Time to reflect on HR’s influence

Academics are increasingly rowing back from the view that HR
lies at the heart of corporate success

Listen carefully and you may be able to hear the squeak and scrape of
backpedalling. Academics would not call it backpedalling at all; muttering
instead of increased caution, insufficient data and early days in a new field
of study. Fine. We’ll borrow a C of E-ism and call it ‘a period of reflection’.

But whatever we choose, it seems the cocksure chants of four or five years
ago that ‘good people management pays’ – that progressive HRM feeds directly
into the bottom line – are being remorselessly picked at. Taking their place
has come a new language of ifs and buts, nuance and caveat.

In the British Journal of Industrial Relations, for instance, some of the
leading voices in the field, including professors David Guest at Kings College
and Jonathan Michie at Birkbeck, argue there is indeed "a strong association"
between the deployment of HRM practices and corporate performance. But they
cannot show that HRM causes organisations to perform well because the
statistical correlation is too weak.

There might be reverse causality in operation – successful companies decide
to implement high performance HR practices. Besides, businesses that are good
at managing people are often good at lots of other things too.

It is a more refined message than a study by the same authors three years
ago. Effective People Management (CIPD, 2000) analysed the 1998 Workplace
Employment Relations Survey and detected a link not only between the number of
progressive HR practices in operation and financial performance, but also in
the way those practices were applied. In other words, how HR is managed matters
along with the range of practices used within it.

This in turn could be seen as a refinement on previous studies.
"Practices that encourage workers to think and interact to improve the
production process are strongly linked to increased productivity", claimed
a CIPD study in 1999. Today, such a statement would have half a page of
hair-splitting footnotes in tow.

The problems with the much talked-up ’30 studies that link HR to bottom line
performance’ are legion. Some only look at one point in time rather than at the
correlation between HRM and performance across a longer period of upturns and
downturns, lay offs and expansions.

There is an over-concentration of evidence from larger manufacturing
organisations, rather than from smaller service-orientated ones. Yet, the
practices appropriate for a company aiming at the top of the market, competing
on the uniqueness of its products and seeking to motivate high-cost, high-skill
and easily bored people must be different from a company selling bulk at low
cost, and requiring merely pairs of hands from its workers – ideally without
the bother of a head and a heart attached.

The colossal diversity of organisations has only recently started receiving
proper attention from researchers who came to their subject with the convert’s
appetite for simple, universal messages.

To be fair, much of the original certainty came from America. Jeffrey
Pfeffer’s 1998 book The Human Equation, for example, claimed that by applying
seven progressive HR practices (job security, careful recruitment, teamwork,
decentralisation, incentive pay, narrow status differentials and extensive
communication) businesses could become more successful.

This was always a bit far-fetched. A duff company with thick managers is not
suddenly going to transfigure itself by adopting a handful of fashionable
theories, any more than a fat man will become thin after a perfunctory bench
press. But Mark Huselid’s well-known books and journal articles on the impact
of HRM also came packed with what now feels like slightly zealous conviction.

Here, the data was never so clear-cut, and each new study adds its own
sprinkle of caution. "There is enough to be encouraged – but quite when
and why HR relates to performance, we are not yet in a position to know,"
says Toby Wall, director of the Centre for Innovation and Competitiveness,
based at Sheffield University.

"When you go into the existing research in detail, the evidence of a
link becomes less and less convincing. And then much of this work is based on
the assumption that these practices are possible to copy. Imitating an
effective way to manage people is extremely difficult," he adds.

Explaining the nature of the connection – the ‘black box’ as it is sometimes
known – is the subject of yet another recent CIPD report by John Purcell,
professor of HRM at Bath University.

In keeping with the new mood, it is far too subtle a work to be boiled down
for hack-friendly bullet points, so I shall mention just two fecund ideas it
advances that at least have the merit of ringing true. First, that
dissatisfaction with existing HR policies has a greater demotivating effect
than the absence of HR policies – in other words, that badly run HR is worse
than useless. And second, that freedom is contagious: allowing managers maximum
discretion in the way they manage people in turn feeds the level of
discretionary effort employees are willing to give.

Yet, if HR is no longer the motor of success we had previously come to
think, where does that leave the profession?

Readers may have noticed sundry quasi-religious references in this article
and these, I hope, are quite fitting.

The value of good people management is and will always be a matter of faith,
conviction, and of basic intuitive rightness, irrespective of clever proofs
that may one day emerge. The ‘period of reflection’ changes nothing.

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