Why Aren't We Better at Managing People?

Tuesday, January 14, 2014 - 11:11

Guest post by Professor Bill Harley

The term ‘human resource management’ can be traced back at least to the 1960s, but HRM as we think of it now really emerged in the 1980s.

As US scholars looked to the East for inspiration about how to fix productivity problems in US manufacturing, they saw Japanese companies investing in their employees and treating them as valued resources, while seeking to foster employee commitment and build strong cultures.

While they may well have misread what was really happening in Japanese firms at the time, the idea that good HR practices were the key to productivity rapidly spread across the US and then the rest of the world. Since that time there have been a lot of extravagant claims made about the importance of HRM for organisational success.

If you look at the mission statements of many Australian organisations you could be forgiven for thinking that people management is the single most important factor in their continued success. In fact, many organisations don’t manage their people nearly as effectively as they might. The result: Australian organisations which are not as effective and productive as they could be.

Why is this? Is it that we don’t know how best to manage people for results?

Clearly not! From the early 1990s, research which sought to test the link between HRM and performance – productivity, reduced turnover, financial performance – burgeoned. Indeed, it wouldn’t be an exaggeration to say that the ‘holy grail’ for management researchers was to demonstrate the link between HR and performance.

But 20 years down the track, what do we really know about the role of HRM in organisational performance?

In fact, we know a lot.

First, we know that organisations that put in place systems of mutually-reinforcing HR practices – work organisation, training and performance-reward systems – outperform those that don’t, on a number of measures of performance.

Second, we know what features each of these three elements needs to have to drive performance gains.

  • Jobs that allow employees some control over decisions, as well as allowing different tasks to be done and different skills to be used, lead to superior performance;
  • The more training employees are given, the better they perform; and
  • The more resources that organisations devote to performance management and the more that they link rewards to performance, the more motivated and effective employees are.

Not only do these things contribute to performance, at the same time they make employees more committed and satisfied. Good people management can make things better for organisations and their employees.

If we know what works, why are some organisations still not implementing effective HR practices and reaping the productivity gains?

First, in spite of the volume of academic research, it seems that many practicing managers are not aware of the evidence. Second, even if managers are aware of the evidence, they do not know how to take the research and use it to inform their day to day practice.

The challenge for management researchers and educators is to take the research and translate it into practical tools which managers can apply. We must also ensure that managers are equipped with the skills to use these tools effectively their workplaces.

Bill Harley is Professor of Management and Associate Dean (Global Engagement) in the Faculty of Business and Economics at the University of Melbourne.

Bill is also Theme Leader for Managing High Performance Workplaces in the newly established Centre for Workplace Leadership. He is an internationally recognised expert on high performance work systems, who has published his research in leading international journals and acted as a consultant to numerous national and international organisations, including the OECD and the ILO.