The Evolution of HRM in North America

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The Evolution of HRM in North America

• Dr. Yonatan Reshef
• SMORG
• School of Business
• University of Alberta

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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

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The Old Model
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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

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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

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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

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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

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II . The Evolution of the Old Model
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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

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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

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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

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Taylors 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

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Taylors 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

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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 (Fords 5/day pay)
• Job security
• Employee benefits paid vacations, bonuses,
  pension plans, health insurance
• Promotion from within
• Employee participation plans

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Late 1920s Early 1930sThe 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

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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

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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

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1930s 1950s Human Relations

• Following Mayos 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

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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

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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

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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

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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)

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III. From Personnel Management to HRM
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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

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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

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Key Developments

• Stiff competition long-term organization-oriente
  d 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

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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

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QWL Experiments

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

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1980s 1990s Quality Improvement

• June 1980 If Japan Can Why Cant 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

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A New Model of Work SystemDifferent Names
Similar Meaning

• High Involvement
• High Commitment
• High Performance

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Two Work Systems

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

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Two Work Systems
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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

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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?

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IV. Determinants of HRM Transformation
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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

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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

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V. Lessons
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Lessons

• Profit profit is the invisible hand that guides
  and shapes all aspects of companys 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

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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

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VI. HRM in the Near Future
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Philosophy IResource-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

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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)

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What Is This Creature?

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

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THE END