Discuss the role of HRM in enhancing employee performance. Use examples from recruitment/selection, reward and development initiatives to support your argument.

In an era of rapid globalisation and constant pressures of innovation, employers are turning to their workforce for maintaining and improving their competitiveness in the global economy. Organisations are therefore constantly looking for new strategies that will continuously facilitate higher levels of organisational performance. In recent years academics in Britain and the US have shown a considerable degree of interest in the practices of HRM and, in particular, the models of high commitment or ‘best practice’. Pfeffer, one of the leading writers in this field, argues that a company can increase its profits if it simultaneously implements complementary ‘bundles’ of HR practices. The notion here is that the best bundle of HR practices could potentially improve employee attitudes and behaviours, reduce rates of absenteeism and labour turnover as well as improve levels of productivity, quality and customer service, (Marchington, 2002). This has been supported and, of course, criticised by fellow academics. Opponents of best practice express doubts about the particular mix that should form the high commitment bundle and the way in which employees perceive these practices and choose to adopt the ‘best-fit’ or contingency approach.

The role that HRM plays in enhancing employee performance spans from the moment a post becomes available up until the termination of the employees contract. This encompasses all aspects of recruitment, selection, development and reward. The ability of an organisation to select the most suitable candidate for the job, provide the necessary skills and development and implement incentives on the basis of reward will all contribute to the level of employee performance within that organisation. This paper will evaluate the notion of best practice and argue that HR strategy will be determined by the specific environment within which it operates. It will contest the ‘universalist’ approach with the view that organisations must vary their HR practices between specific employee groups, organisations and industries in order to increase performance. Particular attention will be given to the functions within recruitment/selection, development and reward, as they are the essential elements of strategic human resource management.

HRM and the two schools of thought

According to Boxall, (2000) ‘human resource management includes anything and everything associated with the management of employment relations in the firm’. More specifically, strategic human resource management implies the way in which HRM is critical to organisational effectiveness and that is what we are concerned with here. Strategic choices are regularly made with regard to labour management and it is these choices that influence the firm’s level of performance. These practices are rarely the same and should be varied between organisations and employee groups alike. From this it is apparent that the way in which a firm’s executives combine and implement their HR policies and practices is directly linked with labour output. To assess the validity of this statement, these policies and practices will now be considered at in more detail.

Model of ‘Best practice’

Definitions of ‘best practice’ are frequently derived from studies on the four most favoured areas of undergraduate personnel psychology: selection, training, appraisal and pay, (Boxall, 2000), and it is these which form the core of Pfeffer’s seven practices:

Employment security
Selective hiring
Team working
High pay contingent on organisational performance
Extensive training
Reduction on status difference
Sharing information

Pfeffer argues that best-practice HRM can be used in any organisation in any sector and with any workforce. From his studies he has concluded that best practice bundles are not country specific and should lead to positive outcomes for all industries. He also advocates that the closer firms get to implementing the entirety of this list, the better their performance is likely to be. However, there is a danger with such a ‘universalist’ approach in that it ignores potentially significant differences between organisations, sectors and countries. It also seems to demand that this particular model-which is a US model-is the one every other country should follow, (Marchington, 2002). However Boxall, (2000) notes that such practices are more popular in those sectors ‘…where firms compete through quality and service, and can only remain viable through exploiting advanced technology (as in complex manufacturing) or through a highly skilled interaction with clients (as in professional services)’. This supports the contingency theory showing clear differences in preferred approaches between sectors. In such sectors firms may invest significant amounts of money in training and development and will wish to retain such employees by adopting a high commitment approach. The contingency theory will now be looked at in more detail.

Model of ‘best fit’ or contingency theory

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Model of ‘best fit’ or contingency theory

The fundamental argument here is that HR strategy will be more effective when integrated with its specific organisational and environmental context, (Boxall 2000). This harder approach to HR ties in more with business strategy. In this model practices are seen to be more effective when they are used in ‘bundles’ and these should tie in with organisational objectives. There is theoretical support for the notion that bundles operate more effectively when combined as they have the capacity to reinforce and complement each other (positive bundling), for example high salaries may motivate employees toward further training or development and reductions on status difference may improve employees abilities in team working. Organisations should try to avoid so-called ‘deadly combinations’, which are policies that work in opposite directions such as strong training for teamwork with appraisals based on individual performance, (Boxall, 2000).

It is argued that Pfeffer’s model- a US model- cannot be universally applied due to national variations in culture, regulations and management styles. Firms around the globe are known to adapt their products to the needs of various markets, should this also be the case for their HR strategies? There is also some debate as to whether the practices should be fit as bundles or as ‘Gestalt’. The latter derives from a configurational perspective and the idea that each of the HR practices make up a chain; if one of the links is missing, then the chain is broken and the desired effect is lost. The adoption of all the practices is termed multiplicative. Bundles, on the other hand, are seen to be additive. This supports the notion that the more practices in place the better, however they need to be based around a distinctive core, (Marchington, 2002). The question then arises of how many of these practices are required to achieve the best results and which are the most critical of all the contingencies. The answer to this lies in the organisational context into which the model is being implemented.

Fig.1 Model of the link between HRM and performance (Guest et al, 2000b, p5, cited in Marchington, 2002)

Figure 1 shows a model which links business/HR strategy on the left with performance outcomes on the right. Outcomes are measured in terms of productivity, financial performance and quality of goods and services. This framework is governed by HR practices, covering all aspects of people management and development and this in turn provides a measure for how well the implemented practices are working. These HR practices include recruitment and selection, development and reward, which are considered to be the key functions within the HR framework. Each of these aspects will be considered individually, using examples to support the views put forward.

Recruitment/selection

Over the past two decades many developments have been made with regard to the most effective ways to recruit and select staff. It has all too often been the case that poor decisions have been made by organisations who have failed to adopt even the most basic recruitment and selection procedures and failed to carry out a formal job analysis. There can be disastrous consequences for companies who make poor selection decisions and these consequences can have negative effects on organisational output. Examples of this could be expenses accrued through the retraining of low performers or through the recruitment of replacements as well as the implications of product/service quality and customer service. It is important for management to realise that not only can an employee be under-qualified or demotivated but also they could be over-qualified and soon become bored with their work, (Marchington, 2002). For those firms who do invest in forecasting, job analysis, person specifications and competency frameworks there will be multiple advantages. New recruits can bring the firm a range of new skills as well as valuable contributions to business culture.

After deciding whether a vacancy really exists, firms need to decide whether to recruit internally or externally. Internal redeployment can reinforce employment security, especially if it is in the form of promotion. The company can also benefit from the fact that the employee is already familiar with the organisational culture and practices thus saving money on induction processes. Recruiting externally, though costly, can bring new skills and knowledge into the company. According to Merrick, 1997, over £1 billion was spent on advertising in 1997 in the UK. Problems arise because employers do not know how to advertise effectively, Matthews and Redman, 1998, found that one in five advertisements gave no detail of salary level and job location, two of the most important factors in job selection. If done correctly the money spent on advertising will be far less costly than the amount required to retrain or discipline poorly selected candidates or indeed to advertise again. Different industries may benefit from different forms of recruitment, for example an investment bank may want to attract graduates from Oxford or Cambridge or a law firm may wish to recruit from personal contacts. The only limitations with these methods are that they will not necessarily provide the ‘best’ person for the job, as they are not exhaustive. Human resource management operates within an organisational context therefore firms need to choose whatever form of recruitment that fits their business strategy.

There is a similar case when it comes to selection methods. Interviews are the most popular selection technique followed by application forms, C.Vs, covering letters and assessment centres respectively. The type of industry again can affect the method used, for example C.Vs are hardly ever used in the selection process for manual workers, however they are almost always used for professional recruitment. It is also evident that selection techniques vary between countries. Newell and Tansley (2001) found that interviews were most widely used in Britain and North America, graphology in France and assessment centres in Germany and the Netherlands, (Marchington, 2002). What is becoming clear is that it is most important to the most appropriate selection method for each individual situation. Marchington (2002) reports of an IRS study which found that telephone screening was the most appropriate method when selecting call centre operators, whereas tests (I.Q, aptitude or personality) were appropriate for secretarial staff as were presentations for professionals. Effective policies and practices in this area increase the probability that the person selected for the job will be capable of meeting targets and fit into the organisational culture. Managers need to be aware of this and seek professional help in knowing which techniques to use, as mistakes can be time consuming and costly.

Development

In fast moving economies there is a need to develop a highly skilled workforce, who can be trained to meet a recurring cycle of changes in set tasks, technologies and forms of work organisation that will probably occur frequently throughout the duration of their working life. The skill of a labour force does not only have an immense impact on the output of an organisation but it also increases work satisfaction, overall income opportunities and mobility chances. Systematic under-investment in employee skills is frequently viewed as a major cause of the competitive weakness of UK industry, (Heyes and Stuart, 1996). Realisation of the Human Capital Theory, that individual investment in development is profitable both for the firm and the individual, has given management the opportunity to exploit their workforce to the best possible advantage, while at the same time offering them the training and job security they desire. In light of this organisations are encouraging their workers to develop their skills and knowledge and to act on their own initiative and creativity. Organisations will benefit from improvements in productivity, performance and knowledge. Individuals have incentives for promotion, increased personal competence and employment security.

Development is defined by Collin, 2001 as ‘…the process whereby, over time, the individual becomes more complex and differentiated through the interaction of internal and external factors’ (Marchington, 2002). Skill formation is regarded as a key component of HRM initiatives that are aimed at generating positive attitudes of commitment and motivation within a workforce, (Heyes and Stuart, 1996). Training is seen as essential to the development of production processes based around teamwork and ‘multiskilled’ employees. Storey and Sisson, 1993, argue that training increases the extent to which employees feel valued by the company. As such, training is crucial to the successful development of employee commitment in the pursuit of organisational and operational goals, (Heyes and Stuart, 1996).

It is obvious to us all that training in itself is extremely industry specific. In a survey of the members of the Manufacturing Science and Finance (MSF) union, for example, Heyes and Stuart, 1996, revealed that 95% of members had experienced some form of training since the start of their current post. They found that the extent to which training increased job motivation was dependant on whether or not managers facilitated opportunities for the members to use their new skills. If no opportunities were given then employees felt demotivated. The extent to which training motivated employees was also influenced by the perceived impact of training on promotion, job security and future employment prospects. They concluded that job motivation is most likely to occur where employers have developed a structured, formalised approach to training which can be seen by employees to link skill formation to job security and reward.

However, training and skill formation make up only one specific dimension of the all-encompassing development process. To be effective development requires monitoring and evaluating. Review and developmental appraisals are required to facilitate the achievement of individual targets. The problem here is that managers and employees see this as a one-off performance review where staff are praised or criticised for meeting or not meeting targets. With developmental appraisals the emphasis should be on improved performance, training and development and achievement of targets, (Marchington, 2002)

Reward

According to Hendry et al, 2000, ‘… a survey by the Industrial Society in 1996 found that out of a sample of 544 firms, two-thirds were using monetary incentives, with a slightly lower figure employing a system of performance related pay. Two out of three personnel and HR managers regarded money as a good way to motivate employees’.

Performance pay can be defined as the explicit link of financial reward to individual, group or company performance, (Armstrong and Murlis, 1991 in Sisson, 1994). There has been much debate as to how effective various pay schemes are and, in particular the contribution of performance-related pay schemes to employee motivation. Such schemes focus on paying for performance and attempts to tempt employees into improving individual performance by providing them with financial rewards in relation to the achievement of objectives. Bonuses could take the form of an increase to basic pay or bonuses linked to targets met. The significance of pay as a motivator has been under constant debate throughout the last few years, however from the literature it appears that it is not the schemes that are at fault, it is that way in which they are implemented.

Performance-related pay schemes are designed on a personal basis to reward output using qualitative judgements to assess performance. At first glance it would appear to promote quantity instead of quality, however this would depend on the objectives set- i.e. sales targets (quantity) or customer satisfaction (quality). Organisations implement pay schemes in relation to their business strategy, proving that using pay as a motivator is highly contingent.

Lewis, 1998, carried out a study on the effectiveness of PRP schemes within the financial sector. In his report he claims that a survey by the Institute of Personnel Management in 1992 proved that two thirds of the respondent organisations, which operated PRP schemes without any other performance agreed that PRP had contributed to improved organisational performance. However 94% of organisations, which used PRP in conjunction with other performance management policies, stated that PRP had contributed to improved performance. This shows that in order for a PRP scheme to be most effective it should be implemented within the context of performance management objectives. Another factor contributing to the success of a payment system is the way in which it is perceived by employees. Management need to ensure firstly that employees believe in the foreseeable consequences of their actions, (performance-outcome expectancy), secondly that the reward offered is of value to the individual, (concept of valence), and thirdly that the employee believes that the set objective is attainable, (effort-performance expectancy), (Marchington, 2002). If management provide the relevant support and feedback, then PRP systems can be key functions in enhancing employee motivation and productivity.

According to Lawler, 1984, reward systems can influence recruitment and retention within organisations. If an organisation is perceived to provide high remuneration packages then they will be successful in attracting and retaining staff. Similarly, if high performers are seen to be rewarded more highly than low performers, then they may feel obliged to leave the company. Lawler also pointed out that long-term objectives are most likely to improve motivation as they signify job security.

It is also necessary here to briefly mention the role of non-financial rewards. According to Maslow’s hierarchy of needs, what may be important to someone on low wages may not be so important to someone who earns more, (Marchinton, 2002). It is argued that employees value feedback and recognition for their work as well as involvement autonomy and responsibility. From the evidence and as already mentioned, it seems that if feedback through appraisal schemes is used in conjunction with financial incentives then the success rate will be far greater.

Conclusion

From this essay I can draw upon several conclusions. Academic evidence shows that there is a need to adapt HR practices to suit the needs of each individual organisation. Major criticisms of Pfeffer’s notion of ‘best practice’ are that it adopts a universalist approach and ignores significant differences between industries and even countries. This paper has considered examples in which HR strategies are adapted to suit particular employee groups in order to maximise employee performance, showing that following the US model may be detrimental to some industries in other countries. This paper is not suggesting that HR practices should be driven completely by competitive strategy. This would also be detrimental because if employees perceive firms to be putting the interests of the firm before their own, then the result will be a decrease in morale, thus resulting in lowered standards of performance. HR strategy should give effect to the firm’s current competitive goals, by recruiting and motivating people wit the sort of skills and motivations needed in the firm’s sector, (Boxall, 2000). This is done through carefully planned recruitment and selection methods, followed by relevant training and performance based rewards as motivational drivers, as highlighted in the above examples. Finally, HRM plays a vital role in enhancing employee performance, however strategies should be adapted to best suit the individual organisations within the various industries.

References

Boxall, P. and Purcell, J. ‘Strategic HRM: Where have we come from and where should we be going?’ International Journal of Management Reviews, Vol2 (2), 2000, pp. 183-203

Heyes, J. and Stuart, M. (1996) ‘Does training matter? Employee experiences and attitudes’ Human Resource Management Journal, 6 (3) pp 7-21

Lewis, P. (1998): ‘Managing performance-related-pay based on evidence from the financial services sector’, Human Resource Management Journal, 8,2 pp.66-77

Marchington, M. and Wilkinson, A. People, Management and Development, CIPD, 2002

Mole, G. (1996) ‘The management training industry in the UK: an HRD director’s critique’ Human Resource Management Journal 6 (1)

Newell, S. and Shackleton, V. ‘Recruitment and selection’ in Bach, S. and Sisson, K. (eds), Personnel Management: A Comprehensive Guide to Theory and Practice. Blackwell, 2000.

Newell, S. and Shackleton, V. ‘Selection and assessment at an interactive decision-action process’, in Redman, T. and Wilkinson, A (eds) Contemporary HRM, Prentice Hall, 2001

Sisson, K. Personnel Management: A Comprehensive Guide to Theory and Practice in Britain, Blackwell Publishers, 1994

Perkins, S. Hendry, C. Woodward, S. and Bradley, P (2000) ‘Performance and rewards: cleaning out the stables’, Human Resource Management Journal, 10,3, pp 46-60