Armstrongs essential human resource management practice michael armstrong

  i

ARMSTRONG’S
ESSENTIAL
HUMAN RESOURCE
MANAGEMENT PRACTICE


ii 

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  iii

ARMSTRONG’S
ESSENTIAL
HUMAN RESOURCE
MANAGEMENT PRACTICE
A GUIDE TO PEOPLE
MANAGEMENT

Michael Armstrong


iv 

Publisher’s note
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© Michael Armstrong, 2010
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ISBN
978 0 7494 5989 5
E-ISBN  978 0 7494 5990 1
British Library Cataloguing-in-Publication Data
A CIP record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Armstrong, Michael, 1928–

Armstrong’s essential human resource management practice : a guide to people management / Michael
Armstrong.
p. cm.
ISBN 978-0-7494-5989-5 — ISBN 978-0-7494-5990-1 (ebook)  1.  Personnel management—Handbooks,
manuals, etc.  I.  Title.  II.  Title: Essential human resource management practice.
HF5549.17.A758 2010
658.3—dc22

2010000341
Typeset by Graphicraft Limited, Hong Kong
Printed and bound in India by Replika Press Pvt Ltd


  v

Contents
Introduction

1

Part I

Human Resource Management

5

The Practice of Human Resource Management

7

1.

Introduction 8; The philosophy of HRM 8; The purpose of HRM 9;
The diversity of HRM 10; HRM as a system 11; The context of HRM 12;
The ethical dimension 14; The impact of HRM on performance 15;
The HRM role of line managers 15; The role of the HR function 19;
The role of HR practitioners 21; Critical evaluation of the concept of
HRM 28; Key learning points 30; Questions 31; References 31
2.

Strategic Human Resource Management

34

Introduction 35; The conceptual basis of strategic HRM 35; Strategic
HRM defined 37; The resource-based view of strategic HRM 39;
Strategic fit 41; Perspectives on strategic HRM 41; HR strategies 47;
Critical evaluation of the concept of strategic HRM 50; Key learning
points 52; Questions 54; References 54
3.

HR Policies and Procedures

57

Introduction 57; HR policies 57; HR procedures 66; Key learning points 69;
Questions 70; References 70
4.

Human Capital Management

71

Introduction 72; Human capital management defined 72; The concept
of human capital 72; Human capital measurement 74; Human capital
reporting 80; Key learning points 81; Questions 82; References 83
5.

Knowledge Management
Introduction 84; Knowledge management defined 85; The concept of
knowledge 86; The purpose and significance of knowledge management 87;
Knowledge management strategies 87; Knowledge management systems 88;
Knowledge management issues 90; Key learning points 91; Questions 93;
References 93

84


vi  Contents

6.

Corporate Social Responsibility

95

Introduction 95; Strategic CSR defined 96; CSR activities 96; The rationale
for CSR 98; Developing a CSR strategy 99; Key learning points 100;
Questions 100; References 101
7.

International HRM

103

Introduction 103; International HRM defined 104; Issues in international
HRM 104; Global HR policies and practices 109; Managing expatriates 109;
Key learning points 114; Questions 116; References 116
Part II

Organizations and People

119

8.

Organizational Behaviour

121

Introduction 122; Organizational behaviour defined 122; The sources and
applications of organizational behaviour theory 122; How organizations
function 123; Organizational processes 126; Organizational culture 128;
Organization design 129; Characteristics of people 130; Motivation 136;
The psychological contract 144; Organization development 146; Key
learning points 147; Questions 149; References 150
9.

Employee Engagement

153

Introduction 153; The meaning of employee engagement 154; Discretionary
behaviour 157; Why engagement is important 158; Drivers of engagement 158;
Enhancing engagement 159; Enhancing organizational engagement 163; Key
learning points 165; Questions 165; References 165
Part III HRM Practice
10.

Competency-based HRM

167
169

Introduction 170; Types of competencies 170; Competency frameworks 171;
Applications of competency-based HRM 171; Behavioural competency
modelling 174; Keys to success in using competencies 175; Key learning
points 175; Questions 176; References 177
11.

Job and Role Analysis and Design

178

Introduction 179; Job and role analysis 179; Job design 181; Role
development 183; Key learning points 183; Questions 184; References 185
12.

People Resourcing
Introduction 187; People resourcing strategy 187; Human resource

planning 189; Recruitment and selection 192; Selection methods 195;

186




Contents  vii

Retention planning 198; Talent management 203; Flexibility planning 208;
Absence management 210; Key learning points 212; Questions 213;
References 214
13.

Learning and Development

216

Introduction 217; Learning and development defined 217; Learning
and development strategy 219; Learning culture 219; The learning
organization 220; Organizational learning 221; How people learn 223;
Approaches to learning and development 226; Development 228;
Training 230; Blended learning 232; Planning and delivering learning
programmes and events 232; Identifying learning needs 235; Evaluation
of learning 238; Management and leadership development 239; Key
learning points 242; Questions 244; References 244
14.

Managing Performance

246

Introduction 247; The meaning of performance 247; Influences on
performance 248; High-performance cultures 250; High-performance
work systems 251; Managing organizational performance 253; Managing
team performance 257; Managing individual performance 259;
Key learning points 262; Questions 263; References 263
15.

Reward Management

266

Introduction 267; Reward management defined 267; Aims of reward
management 267; The reward management framework 268; The reward
package 268; Reward systems 268; Strategic reward 271; Total rewards 273;
Financial rewards 275; Non-financial rewards 279; Job evaluation 279;
Market pricing 281; Grade and pay structures 282; Pay progression 287;
Recognition schemes 289; Employee benefits 289; Key learning points 289;
Questions 291; References 291
16.

Employee Relations

293

Introduction 294; The employment relationship 294; Underpinning
employment relations philosophies 297; Employee relations policies 298;
Managing employee relations 299; Collective bargaining 301; Collective
agreements 302; Dispute resolution 304; Employee voice 305;

Communications 307; Key learning points 308; Questions 310;
References 310
17.

Employee Well-being
Introduction 313; Managing the work environment 313; Health and safety
management 315; Key learning points 320; Questions 322; References 322

312


viii  Contents

Part IV People Management Skills
18.

Managing Change

323
325

Introduction 325; The change process 325; Change models 326; Resistance
to change 327; Implementing change 329; Guidelines for change
management 329; References 330
19.

Leadership Skills

331

What leadership involves 331; Leaders and followers 333; Ulrich’s
leadership brand 333; Leadership styles 334; What makes a good
leader 335; Leadership and emotional intelligence 335; Developing
leadership skills 336; References 338
20.

Selection Interviewing Skills

339

The nature of a selection interview 339; The content of an interview 340;
Preparing for the interview 341; Planning the interview 342; Interviewing
techniques – asking questions 343; Key interviewing skills 349; Coming
to a conclusion 351
21.

Performance Management Skills

354

Setting objectives 354; Formal review meetings 357; Guidelines on
providing feedback 361
22.

Learning and Development Skills

364

Induction training 364; Continuous learning 364; Personal development
planning 365; Coaching 366; Mentoring 367; Job instruction 368

23.

Managing Conflict

370

Introduction 370; Managing inter-group conflict 370; Managing conflict
between individuals 371; The role of the third party in managing
conflict 373; Conclusion 374; References 375
24.

Handling People Problems

376

Absenteeism 376; Disciplinary issues 378; Negative behaviour 380; Poor
timekeeping 384; Underperformance 385
Appendix: HRM Research Methods

386

Author index
Subject index

410
415

This book is accompanied by additional online material. To access these resources go to
www.koganpage.com/resources and under ‘Academic Resources’ click on either ‘Student
Resources’ or ‘Lecturer Resources’ as appropriate.

  1

Introduction

This book describes the essential features of human resource management (HRM). The aim is
to provide practitioners and students with a succinct picture of the key processes and activities
involved in managing people. The practical approaches to HRM described in the book are
backed up with evidence from research. Critical evaluations are included for the following key
HRM theories and concepts:
zz HRM itself;
zz the role of HR business partner;
zz strategy;
zz strategic HRM;
zz the resource-based view;
zz the choice between best practice and best fit;
zz bundling;
zz human capital measurement;
zz motivation theory;
zz emotional intelligence;
zz the flexible firm;
zz the learning organization;
zz financial rewards.

Underpinning philosophy
The philosophy underpinning this book was well-expressed by Schneider (1987). He wrote that:
‘Organizations are the people in them… people make the place.’ His point was that:

2  Introduction

Attraction to an organization, selection by it, and attrition from it yield particular kinds
of persons in an organization. These people determine organizational behaviour…
Positive job attitudes for workers in an organization can be expected when the natural
inclinations of the persons there are allowed to be reflected in their behaviours by the
kinds of processes and structures that have evolved there.
HRM has to serve the interests of the business but it must also be concerned with the interests
of the people in the business. A stakeholder approach is adopted throughout the book. In
accordance with the views of Freeman (1984), management, and this includes HR specialists,
must satisfy a variety of constituents comprising employees, customers and the community at
large as well as shareholders or, in the public or voluntary sectors, those who have the ultimate
responsibility for what the organization does.
There is an important ethical dimension to HRM. As Boxall et al (2007) point out: ‘While
HRM does need to support commercial outcomes (often called “the business case”), it also
exists to serve organizational needs for social legitimacy.’ This means exercising social responsibility, or in other words being concerned for the interests (well-being) of employees and
acting ethically with regard to the needs of people in the organization and the community.

Plan of the book
The book is dived into four Parts and an Appendix.

Part I  Human Resource Management
Part I deals with the fundamentals of HRM. It starts with a general review of the practice of
HRM. It continues with a description of the processes that provide guidelines on the direction,
scope and application of HRM, namely strategic HRM and HR policies and procedures. The
need to base HRM decisions on data and information relating to the use and development of the
organization’s human capital is dealt with in Chapter 4, and the associated topic of knowledge
management – increasing organizational capability by sharing the wisdom, understanding and
expertise accumulated in a business about its processes, techniques and operations – is covered
in Chapter 5. The requirement for organizations to conduct their business in an ethical way,

taking account of the social, environmental and economic impact of how they operate, and
going beyond compliance, is emphasized in Chapter 6. The final chapter of Part 1 recognizes
that organizations operate in a global context, and explores the particular factors that affect
international HRM.




Introduction  3

Part II  Organizations and people
Part II recognizes that HRM takes place within the context of organizations, in which the way
people behave and how the organizations of which they are members function will govern
HRM policy and practice. It also deals with the concept of employee engagement, which is
becoming increasingly prominent in people management, but which is often presented as
a mantra without being properly understood. Chapter 9 examines the concept in detail by
reference to recent research.

Part III  HRM practice
This is the heart of the book. It deals with:
zz the basic HRM activities of competency-based HRM, job / role analysis and design;
zz people resourcing;
zz learning and development;
zz managing performance;
zz reward management;
zz employee relations;
zz providing for the well-being of employees.

Part IV  People management skills
The activities described in Part IV all require people management skills from line managers as

well as HR specialists. The following skills are covered in this part:
zz managing change;
zz leadership;
zz selection interviewing;
zz performance management;
zz learning and development;
zz managing conflict;
zz handling people problems.

Appendix  HRM research methods
This appendix describes the approaches and techniques used in conducting HRM research
projects.


4  Introduction

References
Boxall, P F, Purcell, J and Wright, P (2007) The goals of HRM, in Oxford Handbook of Human Resource
Management, ed P Boxall, J Purcell and P Wright, Oxford University Press, Oxford
Freeman, R E (1984) Strategic Management: A stakeholder perspective, Prentice Hall, Englewood Cliffs,
New Jersey
Schneider, B (1987) The people make the place, Personnel Psychology, 40 (2), pp 437– 53


  5

Part I
Human Resource
Management

6 

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  7

1
The Practice of
Human Resource Management
Key concepts and terms
zz Business partner

zz HR strategies

zz Centre of expertise

zz HR system

zz Commitment

zz Human resource management

zz Contingency theory

zz Humanism

zz Hard HRM

zz Mutuality

zz HR philosophy

zz Organizational capability

zz HR policies

zz Shared service centre

zz HR practices

zz Soft HRM

zz HR processes

zz Strategic business partner

zz HR programmes

zz Strategic integration

Learning outcomes
On completing this chapter you should be able to define these key concepts. You should
also understand:
zz The meaning and aims of human

resource management (HRM)

zz That HRM in practice is highly

diverse

zz How HRM functions as a system

zz The ethical dimension of HRM
zz The impact of HRM on performance
zz The HRM role of line managers
zz The role of the HR function


8  Human Resource Management

Introduction
The practice of Human Resource Management (HRM) is concerned with all aspects of how
people are employed and managed in organizations. It covers activities such as:
zz strategic HRM;
zz human capital management;
zz knowledge management;
zz organization development;
zz resourcing (human resource planning, recruitment and selection, and talent

management);
zz performance management;
zz learning and development;
zz reward management
zz employee relations;
zz employee well-being.

HRM can be described as a strategic, integrated and coherent approach to the employment,

development and well-being of the people working in organizations. It has a strong conceptual
basis drawn from the behavioural sciences and from strategic management, human capital and
industrial relations theories. This foundation has been built with the help of a multitude of
research projects.
The aims of this chapter are to provide a general introduction to the practice and underpinning
concepts of HRM and to outline the HRM roles of line managers and the Human Resources
(HR) function.

The philosophy of HRM
As originally conceived by the pioneers in the 1980s, the concept of HRM was based on a
philosophy which was fundamentally different from the personnel management practices of
the time. Beer et al (1984) believed that ‘Today, many pressures are demanding a broader,
more comprehensive and more strategic perspective with regard to the organization’s human
resources… These pressures have created a need for a longer-term perspective in managing
people and consideration of people as potential assets rather than merely a variable cost.’
Beer and his colleagues (the Harvard school) were the first to underline the HRM tenet that
it belongs to line managers. They suggested that HRM has two characteristic features, first,




The Practice of Human Resource Management   9

that line managers accept more responsibility for ensuring the alignment of competitive
strategy and HR policies, and second, that HR has the mission of setting policies that govern
how HR activities are developed and implemented in ways that make them more mutually
reinforcing.
Fombrum et al (1984) held that HR systems and the organization structure should be managed
in a way that is congruent with organizational strategy.
A full explanation of HRM philosophy by Legge (1989) stated that HRM consists of the following propositions:

That human resource policies should be integrated with strategic business planning and
used to reinforce an appropriate (or change an inappropriate) organizational culture,
that human resources are valuable and a source of competitive advantage, that they
may be tapped most effectively by mutually consistent policies that promote commitment and which, as a consequence, foster a willingness in employees to act flexibly in
the interests of the ‘adaptive organization’s’ pursuit of excellence.
The philosophy underpinning this notion of HRM provided a new vision which was strongly
criticized by many commentators during the 1990s (see the critical evaluation of HRM at the
end of this chapter). It was supposed to be substantially different from old-fashioned personnel
management, a term which has virtually disappeared since then, although in some quarters the
term ‘people management’ has been adopted, possibly by those who dislike the connotations of
‘human resources’ with its apparent emphasis on exploitation and treating people as factors of
production. However, whether it is called human resource management or people management, the essential nature of the ways in which organizations manage and relate to their
employees has not always changed significantly from that of personnel management, although
new techniques may have been introduced. In 2000 I asked the question ‘The name has changed
but has the game remained the same?’ and answered it with a broad affirmative.
A more recent and less philosophical reference to HRM was made by Boxall et al (2007), who
defined it as ‘The management of work and people towards desired ends.’

The purpose of HRM
The overall purpose of HRM (or people management) is to ensure that the organization is able
to achieve success through people. HRM aims to increase organizational effectiveness and
capability – the capacity of an organization to achieve its goals by making the best use of the
resources available to it. Ulrich and Lake (1990) remarked that ‘HRM systems can be the source
of organizational capabilities that allow firms to learn and capitalize on new opportunities.’ The
following policy goals for HRM were suggested by David Guest.


10  Human Resource Management

Policy goals of HRM
1. Strategic integration: the ability of the organization to integrate HRM issues into its
strategic plans, ensure that the various aspects of HRM cohere, and provide for line
managers to incorporate an HRM perspective into their decision making.
2. High commitment: behavioural commitment to pursue agreed goals, and
attitudinal commitment reflected in a strong identification with the enterprise.
3. High quality: this refers to all aspects of managerial behaviour which bear directly
on the quality of goods and services provided, including the management of
employees and investment in high-quality employees.
4. Flexibility: functional flexibility and the existence of an adaptable organization
structure with the capacity to manage innovation.
Source: Guest (1991).

The policy goals for HRM identified by Caldwell (2001) included managing people as assets
which are fundamental to the competitive advantage of the organization, aligning HRM policies with business policies and corporate strategy, and developing a close fit of HR policies,
procedures and systems with one another.
HRM also has an ethical dimension, which means that it expresses its concern for the rights
and needs of people in organizations through the exercise of social responsibility.

The diversity of HRM
There are no universal characteristics of HRM. Many models exist, and practices within
different organizations are diverse, often only corresponding to the conceptual version of HRM
in a few respects. Boxall et al (2007) remarked that ‘Human resource management covers a
vast array of activities and shows a huge range of variations across occupations, organizational
levels, business units, firms, industries and societies.’
A distinction was made by Storey (1989) between the ‘hard’ and ‘soft’ versions of HRM.
The hard version of HRM emphasizes that people are important resources through which
organizations achieve competitive advantage. These resources have therefore to be acquired,
developed and deployed in ways that will benefit the organization. The focus is on the quantitative, calculative and business-strategic aspects of managing human resources in as ‘rational’ a
way as for any other economic factor.

The Practice of Human Resource Management   11

The soft version of HRM has its roots in humanism – an approach devoted to human interests
which views people as responsible and progressive beings. It also trace its origins to the human
relations school, as founded by Elton Mayo (1933), which believed that productivity was
directly related to job satisfaction and that the output of people will be high if they like their
co-workers and are given pleasant supervision. But this is a fairly remote connection. Soft
HRM as described by Storey (1989) involves ‘treating employees as valued assets, a source of
competitive advantage through their commitment, adaptability and high quality (of skills, performance and so on)’. The emphasis is on the need to gain the commitment – the ‘hearts and
minds’ – of employees through involvement, communications, leadership and other methods
of developing a high-commitment, high-trust organization. It was advocated by, among others,
Walton (1985), who focused attention on his principle of ‘mutuality’ (a state that exists when
management and employees are interdependent and both benefit from this interdependency)
and the move from control to commitment. Attention is also drawn to the key role of organ­
izational culture.
It has, however, been observed by Truss (1999) that ‘even if the rhetoric of HRM is soft, the
reality is often hard, with the interests of the organization prevailing over those of the individual’. And research carried out by Gratton et al (1999) found that in the eight organizations
they studied, a mixture of hard and soft HRM approaches was identified. This suggested to the
researchers that the distinction between hard and soft HRM was not as precise as some commentators have implied.
But as Dyer and Holder (1998) emphasized, ‘HRM goals vary according to competitive choices,
technologies or service tangibles, characteristics of their employees (eg could be different for
managers), the state of the labour market and the societal regulations and national culture’, and
Boxall et al (2007) noted that ‘The general motives of HRM are multiple.’

HRM as a system
In its traditional form, HRM, as pointed out by Boselie et al (2005), can be viewed as ‘a collection of multiple discrete practices with no explicit or discernible link between them’. In contrast

‘the more strategically minded systems approach views HRM as an integrated and coherent
bundle of mutually reinforcing practices’. Kepes and Delery (2007) comment that a defining
characteristic of HRM is that HRM systems and not individual HRM practices are the source
of competitive advantage: ‘Coherent and internally aligned systems form powerful connections
that create positive synergistic effects on organizational outcomes.’
As illustrated in Figure 1.1, an HRM system brings together HR philosophies which describe
the overarching values and guiding principles adopted in managing people, HR strategies
which define the direction in which HRM intends to go, HR policies which provide guidelines
defining how these values, principles and strategies should be applied and implemented in


12  Human Resource Management

HUMAN RESOURCE
MANAGEMENT

HR philosophies

Human capital
management

HR strategies, policies, processes,
practices and programmes

Corporate social
responsibility

Organization

Resourcing

Learning and
development

Reward
management

Employee
relations

Design

Human resource
planning

Organizational
learning

Job evaluation/
market surveys

Industrial
relations

Development

Recruitment &
selection

Individual

learning

Grade and pay
structures

Employee
voice

Job/role
design

Talent
management

Management
development

Contingent
pay

Health and
safety

Performance
management

Employee
benefits

Employee

well-being

Knowledge
management

Communications

HR services

Figure 1.1  The HRM system
specific areas of HRM, HR processes which comprise the formal procedures and methods used
to put HR strategic plans and policies into effect, linked HR practices which consist of the
approaches used in managing people, and HR programmes which enable HR strategies,
policies and practices to be implemented according to plan.

The context of HRM
HRM processes take place within the context of the internal and external environments of
the organization. In line with contingency theory, these exert considerable influence on the
decision over which HR practices are adopted.




The Practice of Human Resource Management   13

The external environment
The external environment consists of social, political, legal and economic developments and
competitive pressures. Global competition in mature production and service sectors is increasing. This is assisted by easily transferable technology and reductions in international trade
barriers. Customers are demanding more as new standards are reached through international
competition. Organizations are reacting to this competition by becoming ‘customer focused’,

speeding up response times, emphasizing quality and continuous improvement, accelerating
the introduction of new technology, operating more flexibly and ‘losing cost’. The pressure has
been for businesses to become ‘lean and mean’, downsizing and cutting out layers of management and supervision. They reduce permanent staff to a core of essential workers, increase the
use of peripheral workers (subcontractors, temporary staff ) and ‘outsource’ work to external
service providers. These pressures can be considerable in an economic downturn such as the
one beginning in 2008.

The internal environment
The following aspects of the internal environment will affect HR policy and practice:
zz the type of business or organization – private, public or voluntary sector; manufacturing

or service;
zz the size of the organization;
zz the age or maturity of the organization;
zz the technology or key activities of the business will determine how work is organized,

managed and carried out;
zz the type of people employed, such as professional staff, knowledge workers, technicians,

administrators, production workers, and sales and customer service staff;
zz the financial circumstances of the organization, especially in economic downturns;
zz the organization’s culture – the established pattern of values, norms, beliefs, attitudes and

assumptions which shape the ways in which people behave and things get done;
zz the political and social climate.

Contingency theory
Contingency theory tells us that definitions of HR aims, policies and strategies, lists of activities,
and analyses of the HRM roles of line managers and the role of the HR function are valid only
if they are related to the situation of the organization in its environment. Karen Legge (1978)

in her influential book Power, Innovation and Problem Solving in Personnel Management was


14  Human Resource Management

the first commentator to insist that a contingent approach should be adopted: that is, ‘the design
and implementation of policy that matches, or is contingent upon specified organizational
requirements and circumstances’.
As Paauwe (2004) explained, ‘Contingency theory states that the relationship between the
relevant independent variables (eg HRM policies and practices) and the dependent variable
(performance) will vary according to the influences such as company size, age and technology,
capital intensity, degree of unionization, industry / sector ownership and location.’
Contingency theory is associated with the concept of fit – the need to achieve congruence
between an organization’s HR strategies, policies and practices, and its business strategies,
within the context of its external and internal environment.

The ethical dimension
As Boxall et al (2007) point out, ‘While HRM does need to support commercial outcomes (often
called “the business case”), it also exists to serve organizational needs for social legitimacy.’ This
means exercising social responsibility, or in other words being concerned for the interests
(well-being) of employees and acting ethically with regard to the needs of people in the organ­
ization and the community.
Within the organization the requirement is to:
zz Treat people equally in terms of the opportunities for employment, learning and develop­

ment provided for them.
zz Treat people according to the principle of procedural justice (Adams, 1965; Leventhal,

1980): that is, the ways in which people are managed are fair, consistent, transparent, and
properly consider the views and needs of employees.

zz Treat people according to the principles of distributive justice (Adams, 1965; Leventhal,

1980): in other words, rewards are distributed to them according to their contribution
and they receive what was promised to them.
zz Treat people according to the principles of natural justice: individuals should know

the standards they are expected to achieve and the rules to which they are expected to
conform, they should be given a clear indication of where they are failing or what rules
have been broken, and except in cases of gross misconduct, they should be given a chance
to improve before disciplinary action is taken.
zz Treat people with respect.
zz Avoid treating people as mere factors of production.
zz Be concerned with the well-being of employees as well as the pursuit of commercial gain.




The Practice of Human Resource Management   15
zz Offer as much security of employment as possible.
zz Provide a working environment that protects the health and safety of employees and

minimizes stress.
zz Act in the interests of providing a reasonable balance for employees between their life

and their work.
zz Protect employees against harmful practices at work, such as bullying, harassment and

discrimination.

The impact of HRM on performance

As Guest (1997) argues, ‘The distinctive feature of HRM is its assumption that improved performance is achieved through the people in the organization.’ If, therefore, appropriate HR
policies and processes are introduced, it can also be assumed that HRM will make a substantial
impact on firm performance.
The Holy Grail sought by many HRM researchers is to establish that HRM practices demonstrably cause improvements in organizational performance. HR practitioners too would like
to be able to justify their existence by saying to their bosses and their colleagues that this is
the case. Much research has been carried out over the last decade or so, most of which at shows
that there is a link between good HRM practice and firm performance. Examples are given in
Table 1.1.
How HRM practices make an impact is summarized in Table 1.2.

The HRM role of line managers
On the basis of their research, Guest and King (2004) noted that ‘better HR depended not so
much on better procedures but better implementation and ownership of implementation by
line managers’.
As pointed out by Purcell et al (2003), high levels of organizational performance are not
achieved simply by having a range of well-conceived HR policies and practices in place. What
makes the difference is how these policies and practices are implemented. That is where the
role of line managers in people management is crucial: ‘The way line managers implement and
enact policies, show leadership in dealing with employees and in exercising control come
through as a major issue.’ Purcell et al noted that dealing with people is perhaps the aspect of
their work in which line managers can exercise the greatest amount of discretion, and they
can misuse that discretion by not putting HR’s ideas into practice. As they point out, it is line
managers who bring HR policies to life.


16  Human Resource Management

Table 1.1  Research on the link between HRM and firm performance
Researcher(s)

Methodology

Huselid (1995)

Analysis of the responses of 968
US firms to a questionnaire
exploring the use of highperformance work practices.

Patterson et al
(1997)

Appelbaum
et al (2000)

Guest et al
(2000)

Thompson
(2002)

Outcomes

Productivity is influenced by employee
motivation; financial performance is
influenced by employee skills,
motivation and organizational
structures.
The research examined the link HR practices explained significant
between business performance variations in profitability and
and organizational culture and productivity (19 per cent and 18 per

the use of a number of HR
cent respectively). Two HR practices
practices.
were particularly significant: (1) the
acquisition and development of
employee skills and (2) job design
including flexibility, responsibility
and variety.
Study of the impact of highHPWSs produced strong positive
performance work systems
effects on performance. They are
(HPWSs) in 44 manufacturing associated with workshop practices
facilities – over 4,000 employees that raise the levels of trust, increase
were surveyed.
workers’ intrinsic reward from work
and thereby enhance organizational
commitment.
The Future of Work Survey
A greater use of HR practices is
covered 835 private sector
associated with higher levels of
organizations. Interviews were employee commitment and
carried out with 610 HR
contribution and is in turn linked to
professionals and 462 chief
higher levels of productivity and
executives.
quality of services.
A study of the impact of
The number of HR practices and the

high-performance work
proportion of the workforce covered
practices such as team working, appeared to be the key differentiating
appraisal, job rotation, broadfactor between more and less
banded grade structures and
successful firms.
sharing of business information
in UK aerospace
establishments.