The best practice Human Resources Management paradigm

Outline briefly what is meant by the best practice/high commitment HRM paradigm, and critically review this as a way of looking at HRM. Provide examples from different practice areas of HRM to support your answer, and indicate clearly the key methodological issues that recent research has addressed.

Answer: I have attempted this question in four parts. The first part deals with the definition of human resource management leading to explain ‘best practice.’ Then I have critically explained ‘best practice’ by talking about its advantages and disadvantages and key issues like its problem with universal applicability, nice words and harsh realities, problems with specific practices, etc. I have substantiated these with examples from different practice areas like employment security, team working, selective hiring, etc. Lastly, I have explained the key methodological issues relating to the research that has been carried out in the field of ‘best practice.’

Human signifies people, us.

Resource signifies assets/ costs to organisation.

Management explains the coordination and control to achieve set goals.

The objective of human resource management is to seek and maximise commitment of people by organising work and creating attitudes and behaviour, which result in best outcomes. Thus HRM is basically a search for “best practices” to generate high levels of employee commitment and performance. ‘Best Practice HRM’ is a set of activities which aims to achieve sustained high commitment from all stakeholders i.e. employees, customers, investors and community. High commitment high performance (HCHP) firms include southwest, Johnson & Johnson, Hewlett Packard for six decades, Mckinsey and Toyota. G.E., Campbell, Soup and ASDA are examples of companies that were transformed by new CEO’s taking charge. CEO’S of these companies employed change strategies which focused both on commitment and performance. HCHP firms carry out performance alignment (managing with head i.e. developing an organisational design, businesses processes, goals, etc which are aligned with a winning strategy), psychological alignment (managing with heart i.e. creating a firm that provides employees at all levels with a sense of higher purpose, meaning and capacity to make a difference which is something that all employees need but few organisations deliver) and the capacity for learning and change. In such firms the managers and leaders have to make conscious and principled choices to develop an environment that cares about people while understanding the importance of profits. The different set of activities that such firms employ are called ‘Bundles.’ Its components can be employment security, selective hiring, extensive training, employee involvement, teamwork, high compensation, etc. The point to be noted here is that these HR practices should be deeply embedded into the organisational culture otherwise they will only be able to deal with short term goals. An organisation could bundle all HR practices together or form a smaller bundle by choosing a few activities which are relevant for the organisation.

The practices listed as the components of bundles are very appealing and offer a vision of HRM which is in relation to a high commitment model. It provides employees with a stimulating and pleasant environment. For example, the provision of employment security is attractive for employees, the opportunity to earn above average wages and to be rewarded for performance can be highly motivating and it is desirable to have a chance to gain extensive levels of training. The high commitment model has the capability to contribute to improved employee attitudes and behaviours, lower levels of absenteeism & turnover, high levels of productivity, quality and customer service. Proponents of HPP are of the view that research findings do not reflect a problem with the system but the problem is essentially a managerial one, focusing the wrong managerial values and beliefs or lack of knowledge, expertise or financial resources and ineffective implementation of HPPs.

Since long, high commitment HRM has been thought of as a good management practice and that the system yields superior performance. But such claims may be unwarranted. The practices which are assumed to be ‘good’ may not appear so beneficial to workers when analysed more systematically. There have been a number of problems with the notion of ‘best practice’ in relation to the meaning of specific practices, their consistency with each other and the claims that this version is universally applicable. The most noted study of the performance effects of High Performance Paradigm (HPP) has been Huselid’s (1995) cross sectional analysis of 1992 mail survey data from 968 US firms in which he explored associations between two additive indices of HPP’s and objective measures of firm performance, including sales per employee, labour turnover and an indicator of financial performance. He interpreted his findings as having strong positive effects. There have been many such studies providing strong evidence in support of the HPP. Yet there are others that suggest that HPP is fragile and lacks coherence. There are companies which have scaled back or discontinued this system after few years have elapsed (Drago 1988: 338-9; Eaton 1994: 378-80). Recent studies have found little support for HPP. A study conducted by Cappelli and Neumark (2001: 753-66) in the USA found that HPP is related to increased labour costs, to have weak productivity effects and to bear no association with labour efficiency in manufacturing establishments. Other studies by Freeman et al (2000: 9- 12) and Guest et al have had the same findings in various other industries. The proponents of HPP have not only overestimated the benefits of HPP but also the costs attached to it. Even if high levels of HPP yield significant gains, these may be offset by costs in workplaces. As a result, the adoption of HPP may yield little or no overall advantage over traditional personnel practices. A number of studies have reported positive social and psychological implications and a number have also found HPP’s practices to be associated with high levels of stress and work intensity. In a study of autonomous teams in a US manufacturing plant, Barker (1993) has concluded that workers can feel pressurised by strong performance norms, a circumstance he referred to as ‘concertive control.’ There is evidence that when HPP is perceived to be positive by workers initially, its support tends to weaken overtime as experience accumulates. Some researchers have argued that HPPs weaken support for unions because such models provide workers with alternative means to exercise voice and right to fair treatment. It is stated by researchers like Godard that HPPs have declining marginal returns due to sources of distrust and commitment problems arising out of the structure of employment relations because employee interests are subordinated to those of owners. Due to the cost associated with HPP it is in the interest of some employers to adopt a work intensification approach. The costs in HPP reflect higher wages, more training and various resource requirements needed to maintain high involvement levels. Research suggests that there is diminishing returns to HPP, thus it is in the interest of employers to adopt low to moderate levels of HPP as add-ons to traditional practices owing to cost benefit trade-offs. Due to the adoption of team involvement system, workers are subjected to increased performance pressures and stress levels and hence this approach is difficult to sustain. The limitations of HPP may be greatest in liberal market economies when compared to other economies. As far as the meaning of specific practices goes there have been some contradictions between “nice words and harsh realities” which is most apparent over the issue of employment security. There have been different kinds of definitions of employment security by different researchers. It is unjustified to assume that employment security is to be achieved by compromising the firm’s profits. The employer’s financial flexibility is restored by basing salaries on firm’s performance and increasing employee workloads. This can be seen as work intensification. Thus, employment security can be seen as a reward for those who conform to and comply with employer requirements. A similar argument can be made regarding self-managed teams and team working. They are intrusive, difficult to implement and they serve to strengthen rather than weaken management control. It is nearly impossible to introduce any realistic version of team working when employees are unable to enlarge their jobs to attain higher skill levels or there are legal and technical reasons why employees are not allowed to make certain decisions. In such situations team working can only prove to be more stressful and add nothing to the skills. Another example could be selective hiring. The measures used include employment test prior to hiring, sophistication of processes such as psychometric tests, etc. More number of job applicants for few positions is indicative of the poor HR procedures due to failure to define the job and field adequately before advertising. There are wider worries that selective hiring can lead to ‘cloning’ of employees which can be problematic if there are changes in business objectives and it can also add to lack of diversity in workforce in terms of experience and skills. The other areas where such arguments have been raised are training & development and information sharing. The above examples show that these practices are not as straightforward and positive as the proponents of ‘best practice’ imply. There have also been some doubts on the universal applicability of ‘best practice HRM.’ Firstly, it is easier to engage in such activities when labour costs do not form major proportion of controllable costs like in capital intensive sectors. But when one of the major costs is labour like in service sector, it is more difficult to persuade managers and financiers of the long term benefits of investing in human capital. It is difficult to persuade employers due to the difficulty in increasing the pay rates or offer training when resources are constrained. Secondly, it depends upon the categories of staff that employers are trying to recruit. MacDuffie is one of the researchers who are supportive of universality argument but even his studies show that this model is situation specific. According to him, ” innovative HR practices are likely to contribute to improved economic performance only when three conditions are met: when employees possess knowledge and skills that managers lack; when employees are motivated to apply these skills through discretionary effort and when firm’s business and production strategy can be achieved when employees contribute these discretionary efforts.” Thus, the ‘best practice’ model may be unattractive or inappropriate in some industries or with certain groups of workers and hence, it’s not universally applicable. Baron and Kreps (1999, p. 29) argue that, “no single approach to human resource management is universally applicable. Employees are people, and people are complex. They interact in complex ways with each other, with customers, with technology, and with strategy.” Lepak and Snell (1999) argue that, “it may be inappropriate and monolithic to suggest that there is a common bundle of practices for managing all of a firm’s employees. They agree with that while a dominant HR strategy or ‘architecture’ may exist (Becker and Gerhart, 1996), at an operational level multiple bundles of practices may develop that are unique to particular employee sub-groups.” A good deal of research into HR systems has taken place since Dyer & Reeves article was first published but difficulties still remain in understanding the components of high performance HR bundle. The mix of HR practices can vary according to organisations, sectors and countries. There are no set ways to determine as in which set of HR activities are more important. An organisation will enjoy success if their practices form a coherent and synergistic bundle. Guest (1997.270-1) in exploring the notion of fit as bundles, suggests that, “in practice there may be a number of possible combinations of practices which will lead to high performance; for example some organisations may emphasize job security as the building block others prefer training and development. The other practices fit around these.” Thus, this shows that all practices have to fit with one another but all are not equally important. Their importance depends upon the situation and kind of problem in hand. Also it can be suggested that HR practices show an ‘additive’ relationship with each other and that they may have interactive effects where their effectiveness depends on the level of other HR practices, for instance workers will show interest in team working if their efforts are rewarded with performance related incentives like share ownership, access to training opportunities, etc. Ultimately, it’s we who have to decide what suits our organisation whether ‘best practice’ or ‘traditional practices’ depending upon above mentioned situations.

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There have been certain methodological issues with most if not all the studies concerning ‘best practice’ model. Limitations include reliance on single respondent data, use of single items to measure complex work arrangements, over representation of traditional practices which do not relate to high performance paradigm, inconsistencies in the HPPs included and how they are measured, possible cause-effect, selection and omitted variables biases and replication problems. Purcell suggests that respondents in these surveys are generally personnel specialists who lack knowledge of competitive strategies adopted by organisations or proportion of sales derived from these strategies. The methods used in these studies range from interviews, questionnaires, telephonic interviews, etc. Due to varied nature of HPPs and difficulties in controlling different explanations of employer performance, serious measurement and specification problems may be endemic to such research, rendering it futile. Wood suggests that authors have displayed a tendency to emphasize on results that support the best practice model while ignoring those which don’t. It is possible that expectations of the positive effects have led to researcher bias in certain studies. Much of the research examining the implications of ‘best practice’, has been limited to one or few organisations or has assessed the effects of one or few specific practices usually autonomous teams without including other practices which might affect results. As noted by Legge (1998), the high commitment approach has been tested in private sector, manufacturing organisations. Little attention has been given to its effects in public sector organisations. Thus, the research to date is limited in several ways.