Personnel management refers to a set of functions or activities including recruitment, training, pay and industrial relations performed effectively but often in isolation from each other or with overall organisation objectives. In 1991, Hilmer noted that the Australian tradition of many sub-specialities or functions (industrial relations, compensation, training and pay) was out of date. The early 1990s was an are of great speculation on the future of the functions in managing people. The concept Human Resource Management (HRM) began to influence the practice of integrating functions with each other and organisation objectives. Coppleston (1991) explained “the HR function within any enterprise must first of all serve the organisation… an investment area rather than a cost to the organisation.” Reinforced by other writers, human resources should be viewed as ‘human capital’, and that HR managers should strive to use them as investment creating an environment where the appropriate strategy is likely to emerge. (Williams, 1991) Alternate perspectives of HRM emphasise either the effective management of employees through greater accountability and control, the greater involvement in decision making processes, or both of these. (Nankervis, Compton & McCarthy, 1993)
In countries such as Australia, the personnel management function arrived more slowly than its USA counterparts and came from a number of avenues. The orientation of personnel management was not entirely managerial. In the UK, its origins were traced to ‘welfare officers’ where it became evident that there was an inherent conflict between their activities and those of line managers. There were not seen to have a philosophy compatible with the view of senior managers. The welfare officer orientation placed personnel management as a buffer between the business and the employees. In terms of organisational politics this was not a viable position for those wishing to further their careers, increase their status, earn high salaries or influence organisation performance. Industrial relations further compounded the distinction through their intermediary role between unions and line management. (Price, 2005) However, during the 1970s, many Australian organisations found themselves in turbulent business and economic climates with major competition from the USA, Europe and Asian markets.
Concurrently, the Institute for Personnel Management (IPMA) and training institutions such as TAFE and universities were becoming more sophisticated in their approaches incorporating more recent approaches such as ‘Excellence” and ‘Total Quality Management’. During this period the IPMA held national and international conferences, initiated relationships with the Asia-Pacific region, developed an accreditation process and the now titled Asia Pacific Journal of Human Resources. (Nankervis et al, 1993)By the 1980s, personnel had become a well-defined but low status area of management. Traditional personnel managers were accused of having a narrow, functional outlook.
Storey (1989) comment that personnel management “…has long been dogged by problems of credibility, marginality, ambiguity and a ‘trash-can’ labelling which has relegated it to a relatively disconnected set of duties – many of them tainted with a low status ‘welfare’ connotation.” In practice, the background and training of many personnel managers left them speaking a different language from other managers and unable to comprehend wider business issues such as business strategy, market competition, labour economics and the role of other organisational functions. (Price, 2005) This set the scene to integrate personnel management with wider trends in management thinking.
In 1999 (cited in Gollan 2005), Hunt suggested, ‘the key link to the success of the function lies in the struggle to acquire more influence, something that is being carried out in a climate of downsizing and outsourcing. Even the change of name from personnel to HR is indicative that the way people view and perform this role is changing – with the new name communicating a desire to break with the past and to throw off an image that was limp and limiting… The future of the HR function may be far from certain … [however] … In situations of uncertainty, it is the confident who win through … I know of no organisation whose senior managers believe their company will operate, in the future, without any human beings. Whether ensuring the supply of those human beings resides in a function called HR or not is rather irrelevant.
Such themes included ‘human capital theory’ and human resource accounting, however, HRM gained further ground and prominence once introduced to the Harvard Business School MBA course in 1981. The four main approaches founded during the 1980s were: The strategic matching theories from the Michigan and New York Schools; Multiple Stakeholders theory from the Harvard School; Political and Change Process Theory from the Warwick School and a Behavioural Transformation Theory from the Schuler School. (Price, 2005)
Each theory expressed models that stress people as human resources which are a resource different to any other the organisation may have and therefore require to be managed differently. This could be conceived as rather confusing, however Townley (1994) argued that much of the confusion over the role of human resource managers is due to two factors: 1. The conflict between the welfare tradition of personnel management and the strategic orientation of more modern HRM and; 2. A gender divide between female or soft personnel management at lower management and administrative levels and male, hard nosed human resource managers within upper management.
Benchmarking and best practice have become widely used terms in the past decade. HRM benchmarking is a process which provides knowledge of the key HR levers which are important to business outcomes; comparison with other businesses with better performance and ways of using that information to improve HR processes. This allows HR processes and outcomes to be quantified so that objectives can be set meaningfully and realistically. This was a revolutionary approach for many HR professionals who were used to subjective job descriptions and values with a focus on process rather than outcome which did not gain much credibility with other business units who were used to objective and quantifiable measures of performance. (Nankervis et al, 1993; Price, 2005)
Vilinas and Harper (2005) explored the impact of performance management on staff, the organisation and the business. Performance management was found to be useful in improving role clarity, identifying and standardising performance objectives,, increasing performance feedback and assisting in the development of more useful and meaningful performance measures. The authors found that how performance management was viewed depended on the performance of the team. That is, if the team were performing well, it was viewed positively, if the team were not performing well, it was viewed negatively. Furthermore, Vilinas and Harper (2005), found difficulty in evaluating the impact of performance management systems in organisations. There fore it is difficult to determine the impact this human resource strategy on organisation performance in a quantitative sense.
Royal and O’Donnell (2005), argue that qualitative human capital analysis would assist in predicting organisation sustainability and future financial performance by providing substantial evidence indicating the link between particular HR practices and organisation performance. These practices included learning and development, flexible work policies and performance management. The focus on long term relationships between the organisation and staff was the impact on organisation performance rather than an economic exchange.
Exploring the impacts of downsizing on organisation performance, Farrell and Mavondo (2005) reported on the contradictory evidence in the literature about this relationship and surveyed manufacturing companies in order to test the impact. The findings concluded that when redesign of organisations drive downsizing the impact on the business is positive, but it is negative when the organisation redesign is driven by downsizing. This indicated that good HR practice linking with the organisation strategic plan is more likely to provide a positive business outcome.
According to McGrath-Champ and Baird (2005), HRM practices and the role of HR and employee relations practitioners have been undergoing major changes since the 1980s. Particular changes include the shift to enterprise bargaining. The authors used data from numerous surveys aimed at exploring the changing role of HR practitioners and the implications on the skills required in order to fulfil the changed role. This, in turn, impacts on the capability of the HR area in its ability to support and influence organisational performance.
Given that small business is a significant employer in Australia, Bartram (2005) found they are not as likely to use participative management techniques, invest in training in the area of employee relations or develop organisation strategy. However, without the use of HRM practices, small business can be effected detrimentally particularly in a global economic climate.
The evidence suggests that organisation performance will usually benefit from the integration of human resource management and product and market strategies, improved understanding of the needs of employees at the workplace, and better use of their skill and ingenuity. Strategies designed to achieve a more comprehensive use of employees’ human potential, desire to learn, flexibility and personal responsibility would appear capable of delivering higher levels of performance (Gollan & Davis, 1998).
This is at the heart of the argument for more attention to HRM. Other things being equal, it will assist improve profitability through changing employee attitudes, overcoming resistance to change. (Gollan & Davis, 1998) Moreover, there will be experience of mutual advantage. Management can benefit from improved performance and reduced levels of turnover and absenteeism and being an employer of choice in the current labour tight market. As a result employees may enjoy more job security, development opportunities, autonomy and incentives to take ownership and responsibility for quality outcomes. (West & Patterson, 1998)
While HRM approaches are worthwhile in terms of improving organisation performance, it can be difficult to measure the link between the improvement and the HR practice. The length of time can be fraught with problems when considering the impact of HRM on organisation performance. A short term consultation with staff could pay off years ahead in performance. The most difficult obstacle is in the change of organisation culture for both managers and employees in terms of leadership skills, strategy and resources for development.
Based on research statistics of over 30 000 HR professionals, Brockbank (2005), stated ‘the HR field is outstanding at doing what it says it will do, in terms of delivering the basic HR infrastructure activity …is an intersection of HR competencies and agendas that have to do with managing the culture, contributing to strategic decision making, managing change and creating process of information flows that continually integrate the organisation… HR professionals are mediocre at this set of activities… the logic of HR’s role in bringing critical information about the external business world into the firm, disseminating it and using that information on a broad scale within the organisation as the basis for integration, unity and ultimately organisational responsiveness.’
Brockbank (2005) further identified that HR’s market driven connectivity rates at 17 per cent of strategic contribution’s impact on organisation performance. The direct impact of HR on business performance has increased about 300 per cent since 1992. This is factored around the shift from focusing on traditional personnel functions and moving towards strategic input into the organisation’s development coupled with technological change and a global economy. In other words, this indicates that in order to make an impact, HR needs to understand the business their organisation is in including the customers, shareholders and stakeholders.
To surmise, the evidence suggests there is a great deal of participation taking place in Australia, (Morehead, Steele, Alexander, Stephen & Duffin, 1997) however, findings from the research highlight the quality of many HRM practices need to be appropriate measured and reported in order to continue to develop the link between HR practices and organisation performance. From the research synthesised in this paper, it is evident that some human resource practices can contribute to high levels of organisational performance.
Explored from a range of perspectives, the problems in demonstrating this relationship are highlighted. The number of dimensions to the problems making study comparisons difficult include: definitions used as a basis for the research; the ability to draw a relationship between human resource practices and organisational performance; methodological issues and; differences and variable measurement. There is further interest in identifying and demonstrating the impact HRM has on organisation performance none more highlighted than through the importance of people in the knowledge economy and organisation sustainability in a global market.
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