work and the conditions under which they work.

Voice is probably the area of HRM where tensions between organizational and worker goals and between shareholder and stakeholder views, are most apparent because it connects with the questions of managerial prerogatives and social legitimacy.

- Cycle of control: Worker participation that tends to come in waves. The pressure to adopt more participative styles of management is greatest during periods of strong economic growth.

F.1.1 – What type of voice are there and who adopts them?

Two main types of voice mechanism:

1. Gives employees a direct say in how to do their jobs, including how to choose among different working methods or ways of meeting a customer’s needs, or allows them to influence their working conditions. Direct voice tends to grow as employees become more experienced and require less supervision.

2. A indirect or representative system where managers inform, consult and/or negotiate with representatives selected by employees or appointed by trade unions in the workplace.

Five questions need to be addressed for analysing voice systems:

1. How much sat/involvement/participation is envisaged in the scheme?

2. Over what sort of decisions?

3. Taken at what level in the enterprise, or beyond, in the wider political economy?

4. Who is participating and, if a representative, how are they elected or selected?

5. What are the enforcement mechanisms, both to keep the system going and to ensure that action follows?

Figure 6.1 and 6.2 on page 164 show a scale of participation and an escalator of participation.

The importance of effective consultation is not just in the way management decisions can be influenced, but is also helps to shape employees’ views about their employer and the senior management team. The extent to which employees believe their views are listened to, and have influence, affects the way employees evaluate voice systems and judge management effectiveness.

- On-line voice: Workers have greater influence over deciding how the work is done.

- Off-line voice: Workers take part in problem solving groups, like quality circles and continuous improvement or kaizen teams.

Table 6.1 on page 168 combines direct and indirect forms of employee voice systems with the location of the decisions.

- Power centred: Usually involve collective consultation and/or negotiation through high level dialogue at meetings with senior and specialist managers.

- Ownership centred: Much less well developed, because they involve shareholder approval.

- Task centred: Employee representatives meeting local or department management, job enrichment etc.

F.1.2 – The European Union’s agenda for information and consultation

The European Union has some rules involving employees rights to be informed and to be consulted.

F.1.3 – The decline and changing role of trade unions

The book highlights two trends in employee voice that pose substantial challenges to trade unions:

1. The growth in individual forms of employee involvement in workplaces.

2. The advent of non union and hybrid forms of representation.

Union members can be more critical of voice arrangements than non members even when collective consultation and collective bargaining is undertaken by the union. One reason to shift to partnership working is that the traditional union roles of job protection through restrictive work rules and gaining above average pay rises through collective bargaining have been eroded by intensive international product-market competition.

- Voice response interaction: Dialogue and discussion with management about the operation of the firm in general and the management of people in particular.

The ability of unions to gain monopoly powering wage bargaining has been reduced as the coverage of collective bargaining has shrunk and more contracts of employment have been individualised. Figure 6.3 on page 176 shows that unions do.

The bottom line of figure 6.3 is more diffuse and ambiguous and is centred on the union role in having a positive voice, responding to management proposals in consultative forums, and working with management on change agendas.

- Fostering and forcing: Cover management’s relationships with individual employees, with different degrees of emphasis placed on obtaining behavioural compliance and generating employee commitment. Table 6.2 on page 177 shows conditions that affect choices to force and foster. This kind of framework is useful in considering how to manage major change affecting employee interests. It recognizes that much of the positive long term change in companies depends on fostering strategies which build employee involvement and commitment but also recognizes, very realistically, that there are times when company survival depends on job losses or a major restructuring of labour costs.

F.2 – What are the impacts of employee voice systems?

Employee perceptions of the extent to which they are provided with information by their manager, the degree to which the manager provides a chance to comment and responds to suggestions, are associated with higher levels of job satisfaction and employee engagement, and these variables are linked to performance.

- Embedded voice systems: The majority of employees take part in direct schemes and employee forum meetings are held regularly, often lead managers in these firms to assert that they produce positive outcomes.

The crucial variable in success is how and to what extent line managers support and activate employee involvement as a process. The extent of employee involvement is positively related to the assessment of the benefits of total quality management. The combination of individual involvement and collective consultation had the strongest effect in this industry.

F.3 – Management style in employee relations

- Management style: A distinctive set of guiding principles, written or otherwise, which set parameters to, and signposts for, management action regarding the way employees are treated and how particular events are handled.

Figure 6.4 on page 184 shows two forms of management styles and three voice systems: (1) command-control and (2) commitment-involvement, (1) avoidance, (2) adversarial and (3) cooperative.

Management styles, like the organizational culture of which they are a part, evolve over time but, once established, become difficult to change. It is hard to eradicate embedded assumptions and values held by key groups such as middle managers.

F.4 – Conclusions

A critical choice at the heart of HR strategy in any firm concerns the extent to which employees are offered a voice in job, workplace and company level decisions.

Chapter G – Managing individual employment relationships

- The individual human resource cycle: A framework based on the idea that most employment relationships are intended to be more than short term. Figure 7.1 on page 189 shows this model.

G.1 – The performance equation

Performance expectations are not always explicitly expressed by management, which can lead to misunderstandings. Managers typically define performance in terms of job outputs or job behaviours or in a mix. Job outputs, such as targets for production and quality levels may be used with individuals or with their teams in manufacturing environments. However, the effective management of individual performance depends on some understanding of the factors that drive it: AMO model (abilities, motivation or opportunities).

- Declarative knowledge: What we know about things.

- Procedural knowledge and skills: How we do things.

- Motivation: The choice to perform, the level of effort applied and the degree of persistence.

- Motivated capability: Ability or capability and motivational factors.

Table 7.1 on page 192 shows a typology of performance types (stars, solid citizens, marginal performers and chronic under achievers). Human resources portfolio.

The implicit argument here is that performance management needs to be adjusted to handle different individual types effectively.

G.2 – managing employee ability

Both education and experience have a vital role to play in building our abilities. There are also two underpinning factors that affect our potential to acquire knowledge and skills:

1. The state of our physical and mental health.

2. Intelligence.

More intelligent people typically secure a better education and gravitate towards more demanding work.

G.2.1 – The crucial role of recruitment and selection

Firms needs to attract and nurture people with the kind of abilities that will make the organization productive in its chosen industry.

- Selection: Choosing among job candidates. It is about how to make fair and relevant assessments of the strengths and weaknesses of applicants.

- Recruitment strategy: The way in which a firm tries to source or attract the people among whom it will ultimately make selections. Recruitment strategies include attempts to make the organization an attractive place to work and attempts to reach better pools of candidates.

A key dimension of recruitment strategy is the task of profiling the ideal kind of candidate and the choice of recruitment channels.

Figure 7.3 on page 196 shows a typology of recruitment strategies. The axes are management creativity and pro activity in recruitment activities and labour market power. The key implication of this framework is that firms have something to gain from more creative use of their resources.

G.2.2 – The complementary role of training and development

Training and development can’t be the total alternative to selection. Informal learning and short term training are probably the most common approach among small firms in Western countries. This is less risky and expensive than long term approaches (employees can leave the company for a competitor). However, training and development offers the kind of complementary potential recognized in high involvement work systems. The key principle here is that employee development should not be restricted to a deficit model (short term). Long term development plans involve a more balanced mix of formal training and education and informal coaching and team building.

G.2.3 – Deploying ability and developing a career: the employee perspective

Research suggests that employees are generally keen to ensure that heir knowledge and skills are fully developed in the work they do. People are more satisfied in their jobs when the skills they use in the job match the skills they actually have. There are three categories:

1. Underutilised: Talents are not fully engaged.

2. Matched: Talents fit job skills.

3. Under qualified: Job skills are higher than the employee is capable.

Table 7.2 on page 200 shows these types of skill matching and satisfaction levels.

Conclusion: People who feel their talents are under employed at work are the most unhappy, while those where talents needed and possessed are equivalent are generally satisfied with their work. Person job fit.

People have an adult life cycle which consists of a stability period and a transition period. This suggests that employees do need change some times.

- Expressivism: More people nowadays are looking to the workplace to find avenues for personal growth. Aspirational agenda.

G.3 – Managing employee motivation

As the AMO framework makes clear, ability is not the only factor explaining individual performance. Workers must also choose to apply their capabilities with some level of effort and consistency.

- Motivated capability: The quality that firms most need from individuals, they need people who have the ability to implement the firm’s mission and who want to do so.

The employee is motivated to enter an employment relationship when the benefits in terms of their interests outweigh the costs. There must be a relatively balanced relationship or sufficient levels of mutuality in the relationship if employment is to be stable.

G.3.1 – Aligning interests in employment relationships: the principle of balance

There must be a balance between employer investments and employee investments. Figure 7.4 on page 204 shows balanced and imbalanced employment relationships. There is a mismatch when one party is contributing significantly more than the other.

G.3.2 – Intrinsic and extrinsic motivators

- Intrinsic sources of motivation: Are associated with the work itself. Work is intrinsically motivating when the individual finds it enjoyable and interesting and naturally wants to get involved in it.

- Extrinsic sources of motivation: Cover the material and social rewards that holding the job delivers, such as the level of pay, the status accorded the role and the degree of employment security.

Table 7.3 on page 205 shows sob facets priorities of British workers.

In terms of the intrinsic factor, what then makes a person happy?

1. People like jobs they personally find interesting because they deploy particular skills effectively and offer them opportunities.

2. People like jobs in which they enjoy a good degree of autonomy in how they do the work.

- Demand control support model: This theory argues that higher levels of employer and/or peer support to individuals may soften the effects of stressful work environments.

G.3.3 – Pay systems: purposes and perversities

- Provision motive: The main reason for working is the need to earn money to live.

There are three objectives that pay theorists have traditionally advocated for employers in the Anglo-American world.

1. The goal of ensuring that the pay system supports the recruitment and retention of suitably qualified people.

2. There is a pay hierarchy of some kind in virtually every organization and employees typically judge the fairness of this hierarchy. Internal equity.

3. Some people will perform at a much higher level than others and this variation grows as jobs become more complex.

A job evaluation or job sizing process typically looks at three (occasionally four) dimensions of job difficulty:

1. Skill.

2. Effort.

3. Responsibility.

4. Working conditions.

- Incentive effect: High potential workers increased their output, because of performance related pay.

- Sorting effect: The rate of labour turnover of higher performers dropped and more workers of high potential were attracted to the firm, because of performance related pay.

Box 7.1 on page 211 & 212 shows supporting conditions for performance related pay.

One disadvantage of performance related pay is that it can link goals to employee’s actions too narrowly or towards a misguided target. Perverse incentives. Bonus culture. The advantage of time based pay systems, hourly or annually, is that they are actually more flexible in terms of managing priorities as they change.

Some practices associated with better management performance:

- Very selective recruitment.

- High external relatively pay.

- Rigorous use of performance planning and appraisal.

Pay systems should be designed to recruit and retain the kind of people the firm needs. This requires competitive pay ranges and implies some way of fostering performance equity within the structure in order to retain high achievers. Serving internal equity is important, but not in a way that undermines the firm’s ability to recruit and retain.

G.3.4 – The performance of performance appraisal

- Performance appraisal system: A formal method of planning and evaluating employee performance that involve employee interviewing to discuss work goals or behavioural standards and the individual’s achievement in terms of them.

G.3.5 – Psychological contracting and employee commitment

- Psychological contracting theory: Represents an attempt to analyse the attitudinal variables that need careful management if a positive motivational climate is to be built and sustained, in an organization over time. Places emphasis on shared expectations between the employer and employee. A set of unwritten reciprocal expectations between an individual employee and the organization.

- Transactional contract: Has very little psychological content.

- Relational contract: Standard, open ended contract with lots of relational content.

Table 7.4 on page 220 shows both types of contracts.

Figure 7.5 on page 221 illustrates the formation of a psychological contract.

The risk of violating the psychological contract is that it undermines employee commitment and valuable employees leave prematurely or stay and adjust organizational citizenship behaviours (OCB).

- Organizational citizenship behaviour: A range of cooperative and caring behaviours that can be very valuable to collegial relations, teamwork and client service in a firm.

G.3.6 – Expectations and trust dynamics

Expectancy theories of motivation do not tell us about the content of human motivations, but make the fundamental point that our ongoing motivation at work is affected by the expectations we form and our experience of whether these are met over time. Figure 7.6 on page 223 shows the expectancy theory of motivation.

1. Impossible goals will frustrate rather than motivate.

2. Employees are reward seekers.

3. Employees are reward critics.

Expectancy theory implies that faith in the management process is something that needs to be built and maintained over time. Perception of fairness and trustworthiness. Figure 7.7 on page 225 shows the psychological contract with promises, trust and commitment.

Chapter H – Linking HR systems to organizational performance

H.1 – HR systems and organizational patterns in HR strategy

- Variegated HR strategy: It incorporates a mix of HR systems or models.

Internal fit is often seen as critical to a high quality performance in HRM.

H.1.1 – HR systems and the problem of internal fit

- Internal fit theory: The way in which HR practices are bundled or interact within a particular HR system. Which HR practices go together best when we want to achieve certain goals?

Coherence and consistency are important to gain an internal fit.

- Positive bundling: A search for powerful combinations.

- Deadly combinations: Policies which work in directly opposite directions, such as teamwork training and individualistic behaviour rewards.

Three types of desirable consistency:

1. Complementary fit or single employee consistency.

2. Consistency across employees doing the same kind of work.

3. Temporal consistency.

H.1.2 – A typology of HR systems

HR systems are clusters of related HR practices for particular workforce groups, which benefit from coherence in their design and consistency in their application, but which may still contain paradoxical elements.

Table 8.1 on page 233 shows seven HR models and describes their characteristics.

- Familial model: Trust levels are high and family members provide the core labour resources and control decision making.

- Informal model: Workers are managed personally by owners or supervisors.

- Industrial model: Highly specialized, low discretion jobs.

- Salaried model: Managers and white collar specialists are employed in jobs which enjoy higher levels of discretion, responsibility, pay and security than other employees.

- High involvement model: Work organization is reformed to break down Taylorism.

- Craft professional model: Work practices reflect roots in craft control and long period of professional education and socialisation.

- Outsourcing model: The work concerned is outsourced to a specialist provider in the country of domicile or is off shored to a lower cost country.

H.1.3 – HR systems and organizational patterns

Table 8.2 on page 239 shows a typology of (five) organizational types and their HR systems.

- Family firms: Familial and informal systems.

- Professional service firms: Professional and salaried systems.

- Classical bureaucracies: Salaried, industrial and craft systems.

- Participatory bureaucracies: Salaried and high involvement systems/salaried and professional systems.

- Flexible bureaucracies: Salaried and outsourced systems.

H.2 – The black box problem: links between HRM and performance

- Black box problem: What chain of links leads from HR policies through to whatever notion of organizational performance is desired?

H.2.1 – The centrality of employee attitudes and behaviour

Employee attitudes and behaviour are probably the critical linking mechanism for HR policy and organization performance.

(1) Intended HR practices lead to (2) actual HR practices, which lead to (3) perceived HR practices, which lead to (4) employee reactions and lead to (5) organizational performance.

There can be a gap between intention and actual action, which damages employee attitudes, behaviour and performance.

Four types of psychological contract between management and its workforce:

1. The congruent contract.

2. The mismatched contract.

3. The partial contract.

4. The trial contract.

Values, norms and culture in general play an important role in the relationship between management and employees. Stronger cultures are more readily built in small, owner managed organizations than in big organizations, because trust levels tend to be higher. There is also much less chance for miscommunication and internal politics. However, middle managers can reduce miscommunication and internal politics in big companies, if they are capable and consistent in their own behaviour. Line manager action or inaction is often responsible for the difference between espoused HR policies and their enactment, because their behaviour reflects the informal or real culture of the firm (top managers do not).

Also subordinates and interpersonal relationships play an important role in organizational behaviour and performance.

- Psychological climate: The environment and culture in the workplace. Individuals will be affected by the climate in their attitudes and behaviours.

The third step in the framework of intended HR practices to organizational performance, perceived HR practices is crucial. Employees perceive intentions made by the top management differently. It is therefore necessary to have a good psychological climate or culture, in which HR policies are perceived correctly. However, there will always be some variations in perceptions between individuals in the organization.

Figure 8.1 on page 251 shows HR systems and the links to organizational performance.

Management intentions -> management actions -> workforce perceptions -> workforce responses and outcomes -> organizational outcomes.

Chapter I – The dynamics of industry-based competition

I.1 – Industry dynamics: cycles of stability and change

Business units do not compete with every other business in their industry, it is more accurate to identify a strategic group.

- Strategic group: A clusters of who tae significant interest in each other’s products, technologies, executives, workforce skills and so on. Industry based rivalry.

- Punctuated equilibrium: The life forms we find around us are not simply the product of incredibly long periods of time, but resulting from alternating periods of intense change and periods of gradual adaptation.

I.1.1 – Phases of industry evolution

- NIH syndrome: Business leaders who cannot accept emotionally anything not invented here.

A mature context arrives when the industry settles into a period of stable growth based around one or two dominant designs for products or services and the organizations that provide them.

Figure 9.1 on page 260 shows the S-curve model: technical progress and R&D effort.

A dominant design is a design which is accepted in the market, such as the QWERTY keyboard. After the mature period, survivors enter a period of relative stability in which the emphasis is on continuous improvement.

- Shake out period: The industry stabilizes and enters a mature phase in which the number of sellers and industry concentration do not change dramatically.

The renewal context challenges the continuities built up over the establishment and mature phases, threatening to turn previous strengths into weaknesses. Two kinds of mature firms manage to survive:

1. One firm is that succeeds in dominating the direction of industry change.

2. The second is the firm that manages to adapt to the direction of change.

Figure 9.2 on page 262 shows the three phases of industry evolution: establishment, maturity and renewal.

Table 9.1 on page 263

I.2 – HR strategy and industry dynamics

I.1.2 – The establishment context

- Pioneers: People who create new sources of value.

- Followers: People who perceive that new value is being created and successfully join the industry.

Both ability and motivational factors make a difference to entrepreneurial success. There is a need for talented entrepreneurs, a workforce which is well coordinated and competent and human resources. Marketing ability, adequate money and the people needed to handle the firm’s operations come in as the three biggest factors explaining success. Also, being first at the right time (early alignment) is extremely important for success.

I.1.3 – The mature context

The challenges of size, increasing workforce complexity, the need to comply with various employment regulations, and the possibility of unionisation, all mean that HR systems need to become more comprehensive and more formalised. On the other hand, the maturing of organizational structure can alienate the very people who have helped to make the firm successful so far.

- Competitive parity: The HR strategy may not be the best in the industry but it has not so far undermined the firm’s growth.

Firms need talented and functioning leadership teams, along with a motivated and capable workforce which can reliably execute its work processes and deliver on promises to customers. Key elements of the viability of firms are: talented and functioning leadership team, motivated and capable operating workforce, an appropriate mix of HR systems and supportive non-human resources. Figure 9.3 on page 270 shows those four elements.

Potential sources of HR advantage:

- The quality of management perception in HRM.

- The quality of HR planning.

- The consistency of HR practice.

I.1.4 – The renewal context

The renewal context threatens to turn previous strengths into weaknesses through technological shock which call for a reconfiguration of the strategic paradigm in the firm. There are three conditions firms must meet to retain their viability during an industry upheaval.

1. Political.

- Flexible bureaucracies: Have a core workforce, but also use high levels of outsourcing for non-core functions that can be obtained much more cheaply elsewhere.

2. Perceptual. The firm needs leaders who can see what competencies will retain their relevance in the future while perceiving what capabilities have already become liabilities.

3. Related resources. The firm must actually have the access to the financial resources it needs to make the necessary changes.

Agile organizations aim to develop a built in capacity to shift, flex and adjust either alone or with alliance partners, as circumstances change and so do as a matter of course.

Figure 9.4 on page 275: A definition of organizational agility.

The concept of an agile organization is fleshed out to mean one that can read markets well, can create a culture which welcomes change and one that readily embeds organizational learning. Figure 9.5 on page 277 shows the model of HR strategy in agile organizations.

I.3 – Conclusions

To achieve viability in the establishment context, firms need talented entrepreneurial leaders and need to be able to stabilise a competent workforce. In the mature context, it remains important to create, coordinate and retain a sufficient pool of motivated labour with appropriate industry know-how.

- Agile organizations: Firms that anticipate the need for renewal and are well prepared to take advantage of it.

Chapter J – Multidivisional and multinational firms

The rise of multinational companies has a major impact on strategy and HR practice in multi-site organizations. There is also an indirect effect on suppliers through the use of procurement requirements, which often have implications for HRM.

J.1 – Structure, control and HRM in multidivisional firms

We need to look at the impact of ownership and control on workplace HR systems. Traditional firms often adopt a functional or unified form (U-form) where specialists in marketing, operations, finance and HRM each coordinate their own areas. A common organizational form for the multi-business company is the holding company, where the corporate office owns the various companies in the portfolio but allows each to manage its own affairs as a separate business. The holding company gets a proportion of the profits generated.

Figure 10.1 on page 284 shows three levels of strategic decision making in Anglo-American multidivisional firms. The distinctive feature of the M (multidivisional) form is that it separates operational management from strategy management. Structure follows strategy. Five advantages:

1. The responsibility for operating decisions is assigned to operating divisions.

2. The elite staff attached to the general office performs both advisory and auditing functions. Both activities have the effect of securing greater control over operating division behaviour.

3. The general office is principally concerned with strategic decisions involving planning, appraisal and control, including the allocation of resources among the competing operating divisions.

4. The separation of the general staff from operations provides general office executives with the psychological commitment concerned with the overall performance, rather than becoming absorbed in the affairs of the functional parts.

5. The resulting structure displays both rationally and synergy: the whole is greater than the sum of parts.

- Strategic business unit (SBU): Limited liability companies in their own legal status.

J.1.1 – What happens to HR strategy in the divisionalised company?

It is important to find a good way to manage SBU’s or operating units. There are two approaches:

1. Emphasizing financial controls, keeping the units at arm’s length from the centre and often from each other.

2. Building synergies, to emphasize collaboration and knowledge sharing.

Mostly, the divisionalisation of companies tends to heighten the emphasis on profit accountability.

J.2 – Strategy and HRM in multinational firms

Multinationals often have operations in different countries, which can be very difficult to coordinate.

- MNC (multinational corporation: A more complex versions of the M-form company, in which structure and strategy are both more complicated, because they have transnational dimensions.

The decision to internationalise depends on three conditions:

1. The firm must have an ownership advantage that firms in other countries do not have.

2. It must be advantageous for the firm to keep these advantages to itself, rather than seek alliances or other forms of production and distribution that might dilute them.

3. The firm must stand to benefit from location-specific advantages, such as access to local markets, raw materials or a competitive labour force.

This theory or advantages don’t really take the political dimensions into account, but rather look at the economic theories.

J.2.1 – HR strategy in the multinational firm

Sensitive local adaption of HR practices is usually required for multinational firms. Even if they were inclined to, how far MNCs can impose a standard set of HR policies in all operating units is limited. Key policies in HRM take the form of frameworks or global footprints which lay down the main principles and parameters, but leave detailed implementation to the individual businesses and countries in the light of local regulation, conventions and practice.

Many firms go offshore to take advantage of lower labour costs and less demanding labour regulations.

- Benchmarking: Comparisons of production and service performance. Analysis of comparative statistics on business performance leads into strategies to improve plants or sites with underperforming production systems, supply chain or labour problems.

J.2.2 – The importance of management development

Where a multinational has a strong commitment to developing synergies, corporate and regional HR staff also play a critical role in management development. HR specialists may foster the use of strategic performance management processes, develop global capability or competency based HR systems, pursue global talent management strategies and help develop corporate employer brands. The author of the book shows some examples.

J.3 – The HR implications of merger and acquisition

When a merger takes place, an existing HR strategy has to be replaced or adjusted. Some behaviours are also deeply embedded, so it is difficult to integrate a new strategy. Many mergers fail, because of clashes between cultures or management styles.

- Hard keys: Activities that need to happen at the start of a process to gain success, such as synergy evaluation, integration project planning and due diligence.

- Soft keys: These activities include classical HR issues such as the selection of the management team, the resolution or cultural issues and communication inside the two companies.

However, the activities during the post-acquisition period and the stabilisation period are also quite important for institutionalisation.

The uncertainty generated by the acquisition process and the response of employees is crucial in the whole process and success.

- Dual expectation theory: The employee response to an acquisition announcement is much more multi-faceted than a single concern with job security. This covers both the individual’s perception of their immediate future and their concern with their team and the wider social network.

- Cultural behaviour: Learning about and internalising as a group, the shared patterns of beliefs, assumptions and expectations held by organizational members and the group characteristic way of perceiving the organization’s environment and its norms, roles and values as they exist outside the individual.

The J curve draws attention to the requirements for competency destruction or unlearning before new learning can occur. Figure 10.2 on page 303.

Chapter K – Conclusions and implications

K.1 – The main themes of this book

Seven main themes underpin this book:

1. Human resource strategy is an essential element in business strategy, not some kind of dubious appendage to it, and plays a critical role in organizational viability and relative performance.

2. The goals of HRM are plural and subject to strategic tensions.

3. Managers typically adapt HR strategy to the firm’s specific context and they are wise to do so.

4. While it is not possible to define a universally best set of HR practices, there is still a role for thinking about underpinning principles in HRM.

5. HR strategy is usefully understood as a cluster of HR systems, an approach that helps us to analyse strategic HR trends affecting companies and countries.

6. Some degree of idiosyncrasy is inevitable in a firm’s HRM and positive, high quality idiosyncrasies in HRM can be sources of superior performance.

7. In any organization where management wants to achieve higher value through HRM, careful attention will need to be paid to the chain of critical links between HR policy and performance outcomes.

K.2 – Can strategic planning be a valuable resource in the firm?

Three barriers to imitation (chapter 4):
1. Unique timing and learning (path dependency).

2. Social complexity (patterns of collaboration and teamwork in the firm).

3. Causal ambiguity.

Unstable environments require more, rather than less, planning. This challenges the idea that planning systems make firms inflexible. It also argued that firms gain greater advantages from planning when they persist with it.

K.3 – The design of HR planning processes

K.3.1 – Improving the quality of HR planning: process principles

HR planning needs to focus on stakeholder groups who are most affected by the quality of labour management in the firm, such as senior and lower level managers, employees and the state.

The involvement principle

- Stakeholder principle: The stakeholder principle implies that only through dialogue among those centrally involved in managing people in the firm can the quality of HR planning be improved.

As a general rule, the senior management team should drive HR planning and HR specialists should facilitate the process. To be valuable, planning processes, in organizations of all sizes, should enhance strategic understanding and build strategic consensus.

The rivalry principle

Labour markets are competitive and intelligent rivals will attempt to recruit the best workers and build the best management processes. As a result, the firm’s executive team should aim to understand the HR strengths and weaknesses of key competitors.

The dynamic principle

It is vital to accept that change is inevitable and that some preparation for the future is therefore crucial. Because environments are dynamic, it is good to use scenario planning. This can also be used to create readiness for a range of competitive futures. Box 11.1 on page 322 and 323 shows an example of scenario-based HR planning.

Integration principle

Processes for HR planning ought to be integrated with processes used for: long run strategic planning and business development and short run planning and budgeting.

K.4 – Seeking integration: HR planning and the new management accounting

K.4.1 – Balancing performance measures in the firm

Four perspectives in the balanced scorecard of Kaplan and Norton (figure 11.1 on page 326):

1. Learning and growth.

2. Internal business process.

3. Financial.

4. Customer.

Figure 11.2 and 11.3 on page 327 and 331 shows a strategy map.

K.4.2 – Building a theory of the business or strategy map

- Strategy map: A map of causes and effects of performance drivers and their key outcomes.

K.4.3 – Strategic HRM and the balanced scorecard: an evaluation

Kaplan and Norton do not doubt the way in which employee skills and commitment can contribute to operational performance. The emphasis of the balanced scorecard is very much on improving the quality of the implementation of a given strategy.

- Meta planning: These include the ability to sense new environmental directions and to switch to different competitive scenarios, something that was shown to be valuable in our earlier discussion of the US railway cases.

A firm’s scorecard for HRM should never be totally dominated by a single bottom line. Figure 11.4 on page 334 shows multiple goals in HR strategy and organizational effectiveness.

First priority: Adopting a mix of HR systems that will simultaneously achieve cost effective labour and social legitimacy.

Second priority: Evolving HR systems that will help build organizational flexibility with requisite managerial power and support sustained competitive advantage.