October
2003 - Training questioned
The accepted wisdom is that companies
looking after their employees, providing plenty
of training opportunities, are bound to have the
edge over their competitors. Training and job
security must be at the heart of any effective
employer offering. They go with the territory.
But do they? A new report from
Watson Wyatt, the human resources consultants,
is challenging these assumptions. More than that,
it casts doubt over the effectiveness of all-round,
or "360-degree", management appraisals.
And it also questions the use of temporary workers
as a way of managing cyclical fluctuations in
demand.
Watson Wyatt's Human Capital
Index*, an annual survey of HR practices, has
centred this year on some 600 European employers,
measuring the impact of various HR strategies
on shareholder value. According to this year's
survey, the impact is growing. In the past five
years, the companies that score highly on the
measures experienced twice the increase in shareholder
value of those that do not.
So far, so good. There seems
plenty for HR departments to be celebrating. But
the picture is not quite as clear as it seems.
There is a discernible pattern in the types of
HR management that are perceived as effective.
The highest impact on shareholder
value appears to be in the areas of costs and
the pay package. Where HR can demonstrate that
it is improving the bottom line, either in helping
line managers to meet their business needs or
in improving the business's revenue earning areas
and cost control, it can increase shareholder
value by more than a fifth, says the report.
If anything, it says, the impact
is slightly larger in the way employees are rewarded
for good work and made accountable for any inferior
work. It suggests that well aligned reward packages
are important, as are pension schemes, as is providing
employees with a stake in the company, either
through the direct award of stock or through options.
Other areas that can make a significant
difference include effective recruitment practices
and providing opportunities for employees to direct
their own development. Flexible workplaces with
good two-way communications and what it calls
a collegiate "integrated leadership "
approach also help to drive value.
This is the good news. The bad
news is that some HR practices do not appear to
be adding value for businesses. One of these is
developmental training - the sort of managerial
training that provides the employee with the skills
to do a more responsible job. Not surprisingly,
this often results in the employee demanding the
better job in question, or, at the very least,
a commensurate pay rate. Alternatively, they leave
- so the employer loses the investment in their
training. In these cases, the training is good
for the employee but not for the company.
"The research suggests that
you should buy talent, not grow it. The problem
there is that if you don't grow it, who will?"
says Doug Ross, Watson Wyatt partner and co-author
of the report.
Another practice of questionable
worth, it seems, is the creation of a so-called
"disposable workforce" of temporary
employees standing between the permanent workers
and the damaging effects of fluctuating economic
cycles. The problem here, apparently, is that
the different pay rates and arrangements for different
categories of employees tend to cause resentment
and jealousy. When temporary workers are dismissed
it unsettles permanent employees just as much
as it would if the company were introducing a
redundancy programme, says the study.
The research also casts doubt
on old-fashioned paternalism. While a degree of
paternalism is acceptable, it says, it is possible
for an employer to make a workplace almost too
comfortable so that no one feels the need to leave,
or, for that matter, to work very hard.
The latest Watson Wyatt findings
will encourage those who point to the growing
evidence that good HR management can create a
significant competitive advantage. The support
for a collegiate way of working as a more effective
organisational model than the hierarchical command
and control style of management suggests also
that the findings are pointing to something more
complex than bottom-line economies. That said,
the findings do seem to reflect a new harder face
of HR.
The conclusions about training
provision only underline the tensions that have
existed for years between companies that invest
heavily in training programmes and those that
prefer to use the savings they make on an unspent
training budget to lure qualified staff away from
competitors.
The findings also conflict with
other research. A European-wide study carried
out by EP-First Saratoga, UK-based HR benchmarking
consultants, found strong connections between
investing in development training and commercial
success. "It's not necessarily causal. It
may be that successful companies can spend more
on training and development," says Maurice
Phelps, a partner at EP-First Saratoga. "But
the connection is there."
It would be a brave HR department
that abandoned its training budget, given such
conflicting evidence, but there may be a case
for revisiting the way that management training
is provided and the way that employee development
is linked to expectations of performance.
The value of these bodies of
research is that they offer a deeper understanding
of the relative effectiveness of various management
policies.
Watson Wyatt, for example, is
planning to research the factors surrounding the
apparent failure of 360-degree appraisal. "We
may be looking here at employers that have introduced
it to reluctant managers. The principle may be
sound enough but some companies and some people
may not be ready to accept this kind of appraisal,"
says Mr Ross.
Accepting assurances over the
rigour of the research, it is hard not to notice
the growing popularity of this kind of study among
HR and pay consultants - the very organisations
that stand to gain business from introducing more
sophisticated HR measures and programmes into
client companies. But it may be churlish to introduce
a note of scepticism.
The advocates of benchmarking
are sincere in their beliefs. "If anything,
HR departments are not getting into measurement
fast enough," says Mr Phelps. "Until
and unless they begin to talk the language of
business, no one will take them seriously and
they will continue to wallow at a lower level."
There seems too much agreement
between studies to ignore the linkage of HR practices
to business success. The big debate over future
HR effectiveness is likely to be centred more
on questions of emphasis and focus than on whether
or not it should command increasing influence
in organisational management.
*www.watsonwyatt.com
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