HR’s identity crisis has been going on for far too long. But research
linking HR to organisational performance could signal a new beginning for the
The constant worry of all personnel administrators is their inability to
prove that they are making a contribution to the enterprise. Their
preoccupation is with the search for a gimmick that will impress their
management associates. Their persistent complaint is that they lack
This was written by Peter Drucker in The Practice of Management in 1955.
Change the dated "personnel administrator" to "HR
practitioner" and his words translate all too smoothly for comfort to the
present day. HR people lack foresight, influence and credibility, according to
Roffey Park’s 2002 Management Agenda1.
The CIPD, meanwhile, finds board members are mystified about what HR is for
and ignorant of the relationship between good people management and financial
performance2. Drucker is still clairvoyant; HR still worried.
The profession’s paradox
Here we have the great paradox of the profession. The apparent shift in
managerial attitude on the importance of people to business since 1955 has been
immense. In a world of me-too products, technological uniformity and global
markets, people represent an organisation’s only real source of
So if people are the greatest asset, why is it HR continues to play such a
marginal role in so many companies?
Certainly there are more HR practitioners than there used to be – 63 per
cent of organisations have increased their HR staff over the past five years3.
Yet rather than this being interpreted as a vote of confidence in the value of
HR, worries about status and the nature of HR’s contribution increase.
Boardroom presence is not everything, but it does say something that only 18
companies in the FTSE top 100 have an HR director on the board – an increase of
only two since 1999.
While companies are now putting people issues at the heart of their policies,
somehow HR is not getting recognition for putting these in place.
There are only two explanations for this. First, the ‘people are our
greatest asset’ stuff is pompous moralising. Second, the problem lies within HR
itself – it has failed to convince business leaders of the worth of good people
management and high-performance HR policies.
There is much to commend both arguments. It has become a rhetorical
obligation for senior execs to pay tribute to the importance of people in
organisations, without condescending to spell out what this means in practice.
All talk and no action
Many business leaders believe good people management is recruiting
carefully, rewarding fairly, and behaving honourably. If they were asked about
information sharing, employee voice or flexible work, there would be blank
looks and throat-clearing.
There is no off-the-peg set of HR policies that is right for all
organisations; they must trim and tailor to requirements. Yet from the
burgeoning literature of the past 20 years on the HR-performance link, there is
now a degree of agreement about what high performance HR means.
According to the CIPD’s work for the Economic and Social Research Council’s
Future of Work programme, there are 18 key practices incorporating such detailed
requirements as single-status bargaining, profit-related bonuses, flexible job
descriptions and a no compulsory redundancy policy4.
In the words of the man leading that research, take-up in the UK is
"very low". Less than 1 per cent of UK organisations employ more than
three-quarters of these practices5.
What organisations say and what they do are miles apart. Until the numbers
go up, they would be well advised to shut up.
HR has not done itself any favours. It has not noticeably capitalised on the
change of mood in business by pumping practical substance into the sentiments
of business leaders. Given the generations-old controversy about the worth of
HR, one might have thought HR departments would now be making determined
efforts to measure their contribution to the financial wellbeing of
organisations. Not so.
Many measure things like turnover and sickness, but in terms of evaluating
the link between HR and productivity, only 21 per cent of organisations bother
to do so6. It does not seem to be much more urgent in the US at 34 per cent. No
wonder HR people find it difficult to build a convincing case, if the basic
data is not there. A commitment to HR is still all hunch and intuition, just as
it always was.
The evidence mounts
The CIPD believes the future of the function rests on the evidence that has
been stockpiling about the link between progressive HR policies and
performance. A veritable mountain of research it is, too, stacked by
well-funded Americans with memorable names such as Fitz Enz, Huselid, Ulrich
and Pfeffer; 30 dense studies, and counting. Anyone masochistic enough to read
a few could not help but be impressed.
Thankfully, the message can be summed up in one sentence: the more HR
practices there are, the greater the impact on performance, (see page 26 case
studies of HRmeasurement) Some meticulous minds have even assessed HR’s
contribution as a proportion of shareholder ret-urns. Consultancy Watson Wyatt
believes firms with the best HR practices provide a return of 64 per cent to shareholders,
more than three times as much as firms with weakest HR practices7.
This is powerful ammunition. The institute is surely right in saying this
research represents the best hope for the future of HR, although it has got its
work cut out trying to popularise it.
Again one gets the feeling that in the profession, this momentous material
has scarcely provoked a murmur. Which is odd. Because it is probably the
closest thing the function will ever have to the Holy Grail – the proof it has
been lacking since 1955.
1 The Management Agenda 2002, Linda Holbeche and Claire McCartney, Roffey
Park Institute, 2002
2 Voices from the Boardroom, CIPD, 2002
3 IRS Employment Review, no 742, 17.12.2001; xperthr.co.uk
4 The Human Equation, Jeffrey Pfeffer, Harvard Business School Press, 1998
5 Effective People Management, interview with author, CIPD 2000, March 2001
6 xperthr.co.uk; as above
7 Human Capital Index, Watson Wyatt, 2002