Human resource management or HRM as it is broadly known has a core commitment to developing and empowering employees based on the recognition that people are a company's most important asset. Surely this is a good thing. So, why do so many business managers dislike the HR function? Do you? Not if you work in HR of course, and no offense to any of you hard-working HR people. What's at stake here is a central tension, and I'll take you through a discussion of this tension around three themes. First, I'll cover a brief history of the basic principles of HRM and some of the theory behind it. Second, I'll discuss three problems that have emerged around the best practice approach to HRM, and three I'll talk about the need for a more strategic contingent approach to people management. The theoretical origins of HRM can be traced back to the work of McGregor in the 1950s, who developed the famous theory X and Y of human motivation. According to theory X, employees are not intrinsically motivated to work and have a tendency to avoid their responsibilities if given the chance. When you subscribe to this theory of human motivation, your management style would likely involve close supervision and monitoring combined with a system of extrinsic material rewards and punishments. According to McGregor's Theory Y, employees are intrinsically motivated to do a good job because they're looking for a sense of self-fulfillment or self-actualization through their work. When you subscribe to this theory of human motivation, your management style is likely to be more participative and focused on empowering your employees to unlock their creative potential and stimulate their commitment to work. Since the early 1980's, the universalist best practice approach to HRM has generally been based on McGregor's Theory Y. The main principle of HRM is to help create an organizational climate that fosters employee competence and commitment through training and empowerment. The rationale behind this is that people are generally a firm's most important asset and organizational effectiveness can be improved through a focus on people's individual and social well-being at work. For example, the famous Stanford professor Pfeffer identified seven best practices for HRM in the 1990s, that he claimed can boost the bottom line regardless of context. These practices include offering employees sufficient employment security so that they offer their ideas, hard work, and commitment in return, and most of Pfeffer's other recommendations are directly aimed at empowering employees such as encouraging teamwork through self-managed teams, adopting a more open, less hierarchical management style, offering extensive training, and encouraging information sharing. It's not difficult to see that these universal best practice recommendations are directly in line with McGregor's Theory Y. This approach is intuitively appealing because it promises the best of both worlds - higher profits through happier people. However, a number of problems have emerged around this approach to HRM. I'll highlight three of them here. First, the rhetorical promise of HRM tends to be quite different from the actual reality of HRM. Second, a universal HRM approach that focuses on maximizing the development potential of every employee can become disconnected from business strategy, and third, the general empowerment focus in HRM that is based on McGregor's theory Y tends to be very North American centric. Let's turn to the first issue, the rhetoric of HRM versus the reality of HRM. The first thing to note is even if the HR function were fully committed to implementing best practice as defined by Pfeffer for example, their power to do so can be quite limited. This is because it's usually a horizontal staff function that is predominantly only advisory in nature. Second, HRM is also subject to the hard reality of competition. Acute cost pressures for example regularly lead to mass layoffs or can lead to a push towards higher use of flexible temp workers. This reality of layoffs, union conflicts, decreasing employment security is often quite different from the rhetorical promise of smooth employment relations through empowerment training and job security, and third, the reality of the HR function is that it tends to involve a lot of administrative processes. HR is responsible for recruiting, selection processes, on-boarding, induction programs, training and development programs, performance evaluation, renumeration, processes and policies, talent management, career development, workforce planning et cetera. Quite a list. This can turn the HR function into a bureaucratic machine that business managers with line responsibilities tend not to like. Especially when HR become slow and reactive as a result of its administrative burden. So again, the promise of HRM on paper can be quite different from its reality. In addition to this first problem reality versus rhetoric, there's a second problem that emerged around HRM. It's universal approach to motivation and development can become disconnected from business strategy. This can be the case despite recent attempts within the HRM movement to transform HRM into a strategic HRM function. HRM specialists without direct business experience can sometimes struggle to translate some of their practice recommendations into a language that makes strategic business sense to line managers. For example, the link between certain forms of training and development to the bottom line can be difficult to prove. Especially in the short term. As a result, training is often one of the first things to be scrapped as soon as cost pressures increase, this is despite its universal importance to HRM strategy. This issue has long been recognized in the HRM community which has led to a push over the last 15 to 20 years or so to transform the HR function into a more proactive strategic function that has a seat at the top management table. Yet this effort has had limited success to date with debates continuing to flare up about whether perhaps the HR functions should be broken up, and a big part of its responsibility should be transferred to line managers. So, rather than accepting HRM as a new central strategic function, the very need for a central HR function continues to be up for debate especially in the US. I've now covered two problems that have emerged around HRM. The difference between its rhetorical promise and reality, and the potential disconnect between HR and business strategy. This brings me to a third problem. Both the discussions around best practice HRM based on the principle of employee development and empowerment, but also the ongoing debates about what HR's primary functions should be tend to be quite North America centric. First, the idea of empowerment which is central to the universal best practice approach to HRM sounds great, but may not work equally well across all countries. For example, employees in places like Singapore or China expect a more hierarchical, autocratic approach from their managers for cultural reasons. If these managers were to all of a sudden adopt a more participative style that emphasizes the need for open communication and creativity, many employees would be unlikely to welcome it. And second, the level of importance that is attached to the HR function varies across the world as well. In other words, its role is not questioned as much in many other countries. Professor Capelli at Wharton has shown that even in the US critical questions about the value of the HR function tend to get raised at times when it's relatively easy to recruit people, and these questions tend to disappear when the dependency on HR increases as a result of a tighter labor market. He also points out that in countries like Germany, Japan or India, the HR function is generally seemed to be much more important. This is mainly because labor laws are more restrictive and therefore require greater HR expertise. This means that cultural context needs to be taken into account when deciding on an HRM approach. What has your experience been with HRM? Are your HRM practices generally informed by McGregor's Theory Y, or is HR at your organization shaped on more about the realities of financial pressures, cultural expectations and administrative requirements? Do you have some ideas on how to make HRM more effective? One way around these three issues that I've discussed is to develop a more strategic, contingent approach to HRM, and what I mean by this is that regardless of what an HR function looks like, where it sits in the organization and what norms inform its practices and policies, you need to ensure that your HRM strategy is a central enabler of your business strategy. The other videos for this week's module will discuss how you can do this.
