The Evolution of HRM in North America

Dr. Yonatan ReshefSMORGSchool of BusinessUniversity of Alberta

My Key Objectives

• Identify stages in HR development in North America

• Highlight major determinants of HR transformation

• Explore the role of unions in HR development

• Position current HR practices, policies, and laws in a historical context

• Speculate on future HRM directions• We will not discuss HR practices since

you should have enough knowledge about them

I. The Old Model

In The Beginning …

• Until around WWI, employers had no personnel function

• Nearly all aspects of hiring, firing, pay, job assignments, etc. were left to the discretion of individual foremen

• The prevailing model of work motivation was the “drive system” = coercive supervision

And Then …

Labor unrest + the booming economy of WWI forced employers to develop a new system of labor management. I refer to it as the ‘Old HRM Model.’ This system was based on four basic elements:

PERSONNEL MANAGEMENT

EMPLOYEE WELFARE BENEFITS

HUMAN RELATIONS EMPLOYEE

REPRESENTATION

Basic Assumptions of the Old Model

• The North American economy is relatively self-contained and immune to foreign competition

• The employment is full-time, long-term, and relatively stable; the typical workplace is a large firm

• The corporation is a stable sovereign organization with a clear division of labor

• Everyone abides by the “social contract”

The Old Social Contract

• Hierarchy – lines of authority and levels of status are clearly defined; clear division of labor

• Paternalism – the company is viewed as a ‘family’ by employers and employees

• Entitlements – to a job, a steady pay, and generous benefits

• Permanence – in the employer-employee relationship, i.e. long-term job security

II . The Evolution of the Old Model

The Late 19th and Early 20th Century

• Socialist and anarchist ideas gained currency in North America

• Recurring political and labor unrest• Bitter labor disputes• High Labor turnover due to angry

workers and powerful and heavy-handed foremen who had unlimited authority over workers

1917/1918 – World War I

The booming economy of WWI created problems for employers

► Tight labor market

► High turnover► Waste and

inefficiency► Widespread

strikes► Union growth

The State of Personnel Management

• The practice of personnel management barely existed

• “Labor policy” in most firms was informal and decentralized

• Labor was typically treated as a commodity• Labor was dealt with in an authoritarian

manner• There was little legislation to protect worker

rights

Taylor’s Scientific Management

• Labor problems (e.g., waste, low productivity, high turnover, and the adversarial relationship between labor and management) arose from defective organization and improper methods of production in the workplace

• Management used rules of thumb to decide on what constituted a fair day of work

Taylor’s Scientific Management

• Production was governed by universal and natural laws that were independent of human judgment

• The object of Scientific Management was to discover these laws and apply the "one best way" to all managerial functions such as selection, promotion, compensation, training, and production

Welfare Capitalism

• In their search for ways to deal with the Labor Problem, many companies (e.g., GE, Ford) began to practice “welfare work” (the early 1920s)

• Employers sought to win workers’ cooperation and loyalty through positive HR practices such as:• Above-market pay (Ford’s $5/day pay)• Job security• Employee benefits – paid vacations, bonuses,

pension plans, health insurance• Promotion from within• Employee participation plans

Late 1920s – Early 1930s:The Great Depression

• The specter of bankruptcy forced companies to drastically reduce labor costs through wage cuts and layoffs

• Loose labor market made it far cheaper for employers to “motivate” workers through threats of layoffs than the promises of high wages and fair treatment

• Labor unrest subsided = less pressure on managers to win over workers

• Apparently, “welfare capitalism” practices were market driven; they were not based on a new theory of management

The 1930s• In 1933, the US government passed the

National Industrial Recovery Act; Section 7 dealt with labor issues and became, 2 years later, the National Labor Relations Act (Wagner Act)

• In Canada, Wagner Act was the basis for the 1944 Order in Council PC 1003

• Unprecedented union growth• Companies had to design employment policies

that complied with the government regulations (e.g., Social Security Act of ’35; Fair Labor Standards Act of ’38) and negotiate with unions, or preempt union organizing

• For example, the NLRA banned the welfare capitalist employee representation plan

The 1940s: World War II

• The combination of wartime production demands, the fast growth of unions, and the need to negotiate collective agreements forced many companies to expand their personnel staffs and systematize their HR practices

• Companies developed personnel practices such as job classification systems, hiring standards, uniform pay grades, and written disciplinary procedures

1930s – 1950s: Human Relations

• Following Mayo’s “Hawthorne experiments,” (1927-1932) managers accepted the basic idea that workers responded not only to economic inducements but also to psychological and social influences

• Cooperation/communication was a basic human need

• The human imperative to cooperate render groups, but not formal teams, the vehicle to elicit extra effort from and improve control of workers

Human Relations

• The refinement and implementation of this basic idea did much to humanize the employment relationship

• The basic power structure at work remained intact. The Taylorist division of labor remained

• Good managers took care of their employees and use it to elicit their loyalty

Determinants of Personnel Management

• The growth of large multi-plant corporation and the need to professionally manage labor relations

• Prosperous economic conditions in the 1920s that helped require and support a welfare capitalism

• Labor unrest• The desire to avoid unionization

through effective management practices

Personnel Management: The “Technical/Maintenance Side” of HRM

• Division of labor• Central hiring offices• Rules for disciplining and dismissing

workers• More systematic approaches to training• Performance evaluation• Job analysis to aid in employee

selection and rationalize wages• Employee representation plans

The Centrality of the Firm

• Over the 40 years that followed the Second World War, firms came to be relied on as the institution that would provide, either on their own or through collective bargaining, secure long-term jobs and careers, private reserves for retirements, health insurance for workers and their families, and training and education (Osterman et al., Working in America, 2001: 61)

III. From Personnel Management to HRM

Key Developments

• New Technology – new technology allowed outsourcing of many activities and handling many administrative aspects of HR electronically; firms focus more on “core competencies”

• Outsourcing of HRM responsibilities (e.g., compensation, hiring, training)

• Globalization – HR experts have to deal with expatriates – preparing them for work abroad and for successful return to their home country

Key Developments

• Diversity – HR were asked to reconcile the social demand that employment practices be open and inclusive with respect to diverse cultures and lifestyles and the need for high-performing employees

• Family-Work Balance – more and more employees are interested in leisure

• Flexible Employment – the number of part time workers and independent contractors grows

Key Developments• Stiff competition – long-term

organization-oriented HR decisions give way to short-term market orientation

• Risk of low firm performance is transferred to employees whose job and compensation stability grows more and more fragile

• Strategic HR – companies are more focused on generating shareholder value, and they look to HR experts to take more long-term, profit oriented perspective; HR is a source of competitive advantage and value added (not only cost cutting) initiatives

1970s – 1980s: Quality of Work Life

• Growing dissatisfaction among workers with unchallenging jobs and heavy-handed management prompted managers to rethink the way work was organized and managed

• Several recessions, oil crises, deregulation, and mounting foreign competition brought considerable pressures to bear on managers. Management learned that quality, not only cost, was a key to market success.

• The value of people increased, (hence the shift from the term “personnel management” to “HRM”) and opened the door to a new conceptualization of how work is organized and the role of HR specialists

QWL Experiments

• Reorganization of tasks and technology• Self-directed work teams• Joint problem-solving groups• Improved communication between

management and labor• Quality circles

1980s – 1990s: Quality Improvement

• June 1980 – If Japan Can… Why Can’t We?• Trying to stay competitive, many companies

looked at Japan and took up TQM and reengineering.

• HR departments became more focused on serving internal customers, training workers in QI techniques, and facilitating organizational change and organizational learning initiatives

• Greater emphasis on union avoidance in the US (greenfield sites) called for more work reform

A New Model of Work System:Different Names – Similar Meaning

• High Involvement• High Commitment• High Performance

Two Work Systems

• In the past two decades, we have witnessed two work systems which exist side by side

Two Work SystemsHRM Practices Command & Control High Performance

Internal career opportunities

Hiring mainly from outside the firmVery little use of internal career ladders

Hiring mainly from within the firmExtensive use of well defined career ladders

Training No formal training provided

Extensive formal training provided

Result-oriented appraisals

Performance measured by quantifiable output

Performance measured by behavior-oriented measures

Incentives Mainly extrinsic Extrinsic and intrinsic

Employment security

Little HighBenefits to “downsized” employeesFormal dismissal policies

Participation in decision making

Little High

Job descriptions Jobs are clearly/tightly defined

Jobs are broadly defined

Is There a Third Work System?

• Less job security• Less internal development - employees

are expected to develop their own skills• Employees bear more risk – rewards are

closely linked to performance• Employees are more connected to the

market than to a particular company (employability vs. job security)

• Employment relationship is market based- performance risk is devolved to employees

Implications to Managers

• Retention – how to retain key skills• Recruiting = poaching (e.g., academia)• Training/Development – Do employers

have any incentives to invest in employee development?

• Loyalty and commitment – can uncommitted employees be empowered?

• Can employees be committed to an organization that is not committed to them?

IV. Determinants of HRM Transformation

Factors Influencing HRM Evolution

• Public Mood/Sentiment Legislation/new HR practices (safety & health, the importance of family-work balance, diversity of workforce)

• New Technology – monitoring (middle management becomes obsolete); outsourcing

• Research

Factors Influencing HRM Evolution

• Critical events – wars, revolutions, depression, violent strikes

• Labor shortage and labor unrest• Intellectuals – Radical vs. Conservative• National culture – Individualist vs. Collectivist• Unions – N. America vs. Germany/Sweden• Employers’ attitudes• The state – Voluntarism vs. Political Exchange;

regulating IR processes vs. regulating IR outcomes

• HR developments abroad

V. Lessons

Lessons

• Profit – profit is the invisible hand that guides and shapes all aspects of company’s HR practices

• Strategic HR – the more that labor issues have the potential for impacting the bottom line, the more that top management will start to look at HR from a strategic perspective

Lessons

• Contingency – HR practices that work well for one company/country or in one situation may be an embarrassing failure in another

• Alignment/Bundling - management must adopt a holistic, systems view of HR and mix and match HR practices so they interact with each other to maximize overall performance

• Human Resources are People – every person wants to be treated with respect and fairness

VI. HRM in the Near Future

Philosophy I:Resource-Based Strategy

• HR managers are advocates on behalf of employees

• The objective of HR is to secure competitive advantage based on distinctive employee resources

• Human resources and HR practices are inimitable sources of competitive advantage.

• Therefore firms have to invest continuously in their employees – they have to “make talent” rather than buy it

• The above calls for a long-term, organization-oriented approach to HR development

Philosophy II: ‘When the Times Get Tough, Throw Them Away’

• HR managers are not advocates on behalf of employees

• The objective of HR is to minimize labor cost and respond quickly to changing market circumstances

• Employment and pay are market-oriented• This orientation invites a short-term approach

to employees’ well being, training, commitment, etc.

• This philosophy leads to the outsourcing of many HR functions (to save money); and the devolution of HR authority to line managers (to respond quickly to market developments)

What Is This Creature?

Can we improve an organization’s performance by fancifying its “spoiler,” that is adding HRM techniques, without nurturing its “head,” that is soft side (e.g., culture, training and development)?

THE END