Human Resource Management And Business Policy

O p i n i o n

H U M A N R E S O U R C E M A N A Q E M E N T A N D B U S I N E S S P O L I C Y

Jack Eaton University College of Wales, Aberystzuyth

A year ago I taught a course on business policy as part of an MBA programme. Knowing little about marketing strategy or finance, I decided to try to make a virtue of necessity by concentrating on human resource management and, through this door, introducing production management, a neglected area in Business degree schemes. When I expressed some self-doubts and misgivings to a management consultant guest speaker, she said, ’Don’t worry, in practice, business policy is often human resource management’.

Unfortunately, perceptions of both external and internal peers and of some (though not all) students were different. Although business policy has no agreed definition, one external examiner seemed to believe that he knew what it was and what it was not. Internally, I was informed by an economist that, although business policy as a term was out of date, what it now should be translated as is strategic business management and that it was ’un- satisfactory‘ to teach human resource management in this area. Finally, some students had a belief that business policy consists of case studies. In the piece that follows I wish to criticise the notion of business policy as case studies and strategy and to defend the position that business policy might feasibly be taught by reference to human resource management.

WHAT IS BUSINESS POLICY?

Business policy, called corporate strategy in the USA, may be broadly defined as long-term company planning. It is a problem child for business schools because there is apparently no clear consensus about what business policy is, let alone how a company might decide it. But it is also the darling of business schools because it can be presented as a body of knowledge and general principles.

The message to the students seems to be: ’That is what it is all about. The business policy case studies represent the kind of problems that you will encounter in industry when you leave the place.’ (Eilon, 1989)

Eilon comments that this conceptual framework is invalid on two counts. First, it assumes that the realm of business policy is indeed the one in which a young manager would be expected to operate soon after graduation. ‘Heterogeneous’ groups of students from di- verse backgrounds, including developing countries, cannot be expected to understand the burgeoning literature and are liable to become very confused. Second, however, the method of ’teaching business policy in most business schools relies heavily, if not exclusively, on case studies, claimed [to be] the essence of simulated experience’. At best this is a naive approach, for most case studies are of very poor quality and, furthermore, encourage the slick solution plucked from out of the ether. It is also possible to add a third reason for the invalidity of teaching business policy. Although, as stated, there is no clear consensus on precisely what it is as a subject, this does not prevent certain academics from having very fixed ideas about what it should contain. So far as can be ascertained, the territory of business policy would seem to include pseudo-analytical approaches, such as SWOT analysis or decision trees, plus a smattering of techniques from other functional subjects, such as critical path analysis, investment appraisal and market logistics. This is not on. Therefore it was avoided in my course. Nevertheless, since human resource management is

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HUMAN RESOURCE MANAGEMENT AND BUSINESS POLICY

central to many actual business policy decisions, and because production management is generally a neglected element in business administration courses, the human resource management component was broadened to include some perspective on production management and certain issues that have entered into business parlance. Moreover, the opportunity ought to be available to study an episode or phase in the recent history of any one actual/real company and to make an interpretation or draw some conclusions, so long as this is not equated with the wisdom of Solomon.

HUMAN RESOURCE MANAGEMENT

It may be that 'business policy' in reality boils down to decisions about people in the business, decisions about human resources. If this is not so, why are there so many management consultants who specialise in human resources? As the twentieth century draws to a close, managements increasingly recognise that labour is not a homogeneous factor of production, rather that employees represent the most costly and important resource at the disposal of the organisation, worthy of investment. As management has aimed to become more people-centred, instead of relegating this to the low status management function of 'personnel', the term human resource management has come into fashion. Opinions vary about how far this represents a change in personnel management practice (Guest, 1987), but there is a widespread view that the traditional type of personnel manager failed to promote the potential benefits of effective management of people (Skinner, 1981).

Human resource management appears to derive from theories and beliefs about motivation and other ideas connected to the subject of organisational behaviour (Whyte, 1987). There are echoes in it of human relations, but it is much more market-oriented and consumer-driven. Actually, the human resource management approach is traceable to the economic recession of 1971-81 with resultant redundancies in many manufacturing indus- tries and heavy unemployment; to the acceleration of technologcal change in the 1980s, creating the need for more flexible use of labour; to transnational capital movement and inward investment, with more amenable labour practices as one of the price tags of investment by transnational companies. In a phrase, it refers in essence to the more cost- effective use of human resources.

There was a provenance in writings by management gurus, such as Peters and Waterman (1982). They identified 'the careful development of humanistic employment to provide a strong base for unobtrusive controls supplemented by output, rather than bureaucratic controls' (Dawson, 1986:133) as a common element in corporate success. In turn, some managers supported this emphasis on human resources by reference to teamwork in successful Japanese companies. Team spirit is fundamental to the Japanese approach. The emphasis is never on individual glory but on the success of the team, in the belief that what is good for one is good for all' (Radford, 1989). There was rather less theoretical support for the switch towards HRM. Economics, traditionally the anvil of business policy concepts, based on the theory of the firm, seemed to be increasingly introspective, preoccupied with individual contracts. This navel contemplation reached its nadir with the self-evidently absurd concept of implicit contracts (Williamson, 1975; Alchian and Demsetz, 1972). If it becomes untenable to claim that contracts are the key to corporate dynamics, it is surely daft to try to suggest that what does matter are implicit contracts. The Japanese economist Morishima (1982) has remarked that a contributory factor to the Japanese economy's

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JACK EATON UNIVERSITY COLLEGE OF WALES, ABERYSTWYTH

success has been a lesser emphasis on individual contracts. Another, Odagiri (19841, whilst accepting maximisation, thinks that ‘a firm might be more appropriately regarded as a collection of specific human resources, in which human resources employ physical and financial resources to achieve their goals, as opposed to the mechanical presumption that capital employs labour‘. Consequently, he believes it more appropriate to depict the firm’s behaviour as maximising the employees’ interests, subject to a certain minimum level of the owners’ interests.

DECISION-MAKING, BUSINESS POLICY AND ORGANISATION BEHAVIOUR

Actually, the way senior executives make decisions is in the domain of organisational behaviour. Indeed, at one time decision-making was the main focus as a business studies subject. Nowadays, however, much of this theorising, especially its emphasis on profit maximising, is seen as involving excessively rational assumptions about behaviour. It also assumes availability of perfect information, past, present and future. Even econological models that envisage a nine-step framework of (i) monitoring (ii) definition (iii) specifica- tion (iv) diagnosis (v) development (vi) establishing facts (vii) appraisal (viii) choice and (ix) implementation are dubious, given human error. As a result, decision-making has utilised various models of bounded rationality that recognise constraints on the ability of individuals to process information. Instead of optimising (seeking the ideal decision) - a quest that would make too great a demand on their data-processing abilities - individuals and organisations settle for satisfactory solutions. They may do this by the use of heuristics - rules of thumb - or satisficing whereby alternatives are judged against pre-selected criteria.

According to Simon (1 9601, management decisions can be classified into two categories, programmed and non-programmed. Programmed decisions are repetitive and routine with established operating procedures. Decisions are non-programmed to the extent that they are unstructured and not susceptible to techniques, such as operations research, developed to deal with programmed decisions. It is possible to hypothesise decisions as ranging from the wholly unprogrammed, e.g. deciding on the fundamental objectives or ’mission’ of the organisation, to the relatively programmed or routine.

Some critics might argue that this layout presumes a view of rationality in decision- making that just does not exist in practice. On the other hand, it does present us with a model of how decision-making might take place in a large divisionalised company. It also leads to consideration of the most important objective of management control.

The extent to which management monitoring of the performance of individual production units or service outlets leads to management control may depend on how the firm is structured. The development of computerised management information systems has in- creased the information available to senior management. However, information has to be accurate and even then is only a necessary but not a sufficient condition for management control. We shall see that there are two views of management control. However, whether they are effective depends on corporate culture. The primary non-programmed decisions on strategy are instrumental in creating a corporate culture because they create a mission for the organisation. Achieving whole-hearted co-operation is difficult and there is no doubt that in some corporations aspirations outpace actuality (Skinner, 1978). Nevertheless, aims such as ‘Total Quality Management‘ presuppose co-operation and constructive dialogue

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FIGURE 1 Types of Decision

NON-PROGRAMMED

AIMS / PURPOSES/GOALS WHAT are we trying to do?

SEPARATE OBJECTIVES WHERE do we want to be in x years?

TACTICAL OBJECTIVES

OPERATIONAL PROGRAMMES

BUDGET ALLOCATION

HOW can we do it?

WHAT are we doing?

HOW MUCH should we spend?

TARGET SETTING

PROGRAMMED

WHAT SHOULD the expenditure achieve? (justify expenditure by spending debts)

PERFORMANCE MONITORING How are we doing/ performing?

and therefore necessitate effective human resource management. In any case, raising quality of output or service depends on having the right personnel at the right time. Business policy and decision-making must therefore include manpower or employment planning for the enterprise.

MANAGEMENT CONTROL

Students of organisation behaviour and human resource management are often asked questions about how topics in these subjects, such as motivation, relate to management control. Yet management control is often left unproblematic and rarely explicitly defined. Since management is largely about control over people and resources (Anthony, 1986), this is a glaring omission and needs to be corrected.

Management control has two main facets. In its most common usage it may be defined as the process of ensuring that business or organisation performance is according to planned targets or standards. From this perspective, management control seems to be a neutral, technological process that is an economic necessity to ensure the efficient allocation of an organisation’s resources. This perspective emphasises the co-ordination task of control - to bring together the efforts of different groups and sections in pursuit of unified objectives.

However, we must also consider another perspective on control in which it depends on power relations in the organisation. Of course, control is economically necessary in com- plex organisations. However, the concealed assumption that it is a neutral process affecting everybody similarly is possibly misleading. It might be said that, generally speaking, management works to secure a return on capital, whereas labour works for wages. In so far as this is so, they have conflicting interests and consequently different objectives. Earlier, we

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quoted the Japanese economist Odagiri as envisaging the firm as a collection of human resources with much more mutual sympathy between management and labour than under models in which capital employs labour. Nevertheless, the goals and objectives adopted for business organisations are nearly all defined by management, often without any consulta- tion with employees. Even in the typical big Japanese corporation, some disputes with the management are legitimate, though disputes with corporate philosophy and objectives are anathema.

Since there are different objectives, one task of management is to persuade and encourage the workforce to co-operate and work towards objectives chosen by management. They may have to exert power. Preferably, this resides in their own inherent authority based on their wisdom, knowledge anbd expertise. Workers may have different interests and objectives but respect the decisions of people who have managed the organisation well and ensured its survival or growth. Less satisfactorily, managers can exert power by virtue of power residing in their position as managers or they can appeal to the ’right’ to manage (in that they are specialist managers and leaving decision-making to them is the only efficient way to run a business).

At any event, to the extent that there are different interests, exercising control is a type of political process (i.e. involving power relations) in which various means (including rewards and punishments) are used by those in dominant positions to gain the compliance of those in subordinate positions. Conflicts of interest may not be prominent, even in management-employee relations or ’industrial relations’ terms. Ultimately, however, and even if coercion is a last resort, managers do have sanctions and rewards at their disposal. This derives from their control over material resources and strategic business decisions and can enable them to refuse employment to recalcitrant groups who question the way in which company resources are utilised.

Two simple examples will have to suffice. In 1989 the management of Birdseye Frozen Foods (Unilevers) took the decision to close the company’s Kirkby factory where worker performance was held to be insufficient to generate the requisite productivity. Production was rationalised at the Hull factory where the workforce had apparently complied with production targets. In 1986 Rupert Murdoch’s News International suddenly pulled out of continuous trench warfare with the printers’ union, the National Graphical Association, in Fleet Street. He had a new automated plant ready at Wapping and hired a completely new and compliant workforce who either were not union members or were members of unions ready to co-operate with management. Strategic control therefore gives management control over the production process and consequently, the power to determine how subordi- nates perform their work.

Technical Control by Management

Management control in its more technical sense is taken to refer to the co-ordination of effort towards the attainment of specified objectives. To control in this sense is to ensure that objectives are as near as possible to plan. To this end, management is required to: (i) redefine organisation goals into operational standards; (ii) measure performance; (iii) compare actual performance with operational standards; and (iv) carry out corrective action if necessary to close any observed gaps between operational

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standards and actual achieved performance. This whole process depends crucially, therefore, on feedback of information derived

from monitoring performance so that goals and standards may be adjusted as required. Evidently, in this view of management control there is a close affinity with planning. This long-range planning is more practised in West German than in British management. Whereas West German top management places strong strategic emphasis on product design and development and on process innovation, backed by considerable expenditure on research and development, British senior management is less bothered. Another important area where all the evidence shows that British management does not adopt a suffi- ciently long-term perspective is training of employees.

It is arguable that this lack of a long-term perspective in British management is caused by the dominance of finance and financial capital in British companies. The stock exchange is far less dominant in West Germany and the companies have a more stable and long-term relationship with the banks that provide capital and are often represented on the supervisory boards of companies.

British planning tends to be too narrowly focussed on finance. Many British companies are holding companies with an organisational structure based on product subsidiaries. They are decentralised and maintain a relatively small central staff, who deal with policy decisions and exert mainly financial control. BTR, Hanson Trust, GEC and Tarmac all claim that their discussion of business strategy is more or less continuous - but they have no formal planning process as such. Instead, considerable emphasis is placed on the annual budgeting process, and rather strict pay-back criteria of two to four years are imposed on most investment decisions (see Goold and Campbell, 1987). This must inhibit long-term planning.

The contrasting approach in West German management begins with organisational structure. Managements are organised by division or function. Decision-making is highly centralised. The companies employ a large central staff who maintain control over many operational and financial factors but also offer supporting services to the production units. There are control strategies, with control procedures as an integral part. That is to ensure consistency between highly detailed planning practice and actual performance. If such strategies are not consistent or congruent, corrective action may be taken. Such a notion of management control obviously necessitates the collection and evaluation of information. West German managers receive information - mainly about past performance - very frequently. The control staff gather and present it in quantitative form and it tends to be very much related to operations.

Less management control over actual operations through insufficient use of performance information means a lower degree of control in production management. This will be compounded by all the other factors that make production a ‘Cinderella’ management function in Britain. The lack of long-term investment in training and technical skills means that it is hard to find technically skilled supervisory staff. More pressure is therefore put on the production manager as a ’trouble shooter’. This and their relative low status lead to greater turnover among production managers. They may be the ’fall guys‘ blamed by workers for failure to ensure a smooth flow of production.

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Towards a Synthesis of Ownership and Control

Profits are of course vital and no joint stock corporation can exist without shareholders. However, it must be long odds against a company focussed narrowly on making short-term gains for shareholders being able to become a ‘going concern’ that contributes to society and encourages the establishment of other socially valuable business. There are times when there is a reasonable or inescapable cause for laying off workers. However, when managers neglect recruitment, disclaim any long-term commitment to the workforce and then lay off employees for asset-stripping to make short-term profits, whilst simultaneously protecting their own fringe benefits, they are acting contrary to business ethics about fairness and respect for human dignity.

In Japan and western countries alike, a company’s performance ultimately depends on the quality and talent of its human resources and on management’s success at channelling workers’ concerted efforts towards long-term goals. Whatever business a company is in, manufacturing or services, its ability to produce and market a continuing supply of products or services depends on the creativity and enthusiasm of the personnel in all depart- ments, from planning and development to production, sales and after-sales services.

Thurley and Wirdenius’s (1989) concept of a ’production system’ is apposite. It refers to any specific human organisation that has been set up with a given technology to produce goods or services at a definable level or rate. The idea of a production system is that it is an organisation with a definable and planned output. It is not confined to manufacturing but can refer to all types of work situation. ‘A production system can, therefore, produce maintenance services, marketing services, construct buildings or produce research results. In a company therefore and within a given establishment there may be a number of such systems.’ (Thurley and Wirdenius, 1989:28)

Nevertheless, a dedicated workforce is particularly important for firms in the manufacturing sector. Worryingly, Britain’s manufacturing competitiveness has been in long-term decline. Excessive power held by financial capital interests leading to preoccupation with short-term profits, a lack of interest in the production side of business among today’s managers, and bottlenecks in labour productivity, largely originating from insufficient investment in education and training, probably are all contributory causes. An underlying factor related to all these is inefficient control of workers or management of human resources.

In Britain, tackling these problems has not been helped by those who sedulously sug- gested that manufacturing did not matter too much. After all, it was claimed, the post- industrial society is centred on a service economy and Britain has great strengths in services, financial, retailing and hospitality. Firstly, this strength is less than once thought, to judge by recent deficits in invisible trade. Secondly, without a solid industrial base and effective production technologies, Britain will not be able to obtain the full potential of as yet under- exploited fields such as biotechnology and computers, nor will it be successful in converting research and development capabilities into marketable goods and services.

CONCLUDING REMARKS

This raises the fundamental question, to whom does the company belong? In other words, for whose purposes does it exist? Generally speaking, the company may be seen as a set of

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resources belonging to and serving society. For those who would have us believe that there is no such thing as society, and from influential microeconomics perspectives, the shareholders should be the effective owners, in order to impose market forces and the discipline of efficient markets.

But why do shareholders invest in shares? Some are sleeping partners, holding shares because they have been asked to do so in order to form a stable base of friendly shareholders. Otherwise, there are three basic motives. One is to make short-term profits by buying shares cheap and selling them dear. This was apparently to be admired in the 1980s with greed considered rational and even socially beneficial. The second is to accumulate profit- able long-term assets by investing in stock when it looks more attractive than other assets. The third is to sustain a company financially so that it grows and creates improved products and services.

The attitude that short-term gains are beneficial is often harmful to the interests of shareholders who hold shares for the second and third reasons with a long-term perspective, and it exploits their goodwill. Whenever shareholders looking for short-term profits are in command this is the probable outcome. Far from implementing a long-term strategy, the company will make few forward-looking investments in human resources and technology. It will pay even less attention to wider issues such as corporate social responsibilities and national industrial competitiveness.

Companies and organisations should not be hidebound by tradition. However, neither should they permit shareholders and financial operators who are looking for quick capital gains to obstruct the continuity of earnest endeavours of managers and employees who value the paternalistic legacy embodied in the company. In addition, ill-considered share transfers to companies and individuals in other countries may be perilous if, because of differences in culture and value systems, they take actions that are disruptive for management.

In general, the essence of the foregoing discussion is that managers might benefit by asking the question ‘who is the company for?’. As a result, more attention may be given to employees. Manufacturing policy and production systems are inseparable from the management of human resources. Thus, there seems a strong case for teaching courses called business policy from the perspective of human resource management.

REFERENCES

Alchian, A.A. and H. Demsetz. 1972. ‘Production, Information Costs and Economic Organisation’. American Economic Review, Vol. 62, December, 777-95.

Anthony, P.D. 1986. The Foundation of Management. London: Tavistock. Eilon, S. 1989. ’Business Policy for Beginners’, Ome a, Vol 17, no. 6,491-7 Dawson, S. 1986. Analysing Or anisatzons. London:hacmillan. GooId, M. and A. Campbell. 1887. Strate ies and Styles: The Role of the Centre in Managing

Guest, D. E. 1981 ’Human Resource Management and Industrial Relations’. journal of

Morishima, M. 1982. Why Has japan Succeeded? Western Technology and the japnnese Ethos.

Oda iri, H. 1984. ’The Firm as a Collection of Human Resources’. Economics in Disarray. Ed.

Diversified Cor orations. Oxford: Blactwell.

Management Studies, Vo1.24, no. 5,503-21

Cambridge: Cambridge University Press.

I? Wiles and G. Routh. Oxford: Blackwell.

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Peters, T.J. and R.H. Waterman. 1982. In Search of Excellence. New York Har er and Row. Redford, G.P. 1989. ’Lessons from a Japanese Acquisition: The Dunlop ease’. Anglo-

Simon, H.A. 1960. The Science of Management Decisions. New York: Ha Skinner, W. 1978. Mana ing in the Co orate Strategy. New York John K e y . Skinner, W. 1981. ‘Big s a t , No Cat:f)e: Managing Human Resources’. Harvard Business

Reuiew, Vol. 50, September-October, 106-14. Thurley, K. and H. Wirdenius. 1989. Towards European Mana ement. London: Pitman. Whyte, W.F. 1987. ‘From Human Relations to Organisational behaviour: Reflections on the

Changing Scene‘. Industrial and Labor Relations Review, Vol. 40, July, 487-500. Williamson, O.E. 1975. Markets and Hierarchies: Analysis and Antitrust Implications. New

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Iapanese Journal, Vol. 2, no. 4, January-March, 24-6. r and Row.

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Human Resource Management And Business Policy