Human resource management (HRM), both in practice and as taught in business schools, appears to display a gap between its soft person-focused rhetoric and the harsh realities of people management. While ‘good’ people management is likely to contribute to organisational performance, HRM has also been called out on occasion for promoting untested assumptions and fads, lacking a solid evidence base. In a recent provocation article, we outline how HRM occupies a tension between short-term pro-market pressures on the one hand, and a longer-term focus on inclusion and wider sustainability on the other.
The dominant narratives of contemporary HR practices emerged within a specific period of capitalism, espousing free-market principles such as the primacy of individualism and unfettered competition. Consequently, many of the assumptions of HRM, rather than founded on a strong evidence base, reflect the ideological (c.f. religious belief) culture of a particular moment in the history of capitalism. Here the financial sector and investors reign sovereign over business life to the relegation of the interests of other important stakeholders and often longer term business sustainability.
HRM is defined as a strategic approach to managing people at work. Textbook versions often focus on creating value through developing human talent, with some attention on employee welfare and advocacy. We argue that the practices in many organisations have shifted further towards a function that now seeks to extract the greatest shareholder value, and often doing so by reducing costs. The approach is underpinned by the ‘financialisation of capitalism’. Under this arrangement, the function of HR often becomes little more than an administration minder for investors who demand added value. For many executives, labour or other cost reductions (e.g. R&D) may provide a quicker or less risky fix to raise profits, instead of longer-term business development.
Recent travails that drove Elon Musk to consider taking Tesla private provide a visible example of how short-term market pressures for profit can run counter to longer-term strategic development. The problem with financially dominated capitalism is that the dash for profit means that not all investors have long-term interests at heart. It follows that organisational actions that please investors are not always “pro-business”. Without stronger corporate governance structures – such as a voice for other stakeholders with different interests – then bad decisions can follow.
In our article, we do not portray market principles, employee competition, or individualism as somehow fundamentally bad. What we do illustrate is the ideological hegemony of HRM and how it privileges market doctrines, using three contemporary HR trends that risk damaging long-term organisational health: unequal reward systems; the myths of talent management; and high-performance work systems.
Pay systems are grossly unequal and discriminatory with huge pay gaps across the corporate ladder. By attributing economic value to ill-defined qualities such as ‘leadership’, HRM perpetuates a dominant executive class where value creation is very much couched in terms of the contribution of heroic individuals rather than broader distributed leadership and organisational contribution. Even where corporate leaders are paid so-called market justified remuneration, such definitions are determined by positions of power and advantage in the first place.
The implications don’t just affect individual businesses: they impact wealth distribution and societal equalities. Across most market economies, for example, there has been an unprecedented widening pay gap, coupled with more people living in poverty who are at work than out of paid employment (‘in-work poverty’). Furthermore, with the decline in collective bargaining to provide checks and balances to excessive executive remuneration, HRM as a function of management is too close to the privileged elite, or is simply powerless to disarm dominant ideologies or correct inequalities.
The faults of talent management
Market competition and individualism also remain at the centre of other HRM practices. For example, there is the imprecise subject of talent management; something that seems to be a stage name for HRM. Talent is defined as ‘selecting those employees with the greatest potential to impact corporate value’. But this implicitly assumes all other employee roles are non-talent, which is simply inaccurate. Labelling certain selected employees as “top performers”, based on vague rules of corporate value, and others as “poor performers”, is simplistic and can be as demotivating as it is intended to be motivating. It can also lead to work-life balance and diversity problems, such as where the performance of part-time employees or those with care responsibilities is not sufficiently acknowledged. Consequently, there is the risk of discrimination and inequality, even if unintentionally. Back-office and less visible customer-facing staff can also be denied access to resources and training. As a result, talent ranking can cause widespread demotivation and intensify workforce competition at the expense of the collaboration that drives innovation.
High-performance work systems (HPWS)
HPWS include bundles of certain HR practices – such as sophisticated recruitment, voice and team working – which have been shown to be statistically linked to better performing organisations. The alleged link between people management processes and performance outcomes has become something of a holy grail of HRM: boosting corporate value while simultaneously strengthening worker well-being. However, higher performance and profit is often secured not by people working smarter, but from companies using more precarious and insecure forms of employment for many staff. Even when employer intentions are good, managerial definitions of well-being don’t always square up with employee expectations, which could promote feelings of alienation rather than mutuality. And cause and effect between certain HR practices and performance outcomes is often vague, imprecise and lack theoretical rigour.
The way HRM is taught and practiced can impede longer-term organisational and societal sustainability. Minimising these risks requires perhaps a deeper review of: a) the research methods used in the field and more robust social science evidence of actual practices; b) the way in which the subject is taught in mainstream business schools; and c), wider transparency and public accountability of the codes of ethical conduct held among professional bodies. Often on accredited programmes of learning – such as those for the Chartered Institute of Personnel and Development (CIPD) in the UK – students tend to be ‘placed in the shoes of managers’, without connecting HRM issues with wider societal debates and issues. A fuller understanding of the legitimate interests of other organisational stakeholders will help here. Understanding the historical context of contemporary business practice and variants of capitalism other than the US in Europe (e.g. in Nordic and Continental Europe) and globally will help future business leaders acquire a fuller appreciation of people and actual practices.
- This blog post is based on the authors’ paper The (potential) demise of HRM?, Human Resource Management Journal (Vol 28, Issue 3; 2018)
- The post gives the views of its author(s), not the position of LSE Business Review or the London School of Economics.
- Featured image credit: Photo by MetsikGarden, under a CC0 licence.
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Tony Dundon is professor of HRM and employment relations at the Work & Equalities Institute, Alliance Manchester Business School, The University of Manchester. He is a fellow of the Academy of Social Sciences (AcSS); a fellow of the Chartered Institute of Personnel and Development (CIPD); and was until recently editor-in-chief of the Human Resource Management Journal (HRMJ). His research has been published in leading academic journals; and recent books include A Very Short, Fairly Interesting and Reasonably Cheap Book about Employment Relations (2017, Sage) and HRM: Texts & Cases, 5e, (Pearson, 2017).
Anthony Rafferty is senior lecturer in employment studies in the people, management and organisations division of Alliance Manchester Business School (AMBS). He is also senior researcher at the Joseph Rowntree Foundation-funded inclusive growth analysis unit (IGAU) at Manchester University. His current research chiefly concerns issues surrounding sustainable and inclusive economic growth, human resource management, and labour market inequalities.