Strategic HR

Building the Capability to Deliver

Peter Reilly, Tony Williams

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317049593
• Edition: 1
• Topic: Business
• Subtopic: Human Resource Management
• Index: Business

HR has sought to reposition itself as a strategic contributor to organizations. To facilitate this, it has restructured, bringing in shared services, business partners and centres of expertise, simplifying, automating and rationalising processes, and devolving some activities to managers, whilst outsourcing others. HR has yet to give sufficient attention to the capability of the function to deliver against the added value promise. This book looks at the developments that have brought HR to its present position. It sets out a vision of where HR might be headed, including a definition of its role and activities. It identifies a number of challenges that HR will have to face if it is to be effective. These include not just skills, but problems with structures and relationships with stakeholders, be they line managers or employees. The authors also highlight ways of monitoring HR performance and of demonstrating its value. It all adds up to an authoritative reference guide for all HR directors seeking to define their role and future aims, for those new to the function on the challenges they will face, and for senior executives on what they should expect the added value to be from their HR function.

PART 1
The Story So Far

CHAPTER 1
The Changing Nature of HR

From welfare to what?

The HR function of today is of course the product of its past. Its history starts in the late nineteenth century with a welfare role which was especially connected with the protection of women. The employment of welfare officers was found in those more paternalistic organizations that felt a moral obligation to improve the lot of their employees. However, it quickly became apparent that welfare officers could aid production by limiting absence and dealing with grievances. A still broader role for them arrived after the First World War when labour management became important. Wartime pressure to deliver unfettered production meant that agreements had to be made with trade unions and the requirement for industrial relations activities continued post war in several sectors of the economy. Dealing with trade unions remained the preserve of line management in many firms, with the emergent personnel function more concerned with recruitment, as well as welfare and absence. Not surprisingly, Personnel put down stronger roots in the new sectors of the economy that best survived the economic depression in the 1920/1930s, where the demand for labour was greatest and the market most competitive. Elsewhere, large-scale unemployment retarded the development of personnel management techniques.

The Second World War again benefited Personnel. The number of practitioners grew as government wanted help with increasing output, securing greater efficiency and smoothing industrial relations. Joint consultation, which had been pioneered by the likes of ICI, before the war, came to the fore during hostilities and afterwards. People management for at least the 40 years after 1945 was dominated by industrial relations and negotiation with trade unions – at least as viewed from the perspective of government (concerned with productivity) and the press (disputes made for good copy). Increasingly, personnel managers came to play a part in industrial relations work. The growth of local bargaining and shop stewards helped develop the site personnel presence. By the 1960s trade unionism had spread from blue collar workers in primary and manufacturing industries to white collar jobs, especially in the public sector, where a high density of trade union membership developed.

Because of the consequential industrial relations problems many organizations faced in the 1960s and 1970s, the industrial relations expert moved centre stage in the unionized parts of the public and private sectors. Personnel departments became dominated by those with skills and experience in this area. The tough-minded individuals that thrived in this environment benefited from the power of the trade unions: it justified their importance. This was particularly true in the 1970s in those areas of the UK economy where the politicization of the workforce, led by trade union militants, meant that disputes extended beyond the usual pay and conditions into wider questions of workers’ rights and even into areas outside the employment relationship. In some parts of local government this coincided with the arrival of more ideologically driven council members in place of the more traditional, conservative politicians. Managers in direct service activities were no longer as able as before to cope with the industrial relations on their patch. They needed the support of personnel colleagues, if only to act as the referee between the warring parties. This was a real challenge to the capability and ingenuity of the personnel function.

Another theme in the contribution of the personnel function was that of providing an efficient administrative service within clearly defined procedures. In the public sector, Personnel came out of the ‘establishment’ office. As the name suggests the function was concerned with manpower numbers and processing work. Recruitment was the high-volume activity, with all the contractual paperwork that followed. Induction and job-related training was a linked task. Many establishment officers, particularly in the NHS, came from military backgrounds and were well suited to providing a well-organized and efficient service. The context was to deliver a very centralized and prescriptive approach to people management. They were not, however, change agents. It was a time of compliance to rules and regulations, not one of challenge.

A third dimension to the development of personnel management (besides industrial relations and efficient administration) was the growth in legal regulation of employment relationships, which fitted with the compliance model. This was nothing new. From the nineteenth-century Factory Acts onwards, government has legislated on workplace conditions and employment practices. The 1960s and 1970s, with entry to the EEC, saw an acceleration and extension of legal provision concerning recruitment, redundancy, pay and protection. As some of these laws were contentious, they would be added to the statute book only to be removed by the next administration. From the Donovan Commission of 1968 (on improving industrial relations) to the Bullock report of 1977 (on industrial democracy), from the Industrial Relations Act of the Heath government in 1971 to the prices and incomes policy of the Callaghan administration that followed, there was heated debate and much for the personnel manager to do by way of response. From commentary on potential legislation to its implementation where it was passed, the personnel function had to be more active and sophisticated.

An area of activity restricted to the larger and more sophisticated companies was the harnessing of the growing interest in business and strategic planning and alignment of the recruitment and development of employment with organizational requirements. The growth in manpower planning, the creation of the government’s Manpower Services Commission and the launch of the Institute of Manpower Studies (predecessor of the Institute for Employment Studies) was testimony to this wish to match labour supply more effectively to demand.

Through the 1980s and early 1990s the effects of downsizing and large-scale manufacturing shutdown, legal restrictions on their activities, changing attitudes and symbolic defeats led to a steady decline in trade union membership and collective bargaining arrangements. This meant that industrial relations became less important in the workplace. Or, as Phil Murray of Hewitt (the management consultancy) succinctly put it: ‘then along came Mrs Thatcher and made IR redundant’. At the same time high levels of unemployment meant reduced turnover and lower levels of recruitment activity.

So a different skill set was required. Personnel departments were moving beyond conflict management and containment to change management. This involved getting employees to accept new ways of working, to become more productive and to operate in a new performance-oriented setting. At the same time, Personnel was increasingly seen as management’s agent in these efficiency programmes, often being on the receiving end of the workforce’s frustrations at the effects of redundancy. But critics were concerned that Personnel was ill positioned as ‘servants of (management) power’, too eager to succumb to its ‘overweaning’ dominance (Guest, 1994).

There was a time when any aspiring HR director needed to have an industrial relations posting on their CV: no more! The emphasis moved to business credentials and skills in management development and organizational change. There had to be a greater alignment between business strategy and the activities of Personnel. And this grew beyond the very limited ambition for many firms – that of survival.

Enter HRM! The arrival of human resource management in the late 1980s was timely in that it coincided with this change of role and work content. It appeared to offer a distinctive philosophy of people management. It placed a general emphasis on maximizing the contribution of people resources to the success of the organization and on strategic integration of people management initiatives to deliver organizational benefits. It took a unitarist view of employment that all should work towards a common business purpose, emphasizing the legitimacy of management’s right to be the author of change for the good of the organization.

In practice, HRM philosophy resonated with both the changing political scene, and the swing in the balance of power towards management and away from trade unions on the ground. Managers had a new confidence and a wish to assert their right to manage. The centralized management of the industrial relations dominated world also began to shift towards decentralization of power to business units. In the private sector this coincided with the creation of more complex business models to respond to a more challenging business environment. There was an emphasis on developing managerial skills and competencies, especially communication skills – getting the management message across to the workforce. New or refreshed ideas from the social sciences began to be taken on board, especially theories of motivation. So HR’s contribution began to alter towards management education and development in line with HRM thinking. This more positive agenda still had HR at centre stage because the critical changes issues centred on organizational structures and people.

In the public sector, there was decentralization too but on a much bigger scale and with the added impetus of political will behind the changes. The Thatcherite imperative was to reduce the scale of the public sector through privatization and outsourcing, and to weaken trade unions through the decentralization of power. With respect to the latter, pay decisions were increasingly shifted away from review bodies, wages councils or employers associations to the direct employers of labour. For example, the Conservatives delegated responsibility for pay levels for civil servants to individual departments and agencies in the early 1990s. National collective bargaining in local government started to weaken in the late 1980s. Some local authorities in the south-east of England opted out of national pay rates for certain groups of employee in favour of local determination in order to recruit and retain staff in a tight labour market. Individual NHS Trusts arrived in 1988 with the aim of taking managerial decision-making closer to the patients. Trusts became free to set their own terms and conditions from 1992 until stopped by the incoming Labour government in 1997.

Outsourcing entered the service delivery vocabulary via compulsory competitive tendering (CCT), as the means by which it could be pursued in the public sector. The HR community had to learn about transfer of undertakings legislation. TUPE became a well-known term that generated a sense of foreboding in some and loathing in others. Especially in local government, HR practitioners, particularly those at the operational sharp end, found themselves in much more complex situations. The simple compliance model was no longer an option. Decisions had to be made: outsource a swathe of functions (as the likes of Berkshire, Westminster and Wandsworth did) or resist CCT as much as was feasibly possible (the route taken by, for example, Labour-held councils in the north of England). This meant HR had to get much closer to organizational decision-making to have some influence on the outcome. Or, if this was not possible, because the decisions taken were ideologically motivated, then HR had to get close to implementation to ensure that the process went as smoothly as possible. This meant not just simply operating to the letter of the law (TUPE has never been that simple), but interpreting it and deciding where it was safe to take risks. Ironically, despite the complexity of managing CCT, the cost-focused agenda that outsourcing implied led to HR itself being regarded as a financial overhead, not least when its services came under the outsourcing microscope.

The decentralization of power and divestment of ‘non-core’ activities was accompanied by the adoption of the HRM value set. Movement to this position was variable, often painfully slow, especially in the shift from an administrative to an operational focus, and from a reactive to a proactive approach. It gradually became more evident in public bodies that a greater degree of professionalism was required in HR. This was recognized at central government level with the Hesseltine White Paper of 1995 which argued for more specialization in managerial roles: out was the policy generalist and in were to come HR, finance, procurement experts. This objective is still being pursued. Andrew Turnbull, then head of the UK civil service, demanded greater professionalism. This has led to the Professional Skills for Government project in the civil service. For HR, the Modernizing People Management project is concerned with all the themes of this book – devolution, e-HR, customer focus, business partnership, and structural and process reform.

The Office of the Deputy Prime Minister funded a similar initiative for local government, called ‘HR Capacity Building’, originally run by the Employers Organisation for Local Government. This had a strong learning and coaching emphasis, but also included the development of a performance framework. The various audit processes, especially the Comprehensive Performance Assessment (CPA), are reinforcing the change. The CPA looks for evidence of workforce planning and development as fulfilment of the sector’s pay and workforce strategy.

Devolution has often gone hand in hand with decentralization. The desire to limit the power of the corporate centre over policies and procedures has often been seen as consistent with the aim of maximizing line manager responsibilities for people management. The reasoning behind decentralization to increase local accountability – stripping out bureaucracy, producing faster decision-making, being more attuned to business needs – is similar to the arguments in favour of devolution.

In the late 1990s Hackney Borough Council adopted devolution as one of its most important principles in transforming the organization. Regarding Personnel devolution, the Hackney view was that ‘if managers are held to be accountable for achieving their agreed outcomes it is essential they are able to make decisions on all matters relating to the employment of staff in their unit. This is essentially about allowing managers to manage’ (Hackney Borough Council policy document).

The balance between what the line manager should do and what Personnel should do ‘is as old as the function itself’ (Hall and Torrington, 1998). When the latter conducted a survey of personnel managers in 1994/5 the commitment to devolution was evident then. They expected to see, and did see, an increased attempt to devolve given the intention of HRM to make sure that managers take their people management responsibilities seriously. A new role of personnel or HR consultant developed, to facilitate the work of line customers rather than impose a standardized solution. However, in some areas progress was slow. Research by the Institute of Personnel and Development (IPD) from 1995 (Hutchinson and Wood) suggested that many personnel functions had a reputation of being very centralized and controlling in relation to line management.

At the same time as the devolution of tasks to line managers was under debate, HR was being marginalized by the use of business process re-engineering. Where applied, it had the effect of pushing HR to the back seat because the efficiencies it sought were to be achieved by seeking process solutions to problems in ways that often made employees mere bystanders in the search for optimum design.

It was in this context that that US commentators spoke of HR as an ‘endangered species’, under threat from external consultants’ service providers and line management. The view was that there was an opportunity for HR to impact on the business, but that it was not seizing the chance quickly enough to contribute to the change process. Lack of experience was given as one cause; being excluded by CEOs was another explanation (Brenner, 1996). In the UK, around the same time, research from Roffey Park and IPD suggested that HR continued to be overly ‘reactive’, slow and disjointed (Holbeche, 1998; Hutchinson and Wood, 1995). Academics were posing the question of whether HR could claim the role of strategic ‘architect’ or whether it was facing ‘extinction as a discrete management body or coherent function’ (Cunningham and Hyman, 1999). The IPD study worried that Personnel was seen as the ‘poor relation with little power or influence,’ especially where industrial relations was not important. Similarly, research undertaken in the mid-1990s suggested that HR was ‘downstream’ of the major business decisions in multidivisional companies; there to implement but not challenge (Purcell and Ahlstrand, 1994). Somewhat later research by Buyens and de Vos (2001) uncovered more positive attitudes amongst senior managers, but the same restricted role for HR. They found that top managers were supportive of HR’s role in transformation and change, but it was to ‘concretise and translate [management] decisions, taking account of their implications for employees’. Early input from the function was valued, but would not be the basis on which decisions were taken.

But at the same time as these concerns were being raised, HR was itself moving on. Spurred on by business gurus and academics such as David Ulrich, HR was increasingly seeking to play a more proactive role, to get closer to business decisions and have a strategic and longer-term influence. Those companies in the vanguard of change took advantage of the newly emerging organizational models and of the search for efficiency and improved customer service to launch new forms of HR structure. In came shared services, business partners and centres of expertise. Process improvements in HR services were also sought to aid effective delivery, assisted by new technology that both speeded up and simplified administrative processes, and allowed ta...