Strategy and Practice of Human Resources
In recent years, there has been a considerable amount of research done on the links between HRM and organizational performance. Most of these are focused on the relevance and the degree to which high-commitment/best practice HRM has an impact on the overall performance of the organization. The basic idea is that some particular HR practices setup in a bundle can have an effect on improved employee attitudes and behaviors, lower levels of absenteeism and labor turnover, and higher levels of production, quality and customer service in all types of organization (Marchington M. and Wilkinson A. 2008). On the contrary, not all studies report such glowing and positive links between best practice HRM and performance and it is still unclear what sorts of HR practices can be put together to form a bundle, the synergy with one another, their attractiveness to workers and employers and their universal applicability. The idea of best practice/high commitment HRM was introduced by Jeffery Pfeffer in two of his books, Competitive Advantage through People (1994) which had 16 practices and The Human Equation: Building Profits by Putting People First (1998) in which the practices were reduced to 7.
In this essay, we will be looking at what is meant by best practice/high commitment paradigm and the 7 practices proposed by Pfeffer (1998), followed by a critical evaluation of the practices and the universal applicability of the proposed practices and the key methodological problems with the recent research.
The best practice/high commitment paradigm revolves around some fundamental practices with which profitability can be attained. Pfeffer argues that a particular set of human resource (HR) practices can increase company profits, that the impact is more pronounced when complementary groups (or ‘bundles’) of HR practices are used together, and that this conclusion holds good for all organizations and industries irrespective of their context (Marchington M. and Grugulis I., 2000). The list of practices which were set out by Pfeffer in 1994 was 16 which were then combined and presented as 7 in his book in 1998. The practices are as follows.
Self-managed teams/team working
High compensation contingent on performance
Reduction of status differentials
There are many problems with the individual practices which are supported by many studies done in the past. For example in the case of team working, evidence suggests that employees who work in teams report to have higher levels of satisfaction as compared to their counterparts (Geary, 1993; Wilkinson et al., 1997; Edwards and Wright, 1998). The problem here is that the measures used by the researchers are less broad and are referring to the proportion of production workers in teams (MacDuffie, 1995), or the use of formal teams (Patterson et al., 1997). Though, this measure is not really capable of measuring the degree to which the teams actually managed themselves (Marchington, 1999).
Similar arguments can be made about training. It is important to identify whether or not employers invest in formal training for the entire workforce and what amount has been spent. Some of the researchers focus solely on extensiveness (e.g. Huselid, 1995), whereas others look for whether formal training programs are directed at issues not specifically related to the individual’s immediate work area (Arthur, 1994), create longer-term budget safeguards to protect training provision (Wood and Albanese, 1995), or offer ‘increased promotability within the organization’ (Delery and Doty, 1996). The quality of training in terms of its focus and its delivery is just as important as the amount spent (Marchington M. and Grugulis I., 2000).
Information sharing, according to a number of studies, has been restricted to downward communications from management to employees, which measure the frequency of information disclosure (Patterson et al., 1997), or to the regularity of team briefing or quality circles (Wood and Albanese, 1995), or the proportion of employees consulted by attitude surveys (Huselid, 1995). Some enquire about the percentage of employees who receive training in group problem solving (Arthur, 1994) or the level at which a range of decisions is made (Delaney and Huselid, 1996).The range used is so wide that it is very difficult to compare results from these studies and reach to a firm conclusion. This one-way version of information sharing, rather than being seen as educative, empowering, and liberating as the terminology might imply, could more easily be deduced instead as indoctrinating, emasculating, and controlling (Marchington and Wilkinson, 2000).
It is argued that employers may make a condition for employment security such as the pay rates can be substantially adjusted in order to survive through lean times. This statement may seem fine but if the performance-related component is in significant proportion, then it can cause a problem. As Pfeffer himself (1998: 84) cites the case of Lincoln Electric where profit sharing averages around 70 per cent of individual employee salaries. This has enabled the company to maintain employment when business falls because ‘profit sharing payments fall and labor expenses decrease – without having to break the firm’s commitment to employment security’ (Marchington M. and Grugulis I., 2000).
Along with the many advantages for self-managed teams cited by Pfeffer, it is said that they can remove the supervisory level from the organizational hierarchy; it does save money and ‘eliminating layers of management by instituting self-managing teams’ saves money. Self-managed teams can also take on tasks previously done by specialized staff, thus eliminating excess personnel’ (1998: 77). It portrays a contradictory message, on one hand Pfeffer is talking about employment security and at the other he is talking about elimination layers. The employment security of the supervisory level is on stake.
There is also a contradiction on the matter of compensation on performance. The concept of teams is that members should work together and be flexible in terms of tasks they perform and see themselves as an integral part of the organization. The contradiction here is that what if one team member is earning more than the rest on the same ground. It is not just limited to this level, even performance-related rewards on a team basis may fuel jealousies from other teams who feel that their work has not been recognized or there is less potential for them to earn higher bonuses (Marchington M. and Grugulis I., 2000).
There are numerous methodological problems connected with the use of these data sets: inter alia, problems in selecting suitable measures of performance, uncertainties about directions of causality, contamination from other (non-HR) pressures, the elimination of hard-to-measure items, and the dependence on a single person to complete questionnaires or interviews. As Purcell (1999: 32) suggests, it is likely that personnel specialists, who often tend to be the respondents in these surveys, have detailed knowledge neither of competitive strategies utilized by their organizations nor of the proportion of sales which are derived from these strategies. Anxieties such as these mean that considerable caution is needed when interpreting conclusions from these quantitative studies (Marchington M. and Grugulis I., 2000).
One major problem with the various lists of best-practice/high commitment HRM is that there is no one fixed set of practices or no one complete list. Some author may be ignoring one factor but including another, for example, Pfeffer marked employment security as important, this is not included in a number of the other lists (e.g. Delaney and Huselid, 1996; Youndt, 1996; Patterson et al., 1997; Wood and de Menezes, 1998). Similarly, where other include measure of employee voice other than that achieved through self-managed teams and employee involvement, Pfeffer does not (Marchington M. and Grugulis I., 2000).
Purcell (1999: 36) is particularly cynical of the say for universalism, he argues, ‘down a utopian cul-de-sac’. While he recognises the importance for the set of practices and bundles, ‘so too is the search for understanding of the circumstances of where and when it is applied, why some organizations do and some do not adopt HCM, and how some firms seem to have more appropriate human resource systems than others’ (Marchington M. and Grugulis I., 2000).
MacDuffie is often referred to as someone whose research is encouraging the universality argument, but it is evident from his studies that ‘best practice’ HRM may actually be situationally specific. He suggests: Innovative human resource practices are likely to contribute to improved economic performance only when three conditions are met: when employees possess knowledge and skills that managers lack; when employees are motivated to apply this skill and knowledge through discretionary effort; and when the firm’s business or production strategy can only be achieved when employees contribute such discretionary effort (MacDuffie, 1995: 199). Overlooking the issue of motivation for now, the other two conditions clearly indicate that the situations under which ‘best practice’ HRM will make a difference are quite specific. This is when employees have the skills that are needed to achieve organizational goals, For example in high-technology industries where the processes cannot be easily codified or administered by managers, or where employees take some time to learn how to do their work efficiently and their skills are in short supply (Marchington M. and Grugulis I., 2000).
Scientists like Pfeffer (1994), Huselid (1995), Koch and McGrath (1996) and Ichniowski and Shaw (1999) suggest a ‘best practice approach’, without seriously taking into account differences in culture and institutional settings. The quantitative research on the links between HRM and performance is mostly by USA academics, with some contributions from the UK. Much more research has to be done in different countries to get the actual picture (Boselie P, Paauwe J, Jansen P, 2001).
From a methodological perspective, Purcell (1999) argues that the use of large-scale data sets that rely on a single respondent completing a ‘tick-box’ questionnaire is not the most appropriate way of measuring the complex interrelationship between HRM and performance. He makes the further point that using such methods means that we are not able to capture important issues of process; nor, indeed, are we able to collect any data on the possible dichotomy between policy and implementation (C. Truss, 2001).
It has been seen that the best practice/high commitment is not that best after all. The practices are contradictory and when reviewed individually and applied in different sectors, may result in a different outcome. Most of the studies have been done in the USA and some in the UK, there is a need to conduct more detailed studies across different sectors in different countries to get to a real solid conclusion.
It has been argued that broader, more qualitative methods are needed to study the phenomenon of HRM, utilizing multiple sources that tap into the rationale behind decisions that are made (Becker and Gerhart, 1996; Boxall, 1991; Gerhart, 1999; Guest, 1997). Some of the limitations of existing studies are that they have used quantitative techniques, they have been cross-sectional, and they have relied on one representative in each organization (Ichniowski et al., 1996; Purcell, 1999). Becker and Gerhart (1996) point out that simultaneity bias may occur if the same informant is asked for information about firm performance and HR practice (C. Truss, 2001).
Furthermore, as noted by Legge (1998), the universal ‘high commitment’ approach has primarily been tested in private sector, manufacturing organizations. Little research has been done to evaluate the effects of HRM practices on performance in the public sector. This is a significant omission in light of the claim that these practices are ‘universally applicable’ (Wood 1995, p. 57). Hence, much evidence is needed to test whether the positive effects of ‘high commitment’ practices as showed in private sector organizations are produced in the public organizations (J Gould-Williams, 2004).