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The Importance of Human Resource Management in the Private Sector

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We shall look at various attempts to define the concept and examine the evolution of HRM over the years, from its early welfare orientated days, where the approach was traditionally one of control, moving on to what is now seen as a more strategic role in organisations. (Jarrar & Zairi 2002, p266).

We shall identify the aims and objectives of private sector organisations and examine the role HRM plays in helping to achieve these goals. We shall also consider the various models of HR and look at people practices within the sector from an employee’s point of view.

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When the phrase Human Resource Management (HRM) is mentioned, it is difficult to imagine that just over ten years ago it was rarely used (at least outside the USA). However, despite the fact that hardly a week goes by without another book or journal being published on the subject, it still remains highly controversial. Many writers have put forward definitions of HRM, but it still means many things to many people. It is therefore difficult to evaluate the importance of HRM.

Keenoy (1999) compares HRM with a hologram: “As with a hologram, HRM changes its appearance as we move around its image. Each shift of stance reveals another facet, a darker depth, a different contour. As a fluid entity of apparently multiple identities and forms, it is not surprising that every time we look at it, it is slightly different. This is why, conceptually, HRMism appears to be a moving target, and why, empirically, it has no fixed (fixable) forms.”

Although it can be argued that HRM has become the dominant approach to people management, it has to be remembered that it has not ‘come out of nowhere’.

Greater attention began to be paid to human relations as far back as the 1920s. A turning point came with the famous Hawthorne Experiments at the Western Electric Company in America from 1924-1932. Elton Mayo’s work suggested that the morale of employees and productivity were determined by the way they were treated by supervisors. If they had an input into how work was carried out, they were more likely to be motivated and more productive. Although they have been the subject of some criticism, the experiments did mark a significant step forward in the field of human relations.

Models of HRM have been increasingly appearing since 1984, providing analytical tools from which to understand the development of human resource strategy. Two of the most influential models have been the Harvard Model (Beer et al 1984) and Guest’s Model (1989).

Significantly, a consistent theme has prevailed for 20 years which is, that the most successful organisations make the most effective use of their people – their human resources. The emergence of HRM can also be attributed to changes in the structure and intensity of international competition.

According to Cakar and Bititci (2001), the 1980s were all about automation, but the 1990s have been about people, which is evident by the development of Total Quality Management concepts which focus on delegation, involvement and self managed work teams.

The European Business Excellence Model, together with other developments such as Investor in People in the UK, highlights the importance of people in organisations. If human resources are regarded as key assets, then HRM will have a significant impact on the performance of the business.

The term Human Resource Management is considered by many to be just an elevation of Personnel Management. For example Storey (2000) considers that HRM arose when confidence had been lost in more traditional approaches to people management because of levels and types of competition.

It appears that HRM has shed its old ‘personnel’ image. Unfortunately, however, not all managers fully appreciate or fully understand the value of it. It has been discovered through research that HRM has a positive impact on organisation effectiveness and “small businesses in particular report that finding and keeping good workers is the biggest problem they face.” (Daft 2000, p394).

In today’s changing environment, jobs are no longer secure and it is more important than ever for employees to be self-motivated and to continually acquire new skills. The focus is now on employability rather than a job for life. This would suggest that HRM does indeed have an important role to play in organisations.

Organisations are traditionally split into two specific categories: public and private sectors.

According to Mullins (2002), private sector organisations are, as the name suggests, owned by private individuals or shareholders. They can vary in size from a one-man sole trader operation through small medium enterprises to huge undertakings such as British Petroleum or ICI.

As the main objective of private sector organisations is to make profit for its owners, how relevant would the role of human resources be in achieving this?

It is often said that the most important asset of a business is its people and therefore the goals and objectives of the organisation cannot be achieved without them.
Foulkes (1986) wrote that most human resource management (HRM) models assert that people are valued assets with the emphasis on commitment, adaptability and the employee as a potential source of competitive advantage. He argued that with this in mind HRM must be included in the overall strategy of an organisation.

As mentioned earlier the private sector contains organisations of varying sizes, from those with very few employees to those with thousands. With this in mind, along with financial differences, it is fair to say that the size of the human resources role will also differ.

Torrington and Hall (1998) suggests a number of models in which they attempt to summarise the degree of integration of HR and overall organisational strategies.

These are illustrated in the diagram below.

Torrington and Hall p27)

They start with the separation model that suggests no relationship at all. This may be the situation in smaller organisations with few employees and/or little interest in human resources.

The next model, the fit model, suggests the beginning of a relationship. The organisation is beginning to realise the importance of employees in the overall plan.

The dialogue model moves forward with the notion for interaction.

The interlocking circles of the holistic model represent a close relationship between HR and organisational strategy which recognises that people are a key element.
Finally, the HR driven model puts HR strategy as being most important, thereby making HR the driving force of organisational strategy rather than simply a means of implementing it.

Despite these arguments there are various factors that will undoubtedly have a bearing on the level of involvement, if any, that HR will play in organisational strategy.
Torrington and Hall (1998) identified these as: the level of regard for the HR function at the very top level; the culture of the organisation in terms of people; and the environment in which the organisation operates.

They argued that it was more likely that HR would be involved in organisational strategy if the most senior HR person was a member of the senior management team at board level. Various pieces of research carried out over the past ten years or so in the private sector by the likes of the Institute of Personnel Management (1992) and Brewster & Smith (1990) identified an increasing trend in this area.

The culture of the organisation towards its employees will clearly impact on the level of HR involvement. If the organisation has a Taylorist, scientific management based view that the workforce is simply a resource to be used in the same way as, for example, raw materials, then it is unlikely that HR will play a significant role in the overall strategy.

Conversely if people are seen as an investment, then the opposite is likely to prove true. Buller (1988) found that there was a significant relationship between organisational philosophy and the level of integration of HR in the overall strategy.

In his research Buller also found that the operating environment played a significant part. The more an organisation was required to evolve and change the more likely it was that HR was to be involved in strategy, because of the need to find new ways of operating. The opposite was true of the organisation operating in a more stable and predictable environment where constant change was not needed.

Given that it has been identified that the main purpose of private sector organisations is to make money, it is fair to say that this will also determine the level of HR involvement.

Storey (1987) wrote that line managers are slaves to financial budgets and therefore their actions depended entirely on financial considerations.

Armstrong (1990) built on this, suggesting that if that was indeed the case, then the delivery of HRM would suffer because line managers focus on, and are dominated by, short term financial targets and, therefore, this will not encourage a strategic approach to human resources.

This was echoed by Blyton & Turnbull (1992). They suggested that HRM only becomes important to organisations as a means to achieve business goals in the short term because of the financial aspect. Given this, when times become hard, the soft aims of HR will tend to be sacrificed for control of short-term costs such as labour.

Caudron (2003) reports that one of the biggest private sector companies, BP, has taken the step of outsourcing all of its transactional or administrative type activities including payroll and recruitment. The organisation has reaped benefits in terms of standardisation of processes, accuracy and efficiency. Unfortunately its HR staffing levels have been cut by some 67%. However the argument is that by ridding itself of these routine tasks, the remaining HR professionals can focus on strategic matters that can and will affect the bottom line-profits.

Having considered various theoretical and organisational views, it is important to get the views of employees on the HR practices of their employers.

The Sunday Times compiled its annual list of The 100 Best Companies to Work For in 2002 in the UK. This consisted of a survey of employees numbering some 47,000 across 201 participating companies.

Eight key areas or factors were identified by the researchers as being important to the ‘work experience’ of employees. The views of both middle managers and ‘shop-floor’ employees were canvassed, and also included was an evaluation of the companies’ policies and processes.

The eight key areas covered were how employees felt about: the leadership shown by management at boardroom and senior level; the way they were managed on a day to day basis; the level of challenge in their jobs; stress, pressure and balance between work and home life; immediate colleagues; how much the employer gives back to local communities and society in general and how driven it is by profit; the company itself as opposed to work colleagues and, finally, their pay and benefits.
The results of the survey indicated that the five most important areas are giving back, belonging, well-being, leadership and personal growth. The top companies scored highly in each of these areas.

Microsoft came out as the best employer, displaying a caring attitude to its employees which, in turn, has led to almost slavish devotion from them. Clearly Microsoft embraces the notion that people are the most important asset of an organisation, and competitive advantage will result from treating them well and ensuring all of their needs are satisfied. It is interesting to note, however, that Microsoft does not in fact have a Human Resource Department, although it does have a division called ‘great company’ to engage staff, and another division linking ‘people, profit and culture’.

After reading the Sunday Times list, Patricia Hewitt, Trade and Industry Secretary said, “Many factors contribute to a company’s success. Too often, however, the people factor is overlooked. This list shows what can be achieved when companies invest in every aspect of staff development and organisation.”

The UK government actively encourages good people practices through Investors in People (IiP). IiP was originally set up in 1991 by the Department of Employment, to encourage the development of skills in the workplace, in order to increase the competitive position of the UK in world markets. The Standard is based on business strategy, and training which is aimed at the needs of the business. The rationale behind it is that “organisational success is dependent upon the effective development of human resources” (Mullins 2002, p699). IiP is now regarded as one of the most successful quality awards ever introduced.

It may be useful at this point to consider the views of an HR professional regarding the role of HR in an organisation. Mr. William McAllister is the Human Resource Manager of William Wilson Holdings Ltd., based in Aberdeen. He is in charge of 546 staff.

He saw the role of HR as primarily contributing to profitability, that is, the main objective of a private sector organisation, as identified earlier. He felt this was to be accomplished by the careful recruitment and selection of talented staff, and the training and development of that staff, with a view to motivating them to remain with the company for its long-term benefit. This echoes the belief of Boxall (1994) that “a firm achieves competitive advantage from building and defending resources that add unique value which can’t readily be copied by others.”

However, this ideal of training and developing staff seems to be contradicted by the fact that departmental managers are not permitted to carry out disciplinary procedures without express authority from Mr. McAllister. Storey (1992) suggests that if HR is critical for business success then it is far too important to be left to operational personnel specialists. Line managers are crucial to the effective delivery of HRM policies.

Mr. McAllister added that an increasingly important aspect of his role was to keep senior management up to date with continual changes in employment legislation.

It is becoming clear that some organisations value their people more than others. Some may see their human resources as a cost while others consider them to be an investment. Perhaps this can be attributed to the culture of the organisation.

An organisation’s culture can be considered to be a key factor in enhancing competitive performance through employee commitment and flexibility. Employees in a ‘strong culture’ know what is expected of them, whereas staff in a ‘weak culture’ may waste time trying to discover what is required of them. Employees can identify with a strong culture and take pride in their organisation.

Organisation culture can be described as the embodiment of shared values. It is a system of norms and unwritten rules that guide people in how they should act and interrelate with each other. It could be described as the company’s ‘personality’ or, to put it very simply, ‘the way we do things around here’. “Shared values and corporate cultures in organisations represent a big part of the mortar that bids together the bricks of a firm. They hold people together and give them a sense of belonging and purpose.” (Anon 2002).

The culture of an organisation will depend on the type of business being operated. For example, some companies encourage their managers to make their own decisions and often take risks but, on the other hand, some companies (such as insurance companies) encourage caution and conservative attitudes in employees, as they do not want risky decisions to be made.

If a company is operating within a ‘person’ culture, where the individual is the central focus and any structure exists to serve the individuals within it, then HRM is likely to be regarded as important.

It is clear that no one culture fits any organisation, but it is important that the culture is appropriate.

Although the culture of a business is built up over many years, it may be possible through HRM to change this by choosing the right people to cultivate the culture you want. This, however, requires focus, effort and in particular time.

In the above paper we have attempted to evaluate the role of HRM in the private sector.

We have concluded that the extent of HR involvement will depend on a number of factors including the level of regard for HR at the directorial level, the culture of the organisation, the environment in which it operates and arguably the most important factor, financial considerations.

It appears that some organisations are beginning to recognise that HR can play a vital role in their overall strategy, and indeed one of the biggest in the sector, BP, has contracted out all of its administrative activities which were previously carried out under the umbrella of human resources. This has left the HR professionals to focus on strategic issues which will affect the bottom line, which is after all, the main objective.

We looked at the employee perspective on HR by examining the Sunday Times Top 100 Companies in the UK to work for in 2002. This study was based on the opinions of some 47,000 employees across 201 participating companies on a number of key areas of their people practices. The top performers looked on their staff as their most valuable asset and invested in their development.
On the other hand, it is likely that organisations which are smaller and less financially secure may see HR as less important.

Writers such as Armstrong (1991) and Blyton and Turnbull (1992) argued that HRM practices are important only as a means of achieving short-term business goals and will be sacrificed in hard times for control of operating costs.

All in all, it seems that different people see HR in different ways and perhaps Keenoy’s description of HR as a hologram is particularly appropriate.