Modern Business Environment Essay

To what extent is the ‘soft’ HRM model achievable and desirable for organisations in the modern business environment? The modern business environment For the past few hundred years the business environment has been mostly based upon turning man hours and materials into hard products (produce). What we are seeing now is a shift away from this production by mass labour, to a system whereby goods are produced by machine and the services needed to facilitate this are produced by man. Taking the UK economy as an example, the latest economic forecast by the TUC (Fig 2) shows a steady decline of manufacturing in favour of service sector jobs. This reinforces the view that the emphasis is shifting from producing goods to providing services. â€Å"The only advantage many companies have are the competencies and abilities of their people† (Dewe 2002). With firms using the same machines competitive advantage (or disadvantage) is created by the knowledge and skills of the employees. Tom Watson Jr, former President of IBM recognised the shift: â€Å"all the value of this company is in its people. If you burnt down all of our plants & we just kept our people & information files, we would soon be as strong as ever. Take away our people & we might never recover† (People Management 1998:34). Knowledge therefore is power, we are moving from a physical economy to one A UK government report (Competitiveness White Paper 1999) sees this new environment as requiring â€Å"†¦greater receptiveness to know-how and the ability to see its commercial potential; eagerness to keep on learning at all levels in a business; and a flair in spotting new customer needs and fresh business opportunities.† This suggests that the modern business environment is a place where knowledge is key. In his speech to the Business Link annual conference, Peter Mandelson MP Secretary of State for Trade & Industry saw the knowledge economy as â€Å"transforming old jobs as much as creating new, with implications for manufacturing and service industries alike.† This leads us to the idea that the modern business environment is a place where investment is required in human capital to produce this knowledge economy. In the modern business environment, with the emphasis on value of human capital, security can no longer depend on a job or organisation but upon the employees own skill and competences (Van Ruysseveldt 1995:3-4). Organisations may not be able to guarantee long term employment, but to entice workers of quality they must look to other means. Hard & Soft HRM HRM can be divided into two approaches: ‘hard’ or ‘soft’ (Fig.3). As we see from the diagram ‘hard’ HRM is primarily financially driven, with a fairly hard view of controlling the wages bill, workers are seen as a cost rather than as an asset to the organisation, the emphasis is on getting the best return on their money, creating efficiencies. The company position will take precedent over the collective views and concerns of employees. Such a way of managing human resources was demonstrated by ‘Fordism’ where the workers on the assembly line were under tight controls and even had to divulge personal information to be able to work for Ford (White Heat 1994). The work of Taylor (Taylorism) and the principles of scientific management were used in the late 19th century to allow factories to be managed through scientific methods rather than by â€Å"rule of thumb.† This idea also treated the workers as just another cog in the wheel of production and worked out the best way that the worker could operate. The modern business environment has changed greatly since the days where all workers were seen as tools to be maintained, much like machines, with regulations and tight controls. This was the hard school of HRM where peripheral workers are disposable and labour is directly productive (Beardwell & Holden 2001:98). This model can also be viewed as ‘managing headcount in a rational a way as for any other economic factor’ (Storey 1987:6). The workforce was merely a factor of production or cogs in the wheel. This ‘hard’ HRM policy suits a workforce that is involved in a repetitive job; each process is standardised to allow tighter controls. The theory is that the firm should maximise human efficiency in the same way as any other resource. This was made a success by businessmen like Henry Ford in the days of mass industrialisation. However, with the advent of high technology machinery much of the repetitive work is now done by robot leaving only jobs for skilled maintainers and operatives, not leaving much scope for hard HRM practices to survive. McDonaldisation has built upon the ideas of scientific management and the successes of men like Ford. Each part of the process of bringing the food to the customer has been scientifically scrutinised and adjusted to make it more efficient. As a result of this approach, they have a controlled workforce and a set of strict rules and procedures that ensure the workforce is working exactly as the employers wish them to. McDonalds have recognised that there is still a place for the unskilled worker, as machines cannot be relied upon to do all the jobs. In this instance there is still a place for the hard school of HRM. ‘Soft’HRM (fig 3) revolves around the development of employees. Employees are viewed as assets to the company, rather than as purely another cost of production. This requires the management to regard the workforce as partners in the work process and nurture them to maximise their output. Heery and Noon (2001) suggests soft HRM is an approach recognising the need to treat employees as assets that must be looked after. A soft HRM policy would therefore place the emphasis on training and development in order to get the best out of the workforce as opposed to tight controls (Beardwell & Holden 2001:98). Therefore, a policy of ‘soft’ HRM seeks to increase production by ‘communication, motivation and leadership’ (Storey 1987:6). Becker (1992 Nobel prize winner for economics) suggests that expenditures on education, training and medical care could all be considered as investments in human capital. â€Å"They are called human capital, because people cannot be separated from their knowledge, skills, health or values in the way they can be separated from their financial and physical assets† (Donkin 2002) If employees have an inherent capital value for their knowledge and skills, it would be reasonable to assume that an organisation can improve its competitive-edge through the excellence of its people (SHL group 2002). The work of Maslows goes some way to explaining the reasons why humans need this development and training. Maslow suggests that individuals have a hierarchy of needs (fig 1). Fig 1 outlines Maslows theory that human nature drives individuals to satisfy ‘instinctual’ needs. The theory suggests that once an individual has achieved one set of needs they are no longer motivated to seek this (as they already have it) and will continue to want more thus rising up the hierarchy. Maslow’s theory would seem to suggest that a firm must ensure that employee’s needs are continually met not only the safety and physiological aspects (the legal requirements of an employee’s contract) to increasing employee productivity. If a firm has to continue to meet ever increasing needs to motivate staff then this theory would be a good explanation of why firms use ‘soft’ HRM. Types of ‘soft’ initiatives * Flexible working, working from home or allowing workers the choice of hours outside a core time of 10:00-15:00 for example. * Job Sharing, by allowing employees to become multi skilled (training) they can operate in a variety of roles thus making their job appear more interesting but also allowing a backup if an employee were to be off work at any time. * Parental leave, with the increased pressures on family life many firms now offer special breaks for staff with children, from allowing days off for hospital appointments to paid paternity leave. * Performance related pay; this could be seen as a hard or soft perspective dependant upon viewpoint. If a system of bonuses exists for good work this would be a soft measure. If (‘tele’ sales) you only get paid if you hit certain targets, this would be a hard measure. The primary argument in favour of PRP is that it acts as a motivator, through both providing incentives in the form of monetary rewards and by recognising achievements. Further benefits cited include the fact that individuals can identify closely with their employers’ goals and that this can increase productivity and encourage quality, flexibility and teamwork (Armstrong and Murlis, 1991). As we can see from the above examples ‘soft’ HRM is much more difficult to quantify than hard HRM. It is more an overall approach to staff welfare and development than a clear set of rules and procedures. What makes it so difficult to quantify is that two firms may claim to be operating the above ‘soft’ HRM policies but in practise they maybe very different systems. For example, the concept of flexible working can be interpreted as allowing employees freedom to choose to work from home or the office, or the firm may use the system of core hours (as above). These are two very different systems but both however come under the heading of flexible working. To decide which method a particular firm is using will require a broad look at the pay and conditions and the freedom employees enjoy. It is also useful to note that it is seldom a case of an employer operating one form of HRM, it is necessary for firms to allow their workers some freedom but at the same time retain control. A good example of this is Microsoft; they operate a seemingly soft policy on HRM with a whole range of employee benefits and training programmes (24hr nurse line, free entry to local events and professional development programmes). However, to retain the knowledge and skills that they develop the firm insists that if an employee is to leave the company they must not work in the computer industry for a period of 6 months. This shows that the organisation is willing to invest time and money to maintain a highly trained workforce but at the same time keeps a tight control on them. Why is ‘Soft’ HRM Desirable? To examine the reasons why a firm should adopt policies of soft HRM we must look at the dangers of not doing this. A recent CIPD survey (CIPD 10/2001) has outlined the costs of organisations for not retaining and motivating staff. The survey has shown that one in four employees left their organisation in 1999 (the highest figure since the survey was created in 1995). What was even more alarming was the cost of replacing these lost staff. The average price for replacing a management level employee was à ¯Ã‚ ¿Ã‚ ½6086 which was an increase of 28 percent on 1999 the highest cost was to replace a professional services employee which was à ¯Ã‚ ¿Ã‚ ½8316. The danger for organisations is how this turnover effects company performance, two thirds of organisations believe this to have a negative effect with 13 percent claiming that it has a serious negative effect. The CIPDs findings suggest that staff feel freer to leave an organisation when they know they can acquire employment elsewhere. In a labour market of low unemployment it seems that firms must make themselves more attractive to their employees. RebusHR, a firm that deals with outsourced HR issues for a range of companies sees soft HRM as â€Å"a good way of retaining and attracting the best staff†¦giving people choice and a feel-good factor†¦it shows that you’re interested in them and listen to what they say†(Shepherd K 2002). In the article entitled â€Å"Profitable personnel† (People management 1998:28-31) West and Patterson suggest that good employee relations are directly inked to increased performance. In their survey the ‘Sheffield effectiveness programme’ they found that people management ‘†¦is not only critical to business performance: it also far outstrips emphasis on quality, technology, competitive strategy or research and development in its influence on the bottom line.’ The survey looked at a firm called Zotefoams, which operated an ‘enlightened’ HRM policy. Workers on the shop floor operated in teams and were multi-skilled; they also had a certain level of responsibility for dealing with work priorities and quality problems. The aim was to create a multi-skilled and motivated workforce with more responsibility at the lower levels freeing up management for other tasks. With the management freed up for other duties this allowed the firm to be that much more flexible. Out of the 100 firms surveyed, Zotefoams enjoyed the highest profits and productivity over the seven-year period of the survey. In the final paragraph of the article, West and Patterson sum up their conclusions ‘†¦ those in which the managers have eagerly addressed these challenges [developing skills and ownership] that have experienced rapid improvements in financial performance.’ The findings in the ‘Sheffield effectiveness programme’ are backed up by a study by the Sunday Times (100 Best Companies to Work for 2002) in which 21,000 people were studied over a period of months from the bottom end of the corporate ladder. In an article within this publication, Milton Moskowitz and Robert Levering suggest that ‘Being a generous employer is not just good public relations – it’s also good for business, especially when times are hard.’ This viewpoint makes sense if we take into consideration the negative effect of labour turnover on a company’s performance and the high cost of recruitment. Entering into ‘soft’ practices in human resource management should save the organisation in the long term. The Human Capital Index, developed by the consultancy Watson Wyatt (Overell 2002) is based upon data of HR policies and practices gathered from 600 companies. This data is correlated against financial information. The firm believes it has identified how HR policies are effective predictors of value – and which policies bring most value to the organisation. Organisations with â€Å"the best† HR practices deliver twice as much value to shareholders as their average competitors (Overell 2002). Is soft HRM achievable? According to RebusHR (a large human resources organisation which handles HRM issues for clients such as DaimlerChryslerUK) the biggest barrier to the concept of soft HRM practices is the administrative burden of co-ordinating the information (Shepherd K 2002). This stems from the problem that ‘soft’ HRM is intangible, whilst it is possible to relate high staff turnover to lack of ‘enlightened’ HRM policies, it is not possible to directly quantify the benefits derived from the existence of ‘soft’ policies. This leads organisations to see the cost and extra burden placed upon the HR department with an introduction of a soft HR policy, but it is difficult for this to be weighed up against the benefits on paper. In the IPD survey â€Å"Benefiting from a balanced life† (July/Aug 1999) of the firms questioned many were operating soft policies with 75% offering paternity leave and 57% offering parents special dispensation for time off to look after their children. Popular also were job sharing schemes (57%) and flexi-time systems (47%). From this survey we can see evidence that firms are operating soft HRM policies, what is unclear from the research is to what extent these policies affect the bottom line. The impact of soft HRM is intangible which means it leads us to the problem of quantifying any real benefits. The whole concept of soft HRM appears to be to retain and motivate staff, in the TUC economic forecast we see a high level of employee turnover in the services sector (hotels, restaurants) show the highest levels of employee turnover, but is this as a result of hard HRM practises? true turnover costs are more complex than simply figuring out the average cost of replacement. The costs of losing a good performer are greater than the costs of losing an average performer. The true cost of losing a key seasoned player is hard to estimate. There is the investment in development of the employee, the value of the knowledge and experience gained, and the lost productivity that also have to be considered to arrive at a true cost figure. In the case of McDonalds we see a split between management staff and shop floor workers. Whilst the management have many flexible benefits (PRP, bonus, life/health insurance etc) the workers on the shop floor do not (McDonalds 2002). They are regarded as cogs in the wheel and are treated fairly but firmly as in the hard school of HRM. As a consequence of this, shop floor turnover is higher than that of the management. However, is this higher turnover a result of the HRM policy? Or is it a nature of the type of work? What I would suggest is that the sort of work involved with working on the shop floor of McDonalds is not conducive to a long career in that position. The result of this would be the high staff turnover for low skilled repetitive jobs. The dilemma facing HRM managers is that they need low skilled workers to provide the services such as discussed and to operate soft HRM policies such as training would move these workers away from where they were needed. We therefore cannot have it both ways there must be a balance between employee development and retaining quality people for their positions. If soft HRM seeks to address the retention and motivation of staff we must not lose sight of the fact that we do still need low skilled workers. Soft HRM assumes the existence of a knowledge society (Livingston 2001), the emphasis is on the human resources manager the harness the knowledge. Knowledge work is typically considered to be about variety and exception rather than routine. It is generally considered to be performed by professional workers with high levels of skill and expertise. Livingstone makes the point that the potential for waste of this knowledge through bad management is ‘immense and gut wrenching.’ This claim is given substance by Thompson. In his research only 14 percent of employees received any training at all and that almost half of that lasted for less than a week (figures referring to the UK 2001). For HRM to work effectively we must reorganize work to firstly make the most of existing knowledge and human capital but also to develop this human capital to maximise future performance. In this modern business environment knowledge takes the leading place from other drivers of economic change such as labour, technology and markets. The dilemma we face with soft HRM is that (as explained above in the McDonalds example) a lot of routine work is done by workers with minimal training and knowledge and only small numbers of highly skilled employees are required. Thompson pointed out that if employment growth is not dominated by knowledge work it’s going to be dominated by something else. There are strong and clear indications that it is dominated by low skill, routine work largely in the service sector. We can’t make every job high skill, high wage, and high learning because there are jobs that neither the employee nor employer can grow. One of the reasons they can’t be grown is because, in our other guise as consumers, a lot of us want the cheapest possible flights, goods, services and so on. We can’t have it both ways. If we want cheap, controllable, efficient service, we’re not going to create a lot of high wage, high skill, high learning jobs. There are many dilemmas associated with the ideas of hard and soft HRM. We must realise that we cannot expand the knowledge and skills of all members of society infinitely. There will always be a place for the unskilled worker and as such there must be a place for hard HRM. However, in todays changing environment soft measures must come to the fore. The notion of ‘the velvet glove concealing the iron fist of hard HRM’ (Beardwell & Holden 2001:93) shows that even soft measures are still measures of control. No matter how soft a companies HRM policies appear to be, they will still be designed for the benefit of the organisation rather than of the individual. 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