Most firms today exist in incrementally changing product-market environments with strong competitive pressures, often from foreign enterprises. Management attention is focused on sustaining profitability, on the achievement of growth or other business objectives in the face of these external market forces. How can human resource policies and practices assist the competitive performance of the firm? This is the second outcome focus of HRM.There have been a growing number of such studies, headed by key words such as “productivity,” “performance management,” and “strategy implementation” (at the operational, managerial, and strategic levels, respectively). Let me attempt to put some of the lessons into perspective.
First, there appear to be certain relevant principles of HRM; second, there are specific challenges for HRM that depend on the competitive strategy chosen by the firm. General Principles “Performance” is an abstract concept until it has been specified.As Ouchi (1980) points out in his discussion of market-transactional mechanisms, these will fail to function unless the meaning of performance is operationalized. This simple observation has been neglected by the field of Organizational Behavior in recent decades. Yet I would argue that the most powerful tool we possess for performance motivation is the specification of performance standards and requirements—goal-settmg procedures (Locke et al.
, 1980). Management-by-Objectives in its myriads of shapes and forms is a symbol of HRM oriented to competitive performance.Since the classic Ohio studies, leadership theory has been grounded in the analysis of two basic dimensions— consideration and the initiation of structure (or relationship-oriented and task-oriented behaviors, respectively). It is the former dimension, that pertaining more to equity and human relations that has been the focus of attention in the last 30 years, as opposed to the initiation of structure or specification of performance standards. Similarly, performance motivation can be seen as a multiplicative function of ability, effort, and the direction of investment of that effort.Our concern for explaining effort either through need satisfaction or expectancy models has perhaps blinded us to the managerial importance of directing effort in appropriate directions [bear in mind that Chester Barnard viewed commitment to purpose as the central theme of organized activity in his classic work on “The Functions of the Executive” (1939)].
The significance of goal-setting procedures can be illustrated by two recent studies. The first is an unpublished study of high performing managers within a major American oil corporation.Some 80 such managers were identified, people who in successive jobs had attained outstanding levels of departmental or unit performance, leaving their departments at high levels of morale when they moved onto the next job. A study was launched to identify their common characteristics.
Initially, the in-company researchers looked for common stylistic and human qualifies, finding, to their surprise, none. What they finally discovered instead was a common pattern in the way these managers settled into their jobs—in determining and communicating feasible objectives during the first 90-days.This implies that competitive performance management begins with the organizational system for establishing performance objectives, namely the strategic and business planning cycle. It is through this cycle that coherent performance targets and standards are established (the role of human resource considerations in this planning cycle has recently been much analyzed, notably by Dyer, 1984).
When performance targets have been established, the formal human resource cycle (Fombrun et al. , 1984) omes into play—for example, the selection of people best able to perform the jobs.Without an objective setting system, this cycle is unlikely to function well. For example, as Haspeslagh (1983) found in a study of portfolio planning in diversified companies, the use of MBO-type reviews was a common characteristic of firms that had quickly and successfully implemented portfolio planning.
Executive incentive systems (the “pay for performance” philosophy that also symbolizes a competitive performance orientation) functioned well only in firms that had integrated portfolio planning and MBO-type review systems to drive these incentive systems.
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