Strategy and Human Resource Management (5th Edition) PDF
Document Details
Uploaded by InvigoratingWaterfall6708
University of Groningen
2022
Peter Boxall and John Purcell
Tags
Summary
This textbook, Strategy and Human Resource Management, by Peter Boxall and John Purcell, offers a comprehensive exploration of strategic HRM concepts across diverse organizational contexts. It covers HR theories and best practices, highlighting how they can add value to various business models. This 5th Edition integrates current research and strategic perspectives for a well-rounded understanding of human resource management.
Full Transcript
‘Few textbooks are as clear in their aims and execution as Strategy and Human Resource Management. In particular, its nuanced treatment of how different HRM theories and practices can add value to a variety of organisational contexts is outstanding. With this new edition Boxall and Purcell continue...
‘Few textbooks are as clear in their aims and execution as Strategy and Human Resource Management. In particular, its nuanced treatment of how different HRM theories and practices can add value to a variety of organisational contexts is outstanding. With this new edition Boxall and Purcell continue to produce the most helpful volume on strategic HRM on the market.’ – Frans Bévort, Copenhagen Business School, Denmark ‘This text not only showcases key HR theories and frameworks, but also includes contemporary issues and context-based discussions that bring these theories to life and demonstrate how, and why, they are used in practice. I think it’s an invaluable resource and I recommend it to students and scholars alike!’ – Ju Li Ng, University of Sydney, Australia ‘Boxall and Purcell have once again created an insightful textbook that takes a fresh look at strategic people management and deepens our understanding of how it is influenced by critical organisational, industrial, and societal factors. The book has been thoroughly updated with cutting-edge research and continues to challenge knowledge from a strategic point of view. It is an excellent read!’ – Chidiebere Ogbonnaya, University of Kent, UK ‘I highly recommend this book for understanding the general principles of strategic HRM and its variations across specific contexts. It is clearly written, practical and useful: the authors show how HR strategies can be improved to create more value through HRM and deal more effectively with contemporary organizational challenges.’ – Brenda Vermeeren, Erasmus University Rotterdam, Netherlands ‘I have been using the previous versions of this book for years and will continue to use this fifth edition. Strategy and Human Resource Management is written in a clear and accessible way, containing challenging material on Strategic HRM. It is an invaluable resource for students, academics and industry practitioners.’ – Tracy Xu, University of Surrey, UK MANAGEMENT, WORK & ORGANISATIONS SERIES Series editors: Gibson Burrell, Manchester Business School, University of Manchester, UK Mick Marchington, Manchester Business School, University of Manchester and Strathclyde Business School, University of Strathclyde, UK Paul Thompson, University of Stirling, UK This series of textbooks covers the areas of human resource management, employee relations, organizational behaviour and related business and management fields. Each text has been specially commissioned to be written by leading experts in a clear and accessible way. The books contain serious and challenging material, take an analytical rather than prescriptive approach and are particularly suitable for use by students with no prior specialist knowledge. The series is relevant for many business and management courses, including MBA and post-experience courses, specialist masters and postgraduate diplomas, professional courses and final-year undergraduate courses. These texts have become essential reading at business and management schools worldwide. Published titles include: Maurizio Atzeni WORKERS AND LABOUR IN A GLOBALISED CAPITALISM Stephen Bach and Ian Kessler THE MODERNISATION OF THE PUBLIC SERVICES AND EMPLOYEE RELATIONS Emma Bell READING MANAGEMENT AND ORGANIZATION IN FILM Paul Blyton and Peter Turnbull THE DYNAMICS OF EMPLOYEE RELATIONS (3RD EDN) Paul Blyton, Edmund Heery and Peter Turnbull (eds) REASSESSING THE EMPLOYMENT RELATIONSHIP Sharon C. Bolton EMOTION MANAGEMENT IN THE WORKPLACE Sharon C. Bolton and Maeve Houlihan (eds) SEARCHING FOR THE HUMAN IN HUMAN RESOURCE MANAGEMENT Peter Boxall and John Purcell STRATEGY AND HUMAN RESOURCE MANAGEMENT (5TH EDN) J. Martin Corbett CRITICAL CASES IN ORGANISATIONAL BEHAVIOUR Susan Corby, Steve Palmer and Esmond Lindop RETHINKING REWARD Ian Greener PUBLIC MANAGEMENT (2ND EDN) Keith Grint LEADERSHIP Irena Grugulis SKILLS, TRAINING AND HUMAN RESOURCE DEVELOPMENT Geraldine Healy, Gill Kirton and Mike Noon (eds) EQUALITY, INEQUALITIES AND DIVERSITY Damian Hodgson and Svetlana Cicmil (eds) MAKING PROJECTS CRITICAL Marek Korczynski HUMAN RESOURCE MANAGEMENT IN SERVICE WORK Karen Legge HUMAN RESOURCE MANAGEMENT: ANNIVERSARY EDITION Patricia Lewis and Ruth Simpson (eds) GENDERING EMOTIONS IN ORGANIZATIONS Patricia Lewis and Ruth Simpson (eds) VOICE, VISIBILITY AND THE GENDERING OF ORGANIZATIONS Alison Pullen, Nic Beech and David Sims (eds) EXPLORING IDENTITY Jill Rubery and Damian Grimshaw THE ORGANISATION OF EMPLOYMENT Hugh Scullion and Margaret Linehan (eds) INTERNATIONAL HUMAN RESOURCE MANAGEMENT John Walton and Claire Valentin HUMAN RESOURCE DEVELOPMENT Colin C. Williams RETHINKING THE FUTURE OF WORK Diana Winstanley and Jean Woodall (eds) ETHICAL ISSUES IN CONTEMPORARY HUMAN RESOURCE MANAGEMENT For more information on titles in the Series please go to https://www. bloomsbury.com/uk/series/management-work-and-organisations/ iv Strategy and Human Resource Management 5th edition Peter Boxall and John Purcell BLOOMSBURY ACADEMIC Bloomsbury Publishing Plc 50 Bedford Square, London, WC1B 3DP, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland BLOOMSBURY, BLOOMSBURY ACADEMIC and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2003 This edition published 2022 Copyright © Peter Boxall, John Purcell 2022 Peter Boxall and John Purcell have asserted their right under the Copyright, Designs and Patents Act, 1988, to be identified as Author of this work. For legal purposes the Acknowledgements on p. xii constitute an extension of this copyright page. Cover design: eStdudio-Calamar All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. Bloomsbury Publishing Plc does not have any control over, or responsibility for, any third-party websites referred to or in this book. All internet addresses given in this book were correct at the time of going to press. The author and publisher regret any inconvenience caused if addresses have changed or sites have ceased to exist, but can accept no responsibility for any such changes. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress ISBN: HB: 978-1-35030-987-6 PB: 978-1-35030-986-9 ePDF: 978-1-35030-988-3 eBook: 978-1-35030-989-0 Typeset by Integra Software Services Pvt. Ltd. To find out more about our authors and books visit www.bloomsbury.com and sign up for our newsletters. Contents ist of boxes, figures and tables x L Acknowledgements xii Introduction 1 Part I Foundations 1 Human resource management: What and why? 5 undamental characteristics of HRM 5 F Goals, tensions and trade-offs in HRM 9 Discerning and describing HR strategies 29 Conclusions 31 2 Strategy and strategic management 35 Strategic problems and the strategies of firms 35 Strategy and the life cycle of the firm 47 The process of strategic management 53 Conclusions 61 Part II General principles 3 Strategic HRM: ‘best fit’ or ‘best practice’? 65 Strategic HRM: The best-fit school 66 Strategic HRM: The best-practice school 81 Conclusions 89 viii Contents 4 Strategic HRM and sustained competitive advantage 93 The resource-based view of the firm 93 Competencies and dynamic capabilities 101 HR strategy and sustained advantage 108 Conclusions 115 5 Building a workforce: The challenge of interest alignment 117 alent management: Building and renewing a workforce 118 T Job quality and organizational attractiveness 131 Conclusions 147 6 Employee voice, social legitimacy and strategic negotiations 151 Employee voice in its historical and societal context 152 Management styles in employee relations and their consequences 163 Strategic negotiations in disruptive conditions 171 Conclusions 175 7 Workforce performance and the ‘black box’ of HRM 179 The AMO model of performance 180 Analysing the management process in HRM 187 Conclusions 202 P art III Specific contexts 8 HR strategy in manufacturing 207 Manufacturing and its impacts on models of HRM 208 Globalization, technological change and HR strategies in manufacturing 219 Lean production and HRM 225 Conclusions 229 Contents ix 9 HR strategy in services 231 What’s different about services? 232 HR strategy in private sector services 234 Differentiated services 240 HR strategy in public sector services 246 Conclusions 256 10 HR strategy in multidivisional firms 259 Structure and control in multidivisional firms 260 Capital markets, financialization and private equity 265 Challenges for HR strategy in the multidivisional company 271 Conclusions 281 11 HR strategy in multinational firms 283 Multinational strategies, structures and value chains 283 What’s different about HR strategy in the multinational firm? 292 Conclusions 302 12 Reviewing and enhancing HR strategy 305 The main themes of this book 305 Developing a ‘more strategic approach’ to HRM 319 Conclusions 333 References 334 Author Index 388 Subject Index 400 List of boxes, figures and tables Boxes 1.1 Human resource strategy 32 2.1 Human cognitive issues affecting strategic management 55 4.1 Qualities of desirable resources 97 4.2 Hamel and Prahalad’s notion of ‘core competence’ 102 5.1 Supporting conditions for performance-related pay 144 12.1 An example of scenario-based HR planning 327 Figures 1.1 The strategic goals of HRM 19 2.1 Four critical elements in establishing a viable business 41 2.2 Phases of industry evolution 52 3.1 The Harvard ‘map of the HRM territory’ 67 3.2 Linking HR practices to competitive strategy 78 3.3 The ‘best fit’ versus ‘best practice’ debate: two levels of analysis 90 4.1 ‘HR architecture’: a blended model 112 5.1 Mapping the quality of performance and potential in a workforce 122 6.1 Contrasts in, and examples of, employee voice 157 6.2 Choices of management style in employee relations 166 7.1 The AMO model of individual performance 180 7.2 The ‘black box’ of HRM: a model on the collective level 200 8.1 High-involvement work systems: links and anticipated impacts 218 10.1 Three levels of strategic decision making in Anglo-American multidivisional firms 262 12.1 Drivers of job satisfaction and retention (a hypothetical model involving software developers within an expert model of HRM) 322 12.2 A hypothetical performance model (satisfaction with software services) 323 List of Boxes, Figures and Tables xi T ables 3.1 Pfeffer’s seven practices 85 4.1 Types of knowledge 109 5.1 Job facet priorities of British workers 139 9.1 Business dynamics and HR strategies in services 234 9.2 Effects of public sector austerity on employee attitudes 252 12.1 Typology of models of HRM 310 A cknowledgements Once again, it has been daunting, but satisfying, to work together on a book that sets out to survey an entire field, the kind of undertaking that is difficult for academics in an era of short-term projects targeted to research-quality assessments. Throughout five editions, we have learnt from and challenged each other, gaining insights, from both theory and experience, that we would never have obtained working alone. In terms of getting the time to work on a book like this, we are particularly grateful for the sabbatical leave granted to Peter by the University of Auckland. A range of colleagues, students and practitioners helped us to develop and reshape the views reflected in the book and we are indebted to them all. We thank our publisher for the faith expressed in the commissioning of this fifth edition of our work. We are especially appreciative of the many efforts of Ursula Gavin and Christian Ritter on our behalf. In addition, we wish to make a special tribute to our colleague and friend, Emeritus Professor Mick Marchington, who passed away while we were completing this edition. Mick was a leading international scholar of HRM and employment relations, an influential contributor to university education and an academic who was highly engaged with the HR profession. Among many things, we are grateful for his support of our work through his co-editing of this book series. He is very much missed. As ever, on the home front, we express our heartfelt thanks to Marijanne and Kate for their unfailing interest in our work and well-being. Peter Boxall and John Purcell The authors and publishers are grateful to Professor Michael Beer for permission to reproduce the following copyright material: Figure 3.1 The Harvard ‘Map of the HRM Territory’. Introduction Strategy and Human Resource Management is a book that aims to integrate two vital fields in organizational studies: strategic management and human resource management (HRM). The need to connect these two domains was our motivation for writing the first edition of this book and remains our goal in this fifth edition. Both bodies of literature have their characteristic weaknesses. Too much of the literature in strategic management downplays the human issues that affect the performance and development of firms while too much of the literature in HRM is preoccupied with individual HR practices, failing to relate them to other aspects of the organization and to the problems it faces in its strategic context. This book, then, seeks to explain the theory and practice of strategic HRM. This means understanding what HR strategy is, how it sits within the overall strategy of an organization and impacts on its chances of success, and how it varies across important organizational, industry and societal contexts. In so doing, we are also intimately concerned with how HR strategies affect the well-being of workers and of society in general. Strategic HRM is a multi-stakeholder activity with widespread consequences. Managers of organizations are interested in it, but so too are the workers on whose human resources they depend and the members of the broader society in which these human talents are developed. As before, academics and readers should be aware that this book is an advanced, not an introductory, textbook on HRM. It is written to be used in university courses in strategic HRM at third- and fourth-year level and in Master’s programmes. Those who have not studied HRM before should make sure they begin with Chapter 1, which sets out the key characteristics of the subject. As the table of contents indicates, the book is organized to help readers perceive the general principles of strategic HRM and then explore the ways 2 Strategy and Human Resource Management in which HR strategies vary across specific contexts. This is its fundamental design principle. Each chapter poses an important set of questions or identifies an important set of issues and then explains the theory and research that is relevant to addressing them, accompanied by appropriate illustrations. We aim to keep the text uncluttered and limit the book to a reasonable length. For pedagogical purposes, however, the book has a companion website, in which we provide learning-support materials for every chapter, including lecture slides, case studies and assignment/exam questions. For this edition, we have carefully reviewed the theories we draw on and have paid close attention to how well we define, explain and integrate them. Throughout the book, we have also updated the studies we cite while removing some that are no longer needed. Revising for a new edition is always a selective process and it is important to emphasize that we have two goals in mind when we do this. The first is to retain the classic or leading sources that are fundamental to understanding the subject or that remain compelling examples of research. This means that readers will continue to see certain works that go back several decades in the history of the subject, and occasionally a century or more, because they continue to be intellectually influential or ‘best in their class’. We make no apology for this: let’s not pretend that every good idea was only recently conceived. The second goal is to bring in important new theory, or refinements of earlier theory, and to make use of the best of the new studies of strategies in the world of work and people. There are, of course, critical changes in our current environment and we need to recognize them and, where appropriate, link them to what has been observed before. All chapters have been revised based on these two goals. There has also been some adjustment in the sub-sections of some chapters. Readers will notice that we have revised the content of Chapter 6 somewhat more than other chapters, and that this chapter has been retitled accordingly. Without further ado, here is the new edition … peter boxall john purcell Part I Foundations 4 1 Human resource management: What and why? What is human resource management (HRM) and why is it a pervasive activity in organizations? What are managers trying to achieve through engaging in HRM and what kinds of challenges does it pose for them? The aim of this chapter is to address these basic, but critical, questions. We begin by defining the fundamental characteristics of HRM, emphasizing the fact that organizations are dependent on the human resources that belong to people. Without ongoing access to people with the kind of talents they need, organizations are simply not viable. We then consider in greater depth the principal goals, or underpinning motives, that characterize management’s behaviour in HRM. We examine the reasons why achieving these goals is difficult and why some firms fail at it or have highly variable outcomes. Understanding the importance of these goals, and the tensions and trade- offs associated with them, helps us to appreciate the ways in which HRM makes a strategic impact on organizational performance. Finally, we provide some guidance on how to discern a firm’s HR strategy, which is the concept we use to describe the critical choices that managers make in HRM. This chapter will introduce a range of concepts that will be developed further throughout the book. Fundamental characteristics of HRM What are human resources? As the term suggests, HRM is a management activity concerned with ‘human resources’ but what do we mean when we link the words ‘human’ and ‘resources’? In this book, we define human resources as the characteristics 6 Strategy and Human Resource Management that are intrinsic to human beings, which people can apply to the various tasks and challenges of their lives (Boxall 2013, 2014). Most obviously, human resources include the knowledge, skills and energies that we can use in our daily roles or what Karl Marx (1990) called our ‘labour- power’ or ‘capacity for labour’. Less obviously, human resources include our underpinning or dynamic characteristics, including our physical and emotional health, our intellectual capabilities and our personalities and motivations. We can, in fact, think of these human characteristics as a set of human assets and liabilities. We have strengths (assets) that we can build on throughout life, using them to create social and economic opportunities for ourselves. But we also have weaknesses (liabilities) that can influence our options and affect the way other people, including recruiters, managers and colleagues, perceive us. This definition means that it is wrong to call people themselves ‘human resources’, a mistake made in a variety of textbooks and dictionaries. People are not human resources. On the contrary, people are independent agents who possess human resources, which are the talents they can deploy and develop at work and which they take with them when they leave an organization. Whatever our particular blend of strengths and weaknesses, we each have an underlying potential that can be more or less realized in our life. This principle was emphasized by Abraham Maslow (1970) in his classic analysis of human needs, in which ‘self-actualization’ was positioned as the ultimate goal. We can apply our human resources to an ongoing process of personal development or we may underuse our talents and fail to reach our potential. The latter syndrome was often noted in school reports in less politically correct days when a teacher made a comment about a child, such as ‘Has ability but won’t use it’. That child may, of course, have been switched off by the school system, or by this teacher in particular, but have found various ways to explore their talents outside of school and when they left it for good. Over the course of our adult lives, we face a lot of choices around how to use our talents. What form of higher education should we take, if any? How far should we go with it? When is a good time to get work experience? Are our particular abilities better fitted to this job opportunity or to another? Which organization offers us the best scope for personal development? Would contracting to a variety of organizations, or starting our own business, be a better use of our talents? Individuals, as Inkson (2008) argues, face a challenge of self- management. They need to make choices about how to deploy and develop their human resources. And the issue is not solely about how to deploy HRM: What and Why? 7 talents at work. People have interests in out-of-work activities, including friendships and family relationships, and various kinds of activity in their community. How well these concerns are balanced with paid work and with personal career advancement (‘work–life balance’) is a very major issue in our time. Overuse of our talents in work, and under-investment in our relationships, can lead to late-life regret, a phenomenon encapsulated in that infamous deathbed confession: ‘I wish I hadn’t spent so much time at the office’. Nowadays, of course, information and communication technologies, including computers and mobile phones, enable many of us to keep working wherever we are. The styles we adopt to make these choices are very variable. Some individuals are driven by the expectations of others, including parents and friends, at least to begin with, before they accumulate greater understanding of their own likes and dislikes. Some develop a highly specific set of goals for their working lives, including answers to questions like ‘Where do I want to be in five or ten years’ time?’ Many of us do not plan these choices in any formal way, but we learn from our experience as it accumulates. We ‘go with the flow’, taking an initial step in one direction and then taking up interesting opportunities that come across our path. The key point, however, is that human resources belong to us as individuals and move around with us as our lives unfold. In any society in which slavery has been eliminated, people possess their own human resources and have rights over how they are used. What is human resource management? What, then, does management want with human resources? In a nutshell, organizations are dependent on people who have the kind of human resources that will make them successful in their environment. It is only people, working with physical, symbolic and financial resources, who can create a viable business. Managers need to gain access to the human capital, or stock of human talents, that is relevant to the organization’s survival because organizations cannot develop products or services for a market and deliver them reliably unless they recruit and retain the people who have the knowledge, skills and inclination to do so. Furthermore, there is no hope of renewing the business, when it needs to change, unless it has access to individuals with the kind of insight and leadership abilities to make this happen (Boxall and Steeneveld 1999, Teece 2011). 8 Strategy and Human Resource Management But HRM is not simply about engaging the services of talented individuals. Working with the individuals they have recruited, managers are concerned with developing the organization’s social capital and fostering the overall performance that it needs. They are involved in creating a network of relationships among these people that combines their talents into the collective outcomes on which the business depends (Nahapiet and Ghoshal 1998, Leana and van Buren 1999).This challenge starts with the entrepreneur or with the ‘intrapreneurial’ team at the point of founding a business. HRM is an inevitable process that accompanies their efforts in combining a group of individuals into a functioning organization. It is an essential element in entrepreneurial activity and a driver of organizational growth. The idea that we might need to justify the process of HRM in organizations is, thus, rather absurd. We may well wish to analyse the quality of a firm’s approach to HRM and make changes but we inevitably come back to some kind of ‘human resourcing’ process (Watson 2005). Long-standing firms may go through periods in which they need to lay people off – possibly very large numbers of people – to improve their cost structure, but hardly any business will survive unless it is employing at least some suitably talented people on a regular basis. If everyone is laid off and their final entitlements are paid to them, the process of HRM will cease, but so will the firm.1 In order to build the human and social capital the organization needs, managers adopt policies and practices for organizing work and employing people. These policies and practices are the basic materials, or instruments, of HRM. Work policies and practices relate to the structure of work, which can range from low-discretion jobs where individuals have very limited control over what they do through to highly autonomous jobs where individuals largely supervise themselves. They include processes for building teams, where teamwork is considered important, and any associated opportunities to engage in problem-solving and the management of change (e.g. through team meetings before shifts or task forces across departments). Employment policies and practices, on the other hand, are concerned with how managers try to hire and manage the people they need to do the organization’s work. They include management activities in recruiting, selecting, deploying, motivating, appraising, training, developing and retaining individual employees. In addition, they include processes for informing, consulting and negotiating with individuals and groups, such as trade unions and works 1 Except in the case of ‘shell companies’, which are defunct but may be revived when someone acquires the rights to the name and decides to use them. HRM: What and Why? 9 councils, and activities associated with disciplining employees, terminating their contracts and downsizing entire workforces. Given this wide remit, it should be obvious that HRM is never the exclusive property of HR specialists. All firms have ‘workforce strategies’ (Huselid, Becker and Beatty 2005), whether or not they have a specialist HR department or function. Line managers – those who directly supervise employees engaged in the activities of the firm – are intimately involved in HRM, hiring people in their team when others resign and are almost always held directly accountable for the performance of that team. In larger organizations, there may be permanent in-house HR specialists contributing specialist skills in such technical aspects of HRM as the design of recruitment and training processes, the maintenance of remuneration and benefit systems, the management of individual problems and grievances, and the conduct of collective employment negotiations. There may also be specialist HR consultants contracted to provide such important services as executive search and team building. All HR specialists, however, are engaged in ‘selling’ their services to other managers, in working together with other members of the management team to achieve the overall results. While at times they may be required to ensure compliance with employment laws, HR specialists are primarily people who use their knowledge and skills to support the line managers who directly manage the workforce (Legge 1978, O’Brien and Linehan 2014). In this book, the acronym ‘HRM’ is therefore 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. Goals, tensions and trade-offs in HRM HRM, then, is the process through which management builds the workforce – both building it up and scaling it down, when deemed necessary – and tries to create the human performances that the organization needs. To improve our understanding of what’s at stake in HRM, it helps to ask a deeper set of questions about the goals that underpin the process. What sorts of goals characterize the behaviour of managers as they undertake the complex and varied activities that make up HRM? What, ultimately, do they want to achieve? What would they regard as a good performance? And how difficult is it? What obstacles stand in the way? 10 Strategy and Human Resource Management These are not necessarily easy questions to address. In asking about management’s goals for HRM, we face the problem that these goals are often implicit or left unsaid (Purcell and Ahlstrand 1994, Gratton et al. 1999b). Research shows that it is the larger firms that are more likely to develop some formal or explicit goals for their HRM (Van Wanrooy et al. 2013: 54–5). Even when they do, we need to be careful in taking them at face value. In HRM, such documents can contain aspirational statements about the treatment of people that shroud a more opportunistic or pragmatic reality (Marchington and Grugulis 2000, Legge 2005). Statements of values and broad policies are always open to the interpretations of managers and sometimes their active subversion, as we will explore further in this book. To understand management’s purposes, it is better to look at patterns of managerial behaviour in HRM, which tend to be laid down or ‘sedimented’ at critical moments in an organization’s history (Poole 1986). Goals may not be seriously questioned unless some kind of crisis emerges in the firm’s growth or performance that forces reconsideration and restructuring (Snape, Redman and Wilkinson 1993, Colling 1995). Our task, then, is better understood as trying to infer the general intentions or motives underpinning HRM, recognizing that we are studying a complex, collective process that is built up historically and is inevitably subject to a degree of interpretation, politicking and inconsistent practice. It helps if we start by dividing the goals of HRM into two broad categories: the economic and the socio-political (Boxall 2007). The economic goals are about the way in which HRM contributes to the financial performance of the firm while the socio-political goals relate to the role of HRM in the internal and external social context of the firm and to the political strategies of management in this terrain. The economic goals of HRM Cost-effective labour HRM is always located in an economic context. The primary problem facing managers is how to secure the economic viability of their firm in the markets in which it competes. Economic viability means that a firm generates a return on investment that its shareholders consider acceptable or that meets the obligations it has to its bankers and other lenders (Cyert and March 1956, Kaysen 1960, Williamson 1964). Shareholders and other finance providers form part of the political coalition of stakeholders that HRM: What and Why? 11 sustains a firm (March 1962, Cyert and March 1963: 42–3). Management needs to ensure it meets their demands for a worthwhile return from the risk they are taking. The consequences of failing to generate an acceptable profit are that managers may be sacked, firms may be sold off or they may be broken up and reabsorbed into other parts of a larger organization. The profit motivation is fundamental to understanding how the firm works, including how managers choose their level of investment in HRM (Kaufman and Miller 2011). For the HRM process to contribute to economic viability, managers need to ensure that the firm has access to the people it needs and that they can be employed in a way that is affordable. In other words, management needs to establish a cost-effective system for managing the workforce the business requires (Geare 1977, Osterman 1987, Godard 2001). Cost-effectiveness is a dual concept. It incorporates the idea that a firm needs people who are effective, who are skilled at what the firm wants them to do, while also motivating them to perform at a cost (wages, benefits, training, etc.) that the firm can afford to pay. A viable approach to HRM is one that delivers on the grounds of both effectiveness and cost. The shape of a viable strategy for HRM, however, varies significantly across the kind of industries and markets in which the firm competes. For example, in the discount retail sector, where standard, low-priced goods are sold in bulk, consumers often shop around for the lowest prices, competition among firms is often intense and even minor cost differences can threaten a firm’s viability (Jany-Catrice, Gadrey and Pernod 2005). In such circumstances, stores have some long-term managers and experienced employees to provide a reliable ‘backbone’ to operations but otherwise do enough in HRM to attract less experienced workers, such as part-time student workers and new migrants, who are paid the kind of wage that is adequate in the retail sector (Siebert and Zubanov 2009). This is typically at, or not much above, the legal minimum wage (Osterman 2001). Managers do not expect most of these workers to stay for the long term but provide a basic setting in which they can gain some working experience and move on. Their strategy typically turns on providing sufficient, rather than superior, service standards because customers are more price- than quality- sensitive. As a result, expensive models of HRM, which incorporate more rigorous employee selection, higher pay and extensive internal employee development, are unusual in this industry (Boxall 2003). On the other hand, as Godard and Delaney (2000: 488) explain, high-skill, high-commitment HR strategies are more often found in industries where 12 Strategy and Human Resource Management the production system is capital-intensive or where advanced technology is involved. In capital-intensive conditions, the actual level of labour cost will be quite low (often 10 per cent or less of total cost), but workers will have a major effect on how well the expensive technology is utilized (Blauner 1964). It thus pays to remunerate and train them very well, making better use of their skills and ensuring their motivation is kept high. As they find ways of making the equipment meet or even exceed its specifications, the unit costs of labour fall and productivity rises. Thus, in this kind of context, the firm can easily sustain high wage levels. It is more important not to alienate this kind of workforce – because of the productivity impacts of disruptions to production – than it is to worry about wage levels (Blauner 1964: 136, 180). In summary, the fundamental economic motive that can be observed in HRM is concerned with making the firm’s human capabilities productive at an affordable cost in the market concerned. In effect, managers ask: what HR systems are cost-effective or ‘profit-rational’ in our specific context? In capitalist societies, the pursuit of cost-effectiveness runs across the management of people in all business organizations and also makes its impact in public sector organizations through their budget constraints and contracting requirements. Cost-effectiveness is a core consideration in the way managers go about HRM. Organizational flexibility Cost-effectiveness is not, however, the only economic motive we can observe in HRM. While cost-effective labour is essential to economic viability in any context, change is inevitable and so an element of flexibility is also an issue for managers. Managers have an incentive to adopt some HR practices that will enhance organizational flexibility or the capacity of the firm to change as its environment changes (Osterman 1987, Streeck 1987). In thinking about the goals that managers pursue in the area of organizational flexibility, it is useful to distinguish between short-run responsiveness and long-run agility. The former includes managerial attempts to bring about greater numerical flexibility, that is, policies which make it easier to hire and shed labour (Atkinson 1984). Thus, when firms are engaged in cyclical activities, managers may seek to relate their permanent staff numbers to their calculation of the troughs in business demand rather than the relatively unpredictable peaks, seeking to offer overtime and bring in temporary or ‘seasonal’ staff if, and when, the workload surges. In some HRM: What and Why? 13 industries and countries, the drive to achieve numerical flexibility includes ‘zero-hours contracts’, which do not guarantee the worker any set number or regular schedule of working hours. This obviously provides a very high level of flexibility for employers by transferring the risk of fluctuation in the level of work demand onto the employee, something which raises concerns about abuse of workers (e.g. Farina, Green and McVicar 2020). Questions centre on whether such contracts are really justified by the nature of the work (does it, in fact, have some degree of regularity that could provide a more secure basis for the employee?) and on those employers who not only offer no guarantee of working hours but, staggeringly, also want workers to work exclusively for them. Short-run flexibility also involves financial flexibility or attempts to bring greater flexibility into the price of labour (Atkinson 1984). Managers, for example, may seek to pay workers a mix of wages and profit-related bonuses, with the latter fluctuating in line with the company’s financial fortunes. Short-run responsiveness also includes attempts to hire workers who are cross-trained or ‘multiskilled’, combining roles that have historically been kept in separate job descriptions. Such ‘functional flexibility’ (Atkinson 1984) helps the firm to maintain a lower headcount but cope better with marginal improvements in product/service design or production processes. Long-run agility, on the other hand, is concerned with the question of whether a firm can show the ability to survive in an environment that can change radically (Dyer and Shafer 1999). Does the firm have the capacity to create, or at least cope with, long-run changes in products, costs and technologies? Can it adapt to change as fast as, or faster than, its major rivals? What elements of its HR strategy might need to be flexible to achieve this? Can the firm become ‘ambidextrous’ through developing the kind of HR strategy that will enable it to efficiently exploit its current products or services while simultaneously exploring the creation of new ones (e.g. Garaus et al. 2016)? Can its leaders effectively embrace such paradoxical elements in business strategy (Smith, Binns and Tushman 2010)? While business leaders may aspire to long-run agility or ambidexterity, organizational ecologists such as Carroll and Hannan (1995) observe that it is very hard to achieve because core features of organizations are hard to change once laid down in the early stages of establishment and growth. An ongoing challenge to the agility of firms stems from the major cost differences between companies with operations in the developed world and those with operations in newly industrializing nations. When companies in lower-cost countries find ways of providing the same products or services at the same quality and delivery 14 Strategy and Human Resource Management benchmarks but do so at much lower prices, established firms operating in high-cost countries either adjust their HR strategies or go out of business. Human resource advantage The achievement of economic viability, in the current context and as it changes, is clearly a baseline priority for management. However, firms that survive are engaged in an ongoing process of trying to build and defend competitive advantages, which can enhance their profitability (Porter 1980, Hunt 2000). Such advantages may be temporary or more sustained. The advantage of switching production to a low-cost country, for example, is likely to be short-lived as other firms follow suit. The international clothing industry, for instance, depends heavily on production in low-cost countries and firms that want to survive simply have to keep up with this reality and learn to marry it to the capacity to respond quickly to market trends (e.g. Tokatli 2008). Those that want to compete at the high-fashion end of the market, however, look to build a more sustained form of advantage in the design of their clothes and the associated branding of them. Human resource advantage can be broken down into two dimensions (Boxall 1996, 1998). The first of these is ‘human capital advantage’, which a firm enjoys when it employs more talented individuals than its rivals. A human capital advantage rests on the outstanding performances of individuals employed in the firm, as in the work of world-renowned designers in the fashion industry. Or, changing our industry example, it could rest on the problem-solving talents of the best programmers in software firms. The second dimension of HRA is ‘organizational process’ or ‘social capital advantage’, which occurs in those firms that have developed superior ways of combining the talents of individuals in collaborative activities. It is possible to hire brilliant individuals, and this can bring important breakthroughs for a company, but fail to make best use of their potential as a result of poor organizational processes in teamwork and cross-functional coordination. Thus, more powerful forms of human resource advantage occur when both the human and social capital of an organization are superior to those of its rivals. We will analyse and explore the possibility of human resource advantage further in this book. A key argument we will pick up is that the nature and extent of investment in HRM varies from ‘elite’ to more ‘egalitarian’ models. In low-skill services, for example, firms typically reserve their greatest investments for their management, marketing and supply-chain experts HRM: What and Why? 15 (i.e. their elite) and employ their operating workforce on much less attractive conditions (Boxall 2003). The goal of building human resource advantage in a more extensive way throughout an entire workforce is more likely in high- skill or professional services where firms invest very carefully in the initial recruitment process and in individual employee development in order to ensure that their staff can deliver high-quality, and highly priced, services to their clients. In summary, the purposes of management in HRM must be understood as fundamentally economic. The need to forge an approach to managing people that will support the firm’s economic viability is a critical driver of managerial behaviour. This rests on achieving a cost-effective approach to managing people and some degree of flexibility in how people are employed over time. As the competitive struggle unfolds, however, managers often consider how HRM can support or develop competitive advantage, either through management of an elite core of employees or, in certain conditions, more generally across the workforce. The socio-political goals of HRM Social legitimacy While economic motives are fundamental in HRM, they do not fully account for the strategic behaviour of managers. This is because firms are not unrestricted economic actors. Rather, they operate in societies, in which there are laws that aim to control how managers employ people and in which there are customs, or widely shared expectations, for how people should be treated in workplaces. This was graphically illustrated, for example, in the Global Financial Crisis of 2008–9 when some American and British managers, among others, were kidnapped – or ‘bossnapped’ – in French companies and forced to renegotiate deals involving major redundancies (Parsons 2012). French workers sent the message that Anglo- American assumptions about hiring and firing labour would not be treated so charitably in France. These events were viewed with incomprehension in the United States, where labour contracts are more easily terminated, often requiring no advanced notice or compensation. The need for managers to adapt to the social environment in which their firms are operating is strongly underlined by sociologists who bring an ‘institutional perspective’ to the analysis of organizations, examining the ways in which they are influenced by a range of forces in wider society (DiMaggio 16 Strategy and Human Resource Management and Powell 1983, 1991, Paauwe and Farndale 2017). In a major review of this perspective, Scott (2014: 59–71) defines ‘three pillars of institutions’: the ‘regulative’, the ‘normative’ and the ‘cultural-cognitive’. Regulative pressures, which include different codes of employment law, are the most obvious. Organizations can be coerced to comply with legal rules if the state deems this necessary and has the power to do so. Normative or moral pressures are also fairly apparent, evidenced in the way that managers come under pressure to conform to prevailing social values and norms around how to treat people in the workplace. For example, in the Anglophone world, the last fifty years have seen a growing movement to foster equal employment opportunity and to eliminate discrimination on such grounds as gender, race, sexual orientation and physical disability, and the largest companies increasingly invest in practices that foster diversity and social inclusion (Kossek and Pichler 2007). Few companies that are large enough to be ‘household names’ are untouched by this important social trend. To be sure, a lot of this expectation is now embedded in regulation, but much of it is conveyed through norms of behaviour that were less prevalent in earlier times. Finally, there are cultural-cognitive pressures, which include the ways in which people customarily think and behave in a society. Hofstede’s (1980, 1983) pioneering work on national culture has emphasized the ways in which people in some societies are more individualistic than they are in others, more comfortable with status and power differences, more prone to avoid uncertainty and so on. These are more subtle, deep-seated pressures that affect how HRM is conducted. The key implication is that prevailing notions of legitimate or appropriate behaviour in how people are employed affect the standing of organizations (Suchman 1995, Scott 2014). This is certainly true in societies where labour laws are not simply enacted but also effectively enforced through government agencies and/or trade union action. As Lees (1997) argues, it is therefore important that social legitimacy is recognized as an employer goal in HRM alongside the more market-oriented ones. Not only are there legitimacy issues for firms operating in one society but there are extremely complex legitimacy issues when firms operate in multiple societies (Kostova and Zaheer 1999). In general, then, employers are concerned with ensuring their social legitimacy while simultaneously pursuing their goals for economic performance (Boxall 2007). More broadly, of course, the quality of the firm’s reputation as an employer is only one aspect of its social legitimacy, which also includes such things as its impacts on the natural environment (e.g. Kramar 2014). HRM: What and Why? 17 In practice, we see significant variation in the extent to which employers take legitimacy into account in their management of people. At one extreme, there is a group of employers in any society who try to avoid their legal responsibilities. There are sectors of the British economy, for example, such as the restaurant industry, where a significant number of employers do not pay the minimum wage (Edwards and Ram 2006). The majority of employers, however, comply with their responsibilities under employment law and under government regulations for occupational safety and health. Their legitimacy goal is legal compliance. 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. It is apparent, however, that some firms, at least, operate beyond this baseline. For example, some firms actively compete for favourable rankings in lists of the best companies to work for (Ferris et al. 2007). These tend to be larger, better-known firms, but some are also innovative small firms with a strong interest in building their reputation as an ‘employer of choice’. Management power As with economic motives, where we see both attempts to stabilize cost- effectiveness in the short run and the need to build flexibility and competitive advantage if firms are to survive into the long run, it is important to think about management’s socio-political motives in a dynamic way. All firms can be seen as political systems in which management holds legitimate authority but one in which management decisions are nonetheless subject to legal and moral challenges (Donaldson and Preston 1995). What is management trying to achieve in the politics of the workplace as time goes by? The evidence suggests that management exhibits a fundamental desire to enhance its power as a stakeholder, a tendency that can have both positive and perverse consequences for the organization. Gospel (1973) refers to management as having a less openly acknowledged ‘security objective’ alongside the profit (cost-effectiveness) motive, a goal to maximize managerial control over an uncertain environment including threats to its power base from work groups and trade unions. We can see this in the way the managers of multinational firms tend to favour investment in countries with less demanding labour market regulations (Cooke 2001, 2007b). We can also see it at industry and societal levels, in the tendency of employer federations to lobby, over time, for greater freedom to manage and 18 Strategy and Human Resource Management to resist new employment regulations seen to be diminishing managerial prerogative. Power, of course, has negative connotations, but we should not rush to such a judgement. An appropriate level of management power is positive. It is needed so that management can coordinate the interests of the diverse stakeholders on whom the organization depends, an assumption of good governance that has long been recognized (Blau 1964, chapter 8). Most people would acknowledge that there is a natural tendency in positions of authority, or in conditions of risk, to try to ensure that one can act effectively. It is unhelpful to firms if managers are hopelessly checked at every point when they need to make important decisions for the sake of the organization. Like other organizational actors, managers need some degrees of freedom, or the job is impossible (Haugaard and Clegg 2009, Gohler 2009). However, there is always the potential for power-seeking behaviour to become perverse, bringing about consequences that are counterproductive for organizational and societal well-being. Economists studying managerial behaviour inside the firm have long emphasized the fact that the interests of shareholders and managers do not perfectly coincide. Williamson (1964), for example, argues that while managers need to generate an acceptable level of profit, their motives also include enlarging their salaries, enhancing their security, and increasing their status, power and prestige. In agency theory, managers are seen as agents whose interests overlap with, but also diverge from, those of the firm’s principals or owners (Jensen and Meckling 1976). Managers, like other stakeholders in organizations, can use their power to pursue their own interests, including their personal rewards. Evidence for this perspective is not hard to find. The Global Financial Crisis of 2008–9, for example, gave rise to widespread criticism of the way in which banking executives profited enormously from annual bonus payouts based on short- term performance targets while the long-term health of their organizations was undermined, or fatally compromised, by ill-informed and excessive risk-taking (Stiglitz 2010). Although the worst excesses were in banking, the executive bonus culture has actually been more widespread. We are living in an era when many CEOs and senior managers are employed on ‘super- salaries’, in which performance-based elements create multimillion pay packets, a trend which continues to fuel concern about the impacts of rising inequality in countries such as the United States, the UK and Australia (e.g. Peetz 2015, CIPD 2019). Thus, while management is generally concerned about social legitimacy, at least to the extent of legal compliance in societies where there is a risk HRM: What and Why? 19 of legal enforcement, and sometimes well beyond this, we also observe management, as a stakeholder, playing a longer-run political game. The tendency of management is to act, over time, to enhance its power base, something which can have both positive and negative consequences for organizations, for workers and for society at large. Tensions and trade-offs in HRM We have identified, then, some fundamental or strategic goals underpinning management’s activities in HRM (Figure 1.1). These have been split into economic and socio-political motives because the firm is not simply an unconstrained economic actor; it is an economic entity located in a social context. Firms need a cost-effective approach to HRM in the markets in which they compete, while also needing legitimacy in the societies in which they are located. If managers fail on these two criteria, the firm will generally not survive. Over time, they need to develop some degree of flexibility in their HRM and need to secure enough power to be effective. Managers in firms that survive are concerned with how to build and defend competitive advantages. This implies some thinking about ‘human resource advantage’, not necessarily for the entire workforce but at least for elite elements in it. Such a discussion naturally arouses the suspicion that the pursuit of these goals is not straightforward. This is indeed the case. The strategic management of work and people in the firm inevitably involves management wrestling with tensions among goals (Evans and Genadry 1999). Sometimes it is possible to manage these tensions without damaging the interests of stakeholders but Figure 1.1 The strategic goals of HRM. 20 Strategy and Human Resource Management experience teaches us that tensions often lead to trade-offs (Peccei and van de Voorde 2019b). As a fundamental principle, it is important to recognize that firms and workers have interests or concerns that are partly overlapping (i.e. valued in common) and partly conflicting. This is what is known as a ‘pluralist’ rather than a ‘unitarist’ assumption in the theory of employment relations (e.g. Fox 1966, Ackers 2019). Some processes, such as the ongoing growth of an organization’s revenue, accompanied by increases in employment and promotion opportunities, will typically foster greater cooperation between firms and workers because both parties see their interests being served. On the other hand, processes such as downsizing or negotiations over a reduced salary budget inevitably bring conflict and require the management of difficult trade-offs between the interests of the firm and those of its employees. In a trade-off, there is an allocation of the benefits and costs of the exchange that favours one party more than another. This includes situations of relative trade-off: for example, where one party feels that they bear more of the costs and fewer of the benefits than the other party, as in the case of a worker who feels they are contributing much more to the organization than they are receiving in return or in the case of an employer who feels that they have been heavily investing in an individual without seeing an improvement in their performance (Boxall 2013). It also includes situations of absolute trade- off where the interests of one party are sacrificed to enable the survival, or enhance the outcomes, of the other, as in the case where workers are made redundant to help an organization remain financially viable. We turn now to a discussion of these tensions and trade-offs. Labour market competitiveness The most fundamental tension associated with HRM stems from the fact that firms need to compete in labour markets for the workforce they need (Windolf 1986, Rubery 1994). Managers cannot dictate who will work for them but must compete with others to attract and retain appropriately skilled staff. In all countries where forced or slave labour has been eliminated, workers are free to resign and seek alternative employment. The general severity of labour-supply problems waxes and wanes with the level of economic activity (Kaufman and Miller 2011). Organizations are often inundated with job applicants and have less difficulty recruiting in major recessions when unemployment levels are high, a situation that persisted in much of southern Europe for long after the Global Financial Crisis of 2008–9 and that has affected many parts of the world as a result of the HRM: What and Why? 21 Covid-19 pandemic of 2020–2. However, the challenge of recruiting the quality of labour they need tends to remain an issue, as has been emphasized for several years in the literature on the ‘global war for talent’ (Lanvin and Evans 2013). Firms that seek to build high levels of performance through major investments in their key employees have a strong interest in finding ways to protect them from rivals that wish to recruit them away (Delery and Roumpi 2017). There are, in fact, winners and losers in the labour market at firm, industry and societal levels. At the firm level, the labour market tends to be dominated by large, well-recognized and well-resourced organizations, which can pay higher salaries and offer individuals greater avenues for career development. Small firms often struggle to compete with such firms and can remain fragile, tenuous organizations because of it (Storey 1985, Hendry, Arthur and Jones 1995). But labour scarcity can afflict entire industries, in which working conditions are seen as less attractive. In the British trucking industry, for example, there have often been major shortages of drivers because of unattractive conditions: drivers have responsibility for valuable vehicles and dangerous loads, work long hours in stressful driving situations and are often away from home (Marchington, Carroll and Boxall 2003). Many people who hold driving qualifications do not use them, preferring to work in an occupation that will give them a regular life in a settled location. In some industries, problems of labour scarcity are global in their implications. In the health sector, for example, competition for workers is straining the resources of public and private health systems all over the world. As recruiters in rich countries comb the globe for scarce labour, this creates problems for poorer countries. Health services in third-world countries can be denuded of expensively trained health professionals by first-world ‘poaching’ (World Health Organization 2006: 103). Similarly, small countries can find that capable managers are constantly being recruited to more challenging and better paid jobs in larger countries where the big companies offer extensive career opportunities (Gilbert and Boxall 2009). Labour scarcity or competition for qualified workers is therefore a multilayered problem in HRM; it can cause severe problems at organizational, industry and societal levels. Employee control and cooperation second major tension is associated with the motivation of employee A behaviour if and when workers are actually hired. The employment contract is an exchange relationship but, unlike the sale and purchase of commodities, 22 Strategy and Human Resource Management it involves an ongoing, unpredictable interaction between the parties. As the pioneering industrial relations writers Sidney Webb and Beatrice Webb (1902: 658) put it, the labour contract is ‘indeterminate’ or, as Cartier (1994: 182) puts it, ‘the contract of employment is inherently incomplete’. The worker may have the skills needed for the job but do they have the motivation to perform it well? Will they show the kind of effort in their work, and commitment to the firm, that makes it less stressful to manage? As a result, the law of employment gives employers the right to issue what are commonly known as ‘lawful and reasonable orders’, but herein lies the rub. The simple fact is that employer control of the behaviour of other human beings is always limited and ‘management is reliant on employee cooperation’ (Keenoy 1992: 95). While it is true that employers typically have greater economic power and may use it to impose terms on workers (Webb and Webb 1902), we should not imagine that employees are passive or lack power resources, even in low- wage, low-skill conditions. All employees have some power over their own actions, and those with know-how that is critical to production, and who are not easily replaced, have greater power. For example, in Edwards and Ram’s (2006: 909) study of a selection of Indian restaurants in Britain, chefs were ‘in relatively short supply and the quality of their cooking was critical to the success of the restaurant’. This meant that they were granted greater autonomy in how they ran the kitchen and could sometimes get extended leave to visit their family in India, a concession rarely available to waiters. Workers also gain greater power when they are prepared to act in concert, as is demonstrated in those strikes that shut down operations and impose major costs on firms, not only in terms of lost profits but also in terms of disillusionment among customers, suppliers and shareholders, leading to the possibility of their defection. It pays, therefore, to think of employment relationships in terms of a ‘bargaining model’: the parties are ‘mutually dependent’ and each has some room to negotiate or bargain with the other party over time (Edwards and Ram 2006: 897). There is a huge body of literature examining the relationships between employer and employee interests in the workplace and their implications for control and cooperation. We have already mentioned agency theory, which is central to a field that has become known as ‘personnel economics’ (e.g. Lazear 1999, Wass 2019). How to design pay incentives to align employer and employee interests in different circumstances is fundamental to this body of thought. Researchers in industrial or employment relations and the sociology of work also emphasize the fact that there are fundamental HRM: What and Why? 23 conflicts of interest in the workplace (e.g. Clegg 1975, Kelly 1998, Blyton and Turnbull 2004). An important perspective is ‘labour process’ theory (LPT), which analyses the tensions between employer strategies of control and worker strategies of resistance (Braverman 1974, Thompson and Harley 2007, Chillas and Baluch 2019). Conflicts over income (e.g. what share of revenue goes to profit and what to wages? what relativities should there be across occupational groups?) and over the control of work (e.g. who makes decisions about work processes? is the workload being intensified over time?) are seen to affect the basis for workplace cooperation. A range of trade-offs is inevitably involved in these choices. Many scholars emphasize the role of institutions for employee voice in improving the balance of interests. The general argument is that management should work with worker representatives in processes of collective bargaining, information sharing and consultation to enhance fairness and build a work climate characterized by trust and mutual respect. A willingness on management’s part to share control is seen as important in developing a stable ‘social order’ in which both the firm and its workers can work productively and reap the rewards they value (Watson 2005, 2007). Organizational psychologists also emphasize the impact of fairness or equity concerns on employee motivation, including employee concerns with the justice of their rewards and workplace decision-making processes (e.g. Folger and Cropanzano 1998). The process of building trust is seen to depend on the employer creating a track record of fairness in HR decisions. In terms of conceptual frameworks, the notion that individuals have a ‘psychological contract’ with their employer has become increasingly important (Rousseau 1995, Guest 2007, Rousseau, Hansen and Tomprou 2018). A major gap between what management promises and what management delivers inevitably affects an individual’s perception of their psychological contract and thus their level of trust and commitment. Furthermore, an overall sense of fairness and trust can develop across a work site or workforce, creating a collective or social climate that is more or less positive for cooperation (e.g. Grant 1999). When trust between management and workforce is at its lowest, a full-blown ‘control crisis’ can occur, characterized by forms of collective action (such as lowered work norms and severe strikes) and/or high levels of individual resistance (such as dysfunctional levels of absenteeism and employee turnover). Conflict on this level constitutes a strategic threat: it challenges management’s legitimacy, depresses productivity and, if left unchecked, can fatally undermine the firm’s viability. 24 Strategy and Human Resource Management Change tensions in labour management The reality of change also creates serious tensions. The need to establish a stable production system, while also pursuing some degree of organizational flexibility, poses major dilemmas within management strategy (Osterman 1987, Brown and Reich 1997, Adler, Goldoftas and Levine 1999). How much weight should management place on strengthening its production routines to make the firm more efficient and how much weight should be placed on building flexibility for the future (Wright and Snell 1998, Garaus et al. 2016)? To illustrate the difficult choices involved, suppose a firm developing a new line of business decides that it wants a high degree of flexibility. It faces a context in which unemployment levels are presently high. In this context, management decides to employ all operating staff in the new business on short-term or temporary employment contracts. This means the firm can shed labour or downsize more easily if it has to. A problem emerges, however, when the labour market improves: many of the more highly productive workers take the opportunity to move to more secure jobs elsewhere (why should they work on a short-term contract when they can obtain a permanent job, one that will help them gain home loans and make their families more secure?). In this labour market context, the firm finds that it fails to recruit and retain as well as its competitors or to reach their level of production quality. Too much emphasis on flexible employment starts to threaten its chances of survival. It will have to think again about how to employ people. Imagine another firm, which employs all its labour on well-paid, permanent contracts to build a loyal workforce. This works well for quite a time, but the firm’s sales are sensitive to consumer discretionary spending and they decline sharply when an economic recession comes along. The firm has products with excellent long-term prospects, but greater flexibility is needed in its staffing structure to ensure it can weather these sorts of short-term variations in demand. It feels forced to make some lay-offs, a process that tarnishes its ‘psychological contract’ with its employees, and spurs management to think about whether all staff should actually be on permanent contracts. As these illustrations make apparent, both of these scenarios represent undesirable extremes. Both firms need to consider how to strike a better balance between the short run and the long run. For example, in the Global Financial Crisis of 2008–9, many firms sought to avoid lay-offs by reducing HRM: What and Why? 25 the working week or encouraging employees to take leave on reduced pay in order to retain skills and employee goodwill (van Wanrooy et al. 2013). Further, as the scenarios make clear, the problem of how to cope with change not only creates dilemmas within management strategy but brings trade-offs with the security interests of workers. In Hyman’s (1987: 43) memorable phrase, capitalism is a system in which ‘employers require workers to be both dependable and disposable’. The most resilient firms are those that can evolve a clever balance between stability and flexibility while maintaining employee trust and confidence. This is much easier said than done. Tension between management power and social legitimacy As emphasized above, some level of social legitimacy typically matters to managers. Social legitimacy can be thought of as having an inward and an outward face: there needs to be an appropriate ‘social order’ within the firm, which then connects to the firm’s reputation in wider society. An important strategic tension lies in the fact that establishing an appropriate social order depends on management accepting some constraints on its power. Historically, this has not always come willingly from management, and actions by trade unions and the state have often been necessary to enforce it (Clegg 1994, Hannan 1995). In countries such as the UK, France and the United States, the growth of trade unions in the early to mid parts of the twentieth century saw the legitimacy challenge spill over from the shop floor onto the streets. These countries, and many others, experienced waves of strikes and social disruption until unions won recognition from employers and gained the right to collective bargaining to improve workplace safety, reduce workloads and lift wages. Collective bargaining enabled workers to ‘jointly regulate’ their employment conditions with management (Flanders 1970). Unions also turned to national political activity, lobbying political parties and, in many countries, forming their own. As a result, progressive social legislation – which brings organizing rights and minimum conditions to all workers – has largely eliminated this sort of challenge in advanced industrialized countries. There are exceptions, of course. Stubborn management resistance to employee influence is still apparent in a minority of firms (Freeman 2007), something which can require the intervention of labour courts or government mediation services. There is also the fact that there are large low-wage sectors in advanced countries, which are targeted 26 Strategy and Human Resource Management by unions and community coalitions in ‘living wage’ campaigns (Juravich and Hilgert 1999, Nissen 2000). The existence of low-wage environments still generates political concern throughout the rich countries (Appelbaum, Bernhardt and Murnane 2003). In addition, public attention is increasingly focused on the ethics of human resource management in global supply chains. In their search for production sites that offer lower costs and greater freedom to manage (Cooke 2001, 2007b), multinational companies can acquire a reputation for engaging labour on exploitative terms or in life-threatening conditions. The ethical issues associated with global sourcing were dramatically illustrated in 2013 when the Rana Plaza, an eight-storey building in Bangladesh containing clothing factories, collapsed. Over 1,000 garment workers died. Subcontractors producing apparel for various international clothing brands were housed in the building and the companies who own the brands have inevitably been linked to the disaster. In the aftermath, the responses of garment firms have varied (Schuessler, Frenkel and Wright 2019). Some fashion chains have offered compensation, some have signed up to new agreements on factory safety in Bangladesh and others have refused to do either. Improvement in factory standards is likely to occur, but it is not going to be easy to achieve. Western consumers are accustomed to buying cheap, good-quality clothes and do so at higher volumes than ever before, raising the question of how to shift both corporate and consumer behaviour. Key questions in global HRM, then, concern what level of rights should be universally available to workers and respected by companies, whether or not in their own operations or in their supply chains. The International Labour Organization (ILO), established in 1919 and incorporated into the United Nations in 1946, is the tripartite UN agency whose role is ‘to set labour standards, develop policies and devise programmes promoting decent work for all women and men’.2 Its Decent Work Agenda includes attempts to ensure that workers everywhere can freely join unions and engage in collective bargaining while also aiming to eliminate forced labour, child labour and discrimination in employment (Hughes 2005). These are critical issues for managers to consider. In principle, when management reaches employment agreements with workers and their 2 ilo.org/global/about-the-ilo/lang–en/index.htm, accessed 17 August 2020. HRM: What and Why? 27 organizations, and thus willingly constrains its own power in certain ways, the legitimacy of the employment regime in the firm is usually enhanced. Furthermore, when management in international companies openly embraces the ILO’s Decent Work Agenda, including fundamental labour rights, its legitimacy in both its home country and around the world is very likely to be improved. It is readily apparent, however, that there are many firms that try to ‘fly under the radar’, in which the tension between management power and social legitimacy is being resolved at a much lower level, including firms in which managers breach the minimum wage or create unsafe working conditions and seek to avoid providing channels for employee voice. Complexity and politics in management What we have said so far should indicate the kind of complexity that is involved in managing work and people. The fact that we can highlight the sorts of problems firms face in pursuing their HRM goals does not mean that it is easy to solve any of them. Complexity grows as organizations grow and as they become more diverse. Management faces ‘cognitive limitations’ in developing good strategy. But strategic management is not just mentally hard, it is politically fraught. Never mind the politics between management and labour; some of the worst battles are within the management ranks. Besides the personal power struggles that take place between ambitious managers in organizations, management can be split between disciplines and across levels of the hierarchy. Marketing and operations executives, for example, may clash over how best to provide customer service when there are pressures on company margins (Batt 2007). The desire of marketers to personalize customer service may be resisted by operations managers who are accountable for increasing efficiency, which often implies reducing costs through staff reductions and using technology to standardize how customers will be treated. In large firms, this will then affect the HR specialists because they will have to carry out the lay-offs that deliver the cost reductions. Batt (2004) also provides a vivid illustration of conflict within management across hierarchical levels. She describes how senior management in one company wished to introduce self-managing teams on the grounds that they would enhance productivity but supervisors and middle managers successfully resisted the initiative, which would radically change their roles. Implementation became impossible without their willing cooperation. Such an illustration reinforces the point that change in labour management can 28 Strategy and Human Resource Management be as much about politics and power within management as it is about economic rationality. Variations in institutional supports and societal resources Finally, supposing management understands the strategic problems of HRM well enough, is well resourced and is well disposed to handle them, we must recognize that firms are embedded in societies and are not completely in control of their HR strategies. Small firms are clearly very dependent on state support, which includes systems for vocational education and training in their sector, but firms of all sizes are affected by the dominant ways in which societies organize their human resource development. The UK, for example, may have a range of great universities, but in terms of the development of skills for manufacturing, all kinds of British firms – small, large and global – have been at a disadvantage for some time. German firms, by contrast, have enjoyed the benefits of the superior technical training systems associated with their society, which have long been regarded as superior to those developed in the Anglophone countries (Steedman and Wagner 1989, Wever 1995). As Winterton (2007: 327) explains, ‘the higher skill level of the German workforce is generally seen as a source of competitive advantage, permitting German firms to focus on higher value-added market niches’. On the other hand, he also explains that German firms do not have it all their own way; firms in the United States and the UK often find it easier to make the changes necessary to bring in more flexible ways of working. The slow pace of the German institutional structure, with its layers of industrial negotiation and consultation, can act as a severe constraint on plans that management may have to reduce costs or switch strategies quickly (e.g. Lange et al. 2015). Firms in the Anglophone world often take advantage of their more fluid decision-making structures and their more permissive framework of employment law. This helps to make the point that the societal context both constrains and enables firms to perform. In sum, then, firms are not masters of their own destiny in HRM even if managers perceive the issues well and want to act effectively. Firms are embedded in societies, which affect what managers take for granted in HRM and what they are able to achieve. We will be arguing that management does enjoy a realm of strategic choice to make distinctive decisions in HRM, but the extent of that realm varies: the choices are never entirely in management’s hands. HRM: What and Why? 29 Discerning and describing HR strategies This discussion of the strategic goals and tensions that managers face in HRM can now be rounded off with some guidance on how we might discern and describe the HR strategy of a particular firm. The concept of HR strategy was first developed by Dyer (1984) to describe an organization’s pattern of strategic choices in HRM. His paper was seminal in helping to construct the academic field of strategic HRM, which is concerned with understanding what HR strategy is, how it sits within the overall strategy of an organization, how it impacts on that organization’s chances of success, and how it varies across important organizational, industry and societal contexts. Drawing on his work, we define an organization’s HR strategy as the critical set of economic and socio-political choices that managers make in building and managing a workforce. Managers face strategic questions around how to attract a workforce with the appropriate capabilities at a cost that is affordable to the business and how to manage the people in it to achieve the firm’s goals and develop the business over time. This can include major periods of restructuring that reshape the size and skill profile of the workforce. Thus, HR strategy is concerned with critical choices associated with constructing and managing an entire workforce. It is not to be confused with a firm’s strategy for its specialist HR function, as Huselid, Becker and Beatty (2005) emphasize. It is better to think of HR-function strategy as something that supports the larger workforce or HR strategy. In organizations that have HR specialists, HR-function strategy covers the ways in which executives utilize their HR specialists to help them build and manage their workforce. How do we discern these strategic choices? Some are more evident than others. Major decisions around where to locate particular kinds of work can be revealing, showing which capabilities managers are seeking, where they are thought to be most effective, and what level of labour cost is seen as ‘profit rational’. In well-known firms, such choices around workforce capabilities, locations and costs are often discussed in the media and are easily observed, as in the siting of garment manufacturing plants in low-cost countries (e.g. Tokatli 2008). After that point, however, observation from outside the firm becomes more difficult and there are still critical dimensions of the HR strategy we wish to describe. To some extent, we can discern how managers 30 Strategy and Human Resource Management are handling the challenges of social legitimacy from whether their firm is known to recognize unions or support other forms of employee voice, but this does not tell us about how employees see the quality of the voice regime, including the extent to which they can influence the decisions that affect them. Viewing the socio-political dimensions of HRM from the outside has serious limitations because much of the relevant action takes place inside the ‘black box’ of the firm, where managers are engaged in creating the collective outcomes the business needs. The notion of the ‘black box’ covers the complex set of attitudes and behaviours inside a firm that make it productive. Managers are involved in shaping the kind of performance climate that they think the firm needs to reach its business goals. As Lepak et al. (2006) explain, a firm’s strategy may depend on generating a ‘climate for innovation’ because the goal is to outperform rivals by creating a stream of new products that customers find highly desirable, as Apple has done with the iPod, iPad and iPhone. Alternatively, management may seek a climate that delivers efficient production or service with little interest in innovation or in the empowerment that might help to generate it (Boxall, Ang and Bartram 2011). Managers may be pursuing some blend of these or, indeed, other types of climate. Understanding these choices, and the tensions they imply, should be part of our description of an organization’s HR strategy. To do a decent job of describing an HR strategy, then, we are going to need to look further than the more visible choices around workforce capabilities and costs and probe into the muddy waters of company cultures and their working climates. The concepts, theories and tools that we need to do so will receive much greater attention as this book unfolds. In this process, of course, we are going to need to be aware of the way in which the workforce is segmented or made up of different types of employee. Firms rarely adopt a single style of management for all their employee groups (Osterman 1987, Pinfield and Berner 1994). HR strategy is more often a cluster of different models of HRM. In manufacturing, for example, HR strategy has historically been based on an ‘industrial model’ for operating or waged workers, in which work is heavily paced by machinery and in which workers have narrowly defined roles of limited responsibility. Managers and advanced technical specialists, however, typically have more complex responsibilities and are managed in a more trusting, salary-based model of HRM, which incorporates higher remuneration and greater investment in individual development. Similar differences of style can be observed across different kinds of employees in service firms. Multidivisional firms in the HRM: What and Why? 31 airline industry, for example, may implement complex, hybrid models of employment across their full-service and low-cost subsidiaries and within them across employee groups of different value (Lange et al. 2015, Sarina and Wright 2015). Questions of social legitimacy and internal political pressures mean that there will usually be overlaps across models of HRM in a firm; for example, there may be common ways of handling leave entitlements and common ways of dealing with personal grievances. However, there are typically substantial differences across models of HRM inside any single organization, including variations in the kind of climates that management is trying to create. It is also important to recognize that we have been talking as if the firm is a single business unit. This is the primary level at which strategy, including HR strategy, is defined. Reality, however, is more complicated. Difficulties arise with multidivisional firms that operate across a variety of markets. To what extent are business-unit managers free to adapt HR strategies that suit their unique contexts? How are they impacted by financial and HR policies developed at divisional and corporate levels in these complex firms? Can corporate HR strategy provide some form of ‘parenting advantage’, which adds value to what business units can achieve without corporate influence? These questions are explored in this book. A final complication arises with international firms, as many multidivisional firms are. Where firms compete across national boundaries, in what ways do they adapt their HR strategies to local conditions? How is HRM organized when the firm operates in more than one society? This is one of the key concerns of the fields of comparative and international HRM (Farndale, Mayrhofer and Brewster 2018, Dowling, Festing and Engle 2017), and we will be addressing it in this book. Overall, what we mean by the notion of HR strategy is summarized in Box 1.1. Conclusions Human resources belong to people, but they are critical for the basic survival and relative success of organizations. Human resource management is the process through which management builds the workforce, restructures it when deemed necessary, and tries to create the human performances that the organization needs. It is concerned with the work and employment policies and practices that will enable the organization to function. This process 32 Strategy and Human Resource Management Box 1.1 Human resource strategy Is a term describing the critical set of economic and socio-political choices that managers make in building and managing their workforce, including restructuring it over time. Is not to be confused with HR-function strategy, which covers decisions around how to use HR specialists to support HR or workforce strategy. Is usually segmented – while there are overlaps, firms typically have different models of HRM for different employee groups (e.g. different models for operating workers and for managers). Like strategy in general, is easiest to define at the business-unit level. Is more complex in multidivisional firms in which different business units face different markets and in which there are political interactions between the corporate, divisional and business-unit levels. Is more complex in firms that operate across national boundaries because of the impact of different societal contexts. engages the energies of both line managers and specialist HR managers (where the latter exist). This chapter has discussed the strategic goals or motives that underpin the behaviour of managers in HRM. It has argued that both economic and socio- political goals are in play in the management of people. The fundamental economic goal in HRM is concerned with developing a cost-effective way of managing people that supports the firm’s financial viability. Managers are driven to ask: what approaches to HRM are ‘profit-rational’ in our specific business? This goal implies a second one: achieving a degree of flexibility in HRM if the firm is to remain financially viable as the economic context changes. A third economic motive involves seeking ways of supporting or developing competitive advantage through the quality of HRM in the firm (human resource advantage), although this is often pursued for an elite group of employees rather than the entire workforce. These economic goals are accompanied by two socio-political ones: social legitimacy and management HRM: What and Why? 33 power. At the same time as they are seeking economic viability, managers typically think about how to secure legitimacy in the societies in which the firm operates. At a minimum, this means employing people according to legal requirements and taking important social customs seriously, but, in reality, there are always some firms that do not operate legitimately. In the dynamic picture, we also observe management seeking to enhance its power. Much of this stems from the fact that management needs a secure power base in order to coordinate the stakeholders who contribute to the firm. However, power-seeking can become perverse, as illustrated in the controversy over the ways in which management has used its power to create ‘super salaries’, often at the expense of shareholders and the wider community. A key implication of this analysis is that HRM’s role in organizations should not be thought of simply in terms of a single, profit-oriented ‘bottom line’. This is critical, but firms are economic entities located in a social context, so a good performance in HRM will always be multidimensional. Pursuing this complex set of goals inevitably involves grappling with strategic tensions and the reality of trade-offs, both relative and absolute. Failure to handle these problems effectively will have strategic impacts on the organization. Critical tensions include the problem of labour market competition, which hamstrings firms that are weak and which can impact on entire industries and societies. Employee motivation is an inevitable challenge in all firms because the control of human behaviour is always limited and employment relationships work much better when workers give their willing cooperation. The need to grapple with change creates a difficulty around balancing short-run with long-run strategy and frequently brings conflict between company survival and employee security. Management’s pursuit of political power can bring major challenges to the firm’s social legitimacy. The cognitive and political issues associated with these problems are a major problem in themselves. And, even where the firm is well resourced and astutely led, there are serious challenges posed by the societal contexts in which firms are embedded. Firms are not autonomous entities. They exist in larger systems that enable, and constrain, their performance. An organization’s HR strategy, then, is something that can have a major impact on its fortunes, including its chances of survival, its level of profitability and its reputation in wider society. HR strategy is the term we use to describe the critical set of economic and socio-political choices that managers make around how to build their workforce and how to manage it, including how to reconstruct the workforce in economic downturns. HR 34 Strategy and Human Resource Management strategy contains internal variation across workforce groups and is more complex in multidivisional and multinational firms. Having established these fundamental concepts around HRM and HR strategy, in the next chapter we examine in greater depth what we mean by strategy and by the process of strategic management, a process in which HRM is embedded. Together, these first two chapters set out the basic terminology and concerns of the book and complete Part I. The book is then organized around the id
