However, the original concept of HRM had a strong theoretical base that still has relevance to the practice of people management. As David Guest (1987: 505) commented at the time: ‘Human resource management appears to lean heavily on theories of commitment and motivation and other ideas derived from the field of organizational behaviour’. These theories are summarized below.
The significance in HRM theory of organizational commitment (the strength of an individual’s identification with, and involvement in, a particular organization) was highlighted in a seminal Harvard Business Review article by Richard Walton (Walton, 1985).
Source review From control to commitment – Walton (1985: 77)
Workers respond best – and most creatively – not when they are tightly controlled by management, placed in narrowly defined jobs and treated as an unwelcome necessity, but, instead, when they are given broader responsibilities, encouraged to contribute and helped to take satisfaction in their work. It should come as no surprise that eliciting commitment – and providing the environment in which it can flourish – pays tangible dividends for the individual and for the company.
The traditional concept of organizational commitment is very similar to the more recent notion of organizational engagement
Organizational behaviour theory
Organizational behaviour theory describes how people within their organizations act individually or in groups and how organizations function in terms of their structure, processes and culture. It therefore influences HRM approaches to organization design and development and enhancing organizational capability (the capacity of an organization to function effectively in order to achieve desired results). The following are the characteristics of organizational behaviour theory.
Source review Characteristics of organizational behaviour – Ivancevich et al (2008: 11)
- It is a way of thinking about individuals, groups and organizations.
- It is multidisciplinary – it uses principles, models, theories and methods from other disciplines.
- There is a distinctly humanistic orientation – people and their attitudes, perceptions, learning capacities, feelings and goals are of major importance.
- It is performance-orientated – it deals with the factors affecting performance and how it can be improved.
- The use of scientific method is important in studying variables and relationships.
- It is applications-orientated in the sense of being concerned with providing useful answers to questions that arise when managing organizations.
Motivation theory explains the factors that affect goal-directed behaviour and therefore influences the approaches used in human resource management to enhance engagement (the situation in which people are committed to their work and the organization and motivated to achieve high levels of performance). The two most influential motivation theories are those relating to intrinsic motivation and expectancy theory.
Intrinsic motivation refers to the self-generated factors affecting people’s behaviour, which may arise from the work itself. Deci and Ryan (1985) suggested that intrinsic motivation is based on the needs to be competent and self-determining (that is, to have a choice). Intrinsic motivation can by enhanced by job or role design. In their job characteristics model, Hackman and Oldham (1974) emphasized the importance of the core job dimensions as motivators, namely: skill variety, task identity, task significance, autonomy and feedback. This links with the proposal by Walton (1985: 79) that: ‘In this new commitment-based approach to the work force, jobs are designed to be broader than before, to combine planning and implementation, and to include efforts to upgrade operations, not just maintain them’.
Expectancy theory explains that motivation will be high when people know what they have to do to get a reward (which may be financial or nonfinancial), expect that they will be able to get the reward, and expect that the reward will be worthwhile. The theory recognizes that people have different types of needs, wants and goals and that this must be taken into account in devising HR policies and practices, especially those concerned with motivation and reward.
Expectancy theory was pioneered by Vroom (1964) and developed by Porter and Lawler (1968), who proposed that high individual performance depends on high motivation plus possession of the necessary skills and abilities, and an appropriate role and understanding of that role. From this, as Guest (1997: 268) declared: ‘It is a short step to specify the HR practices that encourage high skills and abilities, for example careful selection and high investment in training; high motivation, for example employee involvement and possibly performance-related pay; and an appropriate role structure and role perception, for example job design and extensive communication and feedback’.
The ‘AMO’ formula as set out by Boxall and Purcell (2003) states that performance is a function of Ability + Motivation + Opportunity to participate. HRM practices therefore impact on individual performance if they encourage discretionary effort, develop skills and provide people with the opportunity to perform. The formula provides the basis for developing HR systems that attend to employees’ interests, namely their skill requirements, motivations and the quality of their job.
Human capital theory
Human capital theory is concerned with how people in an organization contribute their knowledge, skills and abilities to enhancing organizational capability and the significance of that contribution. As Jackson and Schuler (2007: 25) stated: ‘Organizations can use HRM in a variety of ways to increase their human capital… For example, they can “buy” human capital in the market (eg by offering desirable compensation packages) or “make” it internally (eg by offering extensive training and development opportunities)’.
Resource dependence theory
Resource dependence theory groups and organizations gain power over each other by controlling valued resources. HRM activities are assumed to reflect the distribution of power in the system.
Resource-based theory, often referred to as the resource-based view, blends concepts from organizational economics (Penrose, 1959) and strategic management (Barney, 1991). The theory states that competitive advantage is achieved if a firm’s resources are valuable, rare and costly to imitate. HRM can play a major part in ensuring that the firm’s human resources meet those criteria.
Organizations conform to internal and external environmental pressures in order to gain legitimacy and acceptance.
Transaction costs theory
Transaction costs economics assumes that businesses develop organizational structures and systems that economize the costs of the transactions (interrelated exchange activities) that take place during the course of their operations. The approach used will take account of the phenomenon of bounded rationality (the extent to which people behave rationally is limited by their capacity to understand the complexities of the situation they are in and their emotional reactions to it) and the tendency toward opportunism (satisfying self-interest). To take advantage of bounded rationality and minimize opportunism, implicit and explicit contracts are made and HRM practices are set up to manage these contracts.
Agency theory, also known as principal-agent theory, explains that in most firms there is a separation between the owners (the principals) and the agents (the managers). The principals may not have complete control over their agents. The latter can therefore act in ways that are not fully revealed to their principals and that may not be in accordance with the wishes of those principals. Agency theory indicates that it is desirable to operate a system of incentives for agents, ie directors or managers, to motivate and reward acceptable behaviour.
Contingency theory states that HRM practices are dependent on the organization’s environment and circumstances. This means that, as Paauwe (2004: 36) explained: ‘the relationship between the relevant independent variables (eg HRM policies and practices) and the dependent variable (performance) will vary according to the influences such as company size, age and technology, capital intensity, degree of unionization, industry/sector ownership and location’.
Contingency theory is associated with the concept of fit – the need to achieve congruence between an organization’s HR strategies, policies and practices and its business strategies within the context of its external and internal environment.
Karen Legge (1978: 97) exercised a major influence on the acceptance of the relevance of contingency theory. She observed that: ‘Contingency theory in its positive sense just makes the theoretical point that it is “contingencies” in an organization’s environment that, acting as both constraints and opportunities, influence the organization’s structure and processes’. She also produced the following suggestions on applying contingency theory.
Source review Contingent approach to managerial problem solving – Legge (1978: 99)
- An objective-setting exercise, based on a diagnosis of what specific objectives are appropriate to the organizational context involved.
- An analytical classification of the alternatives (whether payment systems or management styles or different approaches to reorganizing work) that are the subject of the design exercise.
- An analysis, preferably involving the construction of a dynamic processual model, of the context in which such an alternative is to apply.
- The selection of one of the alternatives on the basis that it ‘fits’ the context in which it is to operate in such a way as to facilitate the achievement of the specified objectives.
- A recognition of the need to evaluate systematically not only the basis for selecting a specific alternative in the first instance, but its degree of success following implementation.