HRM in UK HOspitality industry

TRENDS AND EMERGING VALUES OF HUMAN RESOURCE MANAGEMENT AND THE EFFECT IT HAS ON ORGANISATION CULTURE IN RESPECT TO STAFF TURNOVER AND STAFF RETENTION WITHIN UK HOSPITALITY INDUSTRY

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October 2005

Abstract

Travel and tourism including hotel industry are assumed as parts of hospitality industry . Large number of jobs are generated in hospitality industry . Tourism is spread worldwide and thus becoming

a very large source of employment . Despite the growth of hospitality industry worldwide , employees are undergoing certain problems . Turnover rate of employees in hospitality industry is increasing . Several factors contribute to turnover and retention of staff in hospitality industry This is due to inefficiency of human resource management . This addresses human resource management issues with respect to staff retention and turnover

Evidence suggests that for the UK hospitality industry as a whole neither quality management nor human resource management (HRM ) is being embraced as a management function , but that they remain divorced from and subordinate to strategic business planning . Conversely , in a relatively recently opened , successful hotel in Edinburgh , both quality management and HRM are well developed and integrated . That this is the case suggests that there may be a direct association between commercial success in the hospitality industry , quality and HRM . The aim of this is to analyze the relationship between strategic HRM and quality in the UK hospitality industry from theoretical and practical perspectives , and to identify the implications of this for the industry

Table of Contents

Chapter One Introduction .3

Chapter Two : Conceptual Analysis .4

Chapter Three : Evidence and Arguments .42

Bibliography

Introduction

Statement of the Problem

Human resource management in the hospitality industry in the United Kingdom is facing the problem of staff turnover largely . More and more employees are leaving the industry . The operational programmes for tourism have provided a welcome level of investment in training , but concerns exist regarding the ability of the industry to meet its medium-term needs and whether , training provides a sufficient range and mix of skills . The recruitment and training challenges facing the industry have service quality implications for sustainable tourism growth . It is clear that the human resource factor in tourism needs to be examined

Purpose of the Study

The purpose of the research is to examine the hypothesis that retention is a phenomenon involving questions of motivation , job satisfaction commitment , and rewards and continuing professional development

Importance of the Study

This study is very important because it will find out the human resource factor in tourism that affects staff turnover and retention . This challenge will be addressed under the following headings : retention turnover , commitment , motivation /job satisfaction , organisational culture and image , reward management and continuing professional development

Conceptual Analysis

Travel and tourism is the world 's largest industry (10 .7 of the global economy ) and is the world 's largest generator of jobs , employing 225m people (19m in the EU (ITIC , 1998 : 34-42 . Undoubtedly , tourism is a growing international industry that makes a significant contribution to employment . The many distinctive characteristics of tourism and the hotel industry n particular , have contributed to the dilemma of labour supply currently pervading the industry . Baum (1996 : 207-209 ) maintains that industry structuring and human resource provision as they currently exist in the tourism industry will give rise to general personnel and specific skill shortages in many European countries in the future

Labour Shortage

As early as 1991 , an Economist Intelligence Unit report attributed a global shortage of labour in the international hotel industry to the rapid growth and the high turnover rate n the industry . The 1995 International Tourism Labour Market Conference stated that the difficulty in recruitment for the industry was due to the unattractive payment and working hours . Price (1994 : 44-62 ) attributes a skills shortage within the industry to the legacy of years short-term management and lack of investment in people . A 1996 US consultancy survey reports that the labour shortage problem is compounded by the traditional reputation of the hotel industry for paying low wages . The 1996 Irish Hotel Federation annual meeting highlighted the seriousness of the work force problem within the Irish Hotel and Catering Industry

The Problem of Job Retention-Contextual Factors

In the 1990s , the twin concepts of ethics in management and social responsibility in aspects of career structure have become high pro issues on a global scale . In recent years , the tourism industry in the UK and elsewhere has been increasingly challenged on ethical issues most notably its impact on the environment and the pay and working conditions of its employees . In that a firm upholds its reputation as a good employer , employees need to be assured that career development and training is available to them . Career development is vital if the organisation is to buy in the support and commitment of employees to the business plan . According to Comrade , Woods and Ninemier (1994 : 16 training is accepted as improving employee productivity , work quality and customers ' perception of an organisation . In a US employee survey on whether training would have an influence on their performance , 93 (141 people ) agreed that improving skills and knowledge would encourage them to stay at a hotel property and 63 reported that they would leave if they were not involved in a long-range training programme

In a study of employee attitudes in more than 1 ,000 organisations in the US , the 1995-96 Hey Employee Attitude Survey shows that employees are generally content with their compensation , relative to other factors that also have an impact on retention . Data indicates that their key cause for concern is pay equity within the organisation retention issue to the extent that it affects employee morale (Weiss , 1997 : 3 . Weiss goes on to state that , by employing the full range of management levers companies will not only begin to solve the retention problems n a cost-effective way , but also contribute to improvements in overall business performance . There levers are as follows

Opportunity for advancement

Empowerment

Challenging and interesting work

Job security

Respectful treatment , and

Employee recognition

Referring to hotels and guesthouses in Ireland , a CERT survey highlights a severe skills shortage across the sector . According to CERT , a survey conducted revealed that only 13 of graduates are still in their first employment , whereas 39 of all graduates have held four or more jobs since graduation . Their reasons for leaving were found to be related primarily to poor pay , irregular hours , no career prospects and lack of job satisfaction . A further CERT report found that the factors with which employees were most dissatisfied were pension provision , rewards opportunities for training and qualifications

Job Mobility

Regarding job mobility , in a survey conducted by Industry Week that drew responses from 517 managers below the rank of CEO and president , only 49 say they were fairly confident they would be with their current employer five years from then , whether by the company 's choice on their own . Loyalty and brand identification with one 's company has never been lower , as shown by Industry Week surveys dating back since 1979

Turnover Culture

With respect to turnover culture , one study found that turnover culture was the most important determinant in leaving , followed by job search behaviour , job opportunity , organisational commitment , union loyalty job satisfaction , career development etc . Lydna (1991 : 26-41 ) suggests that turnover in particular is negatively correlated with higher levels of commitment . Mottaz (1986 : 214-228 ) found that work rewards have a strong positive effect on organisational commitment . Other researchers have found support for correlations between high commitment and perceived equity of rewards . Vanderberg and Lance (March , 1992 : 3 which verifies the hypothesis that commitment causes satisfaction examine the causal link between job satisfaction and organisational commitment in the study

Inherent to the job should be a learning and growth experience According to Mullins (1996 : 78-94 , high turnover is usually a function of negative job attitudes and /or low job satisfaction , combined with an ability to secure employment elsewhere . The discussion by Heskett el al (1990 : 56-78 ) is predicted on the Service Profit Chain , a causal model based on the proposition that internal service quality drives employee satisfaction , which enables the delivery of high value service resulting in customer satisfaction , leading to customer loyalty , which in turn produces profit and growth

Regarding working conditions Capowski (March , 1996 : 47-56 ) states that flexible work options improve retention , increase morale , enhance customer service and boost productivity . Data obtained from a study of the work-life of public hospital pharmacists suggest that intrinsic motivators are the most important factors that affect an employee 's satisfaction and dissatisfaction . These motivators include opportunities for advancement , recognition of performance , management 's treatment of employees , responsibility , opportunities for developing friendship and a good relationship with the supervisor . With respect to motivation Mullins (1996 : 78-94 ) draws a useful three-fold classification for the motivation to work

Economic rewards

Intrinsic satisfaction

Social relationships

Alderfer condenses Maslow 's five levels of need into three , based on the core needs of existence , relatedness and growth . Heyel (1982 : 23-34 identified Herzberg 's satisfiers as achievement , recognition , work itself , responsibility , advancement , growth and the dissatisfiers include salary , company policy and administration , supervision , working conditions , interpersonal relations

Reward Management

Mullins (1996 : 78-94 ) highlights economic rewards as one of his three-fold classification for the motivation to work . According to Gunnigle et al (1997 : 84-98 , reward management is a critical component of work-force management strategies , particularly in helping to attract and retain employees and in influencing performance and behaviour at work . In addition , research indicates that those organisations that give the most rewards tend to attract and retain the most people but arguably , not always the best people . Similarly , Magurn (1977 : 59-78 discovered that if the rewards offered are to attract the right staff and to retain them , then they must be constructed on a sound basis . They should be seen by all to be fair and equitable and have a built-in system that allows for periodic review , as well as a means of increasing the rewards in proportion to the effort made . According to a nationwide survey by Coopers and Lybrand n the US , in exit interviews , workers are more likely to say they changed jobs for money than for any other reasons . It was found that although money can certainly play a part in turnover rates , what usually causes people to leave is a breakdown in their relationship with their supervisor

Regarding fringe benefits , a 1988 survey (Gunnigle , Morley et al , 1997 78-94 ) of 579 organisations conducted by the Federation of Irish Employers , found that 79 of companies had a pension scheme for all or some employees . A 1990 survey (Gunnigle , Morley et al , 1997 : 78-94 carried out by the Federation of Irish Employers found that , of the 515 companies questioned , 351 (68 ) had sick pay schemes for full-time manual workers and 424 (82 ) had schemes for white-collar grades . In addition , over 75 of private sector companies have VHI schemes in operation for employees . Another issue is that of performance-related pay , Forty-five per cent of Irish-owned respondents have introduced such schemes since 1991 (Gunnigle , Morley et al , 1997 : 78-94 . Profit sharing is another such scheme under which employees , in addition to their normal remuneration , receive a proportion of the profits of the business . Profit-sharing may take a number of forms and it is largely at the direction of the employer and employees to decide to what measure of profit the incentive should be tied , what percentage should be allocated and how it should be administered to employees . As stated by Gunnigle Morley et al (1997 : 78-94 ) approximately 19 of managerial employees 13 of professional / technical and clerical employees and 10 of manual workers are covered by such schemes . Perhaps the most appropriate incentive scheme operable in the hotel and catering industry is one based on merit rating . This is a method of payment based on management 's judgement of an individual 's qualities and aptitudes

Continuing Professional Development

According to Pedler et al (1989 : 34-53 , the most concise definition of the learning organisation is an organisation that facilitates the learning of all of its members and continuously transforms itself . It is generally accepted , for example that training does the following (Comrade et al , 1994 : 16

Improves employees ' productivity

Improves employees ' work quality

Improves customers ' overall perception of an organisation

Increases properties ' profit levels etc

The Forfas Report (1996 : 19 ) found that management and operational deficiencies are severely damaging the competitiveness of Irish-owned industry . The highly valued employers of the future will not be those that offer the highest rates but rather those that offer some form of training . Career development is vital , if the organisation is to buy-in the support and commitment of employees to the business plan . According to Weiss (1997 : 3 , too many companies allow their employees ' learning curve to drop off after a honeymoon period of about 18 months , which is perhaps why so many graduates view their first job as merely a launch pad to higher things . Effective training programmes can bring considerable benefits , as the training allows employees to activate coping mechanisms to alleviate the stress in customer transaction Mottaz (1986 : 214-228 ) survey showed that career development and training was one of the top three indicators of job satisfaction and motivation . Thus , there seems to be an overwhelming case for training and development as an aid to employee retention . It is also found that there is a definite correlation between training and low staff turnover From the following data reported by Gunnigle , Morley et al (1997 56-74 , the number of days training received by employees tends to decrease as one descends the organisational hierarchy . It would appear that , on average , the greater proportion of management employees are likely to receive between three and five days training per year . These results are consistent with data recorded in 1992 and go some further way towards disputing the view that management development is not given priority in Irish organisations . Not withstanding this , the Irish Hotel and Catering Institute Executive Management Development Survey (1996 89-93 ) stated that management development programmes , both in-house and external , were completed by 47 of the respondents

The Operational Programmes for tourism have provided a welcome level of investment in training , but concerns exist regarding the ability of the industry to meet its medium-term needs and whether training provides a sufficient range and mix of skills . The recruitment and training challenges facing the industry as identified by ITIC have service quality implications for sustainable tourism growth . It is clear that the human resource factor in tourism needs to be examined and this addresses this challenge under the following headings : retention turnover , commitment , motivation / job satisfaction , organisational culture and image , reward management and continuing professional development

Human Resource Management , Employee Turnover and Organisational Performance

The impact of human resource management (HRM ) policies and practices on firm performance is an important in the fields of human resource management , industrial relations , and industrial and organizational psychology (Boudreau , 1991 : 621-745 Jones Wright , 1992 : 271-299 Kleiner , 1990 : 4 .23-4 .43 . An increasing body of work contains the argument that the use of High Performance Work Practices can improve the knowledge , skills , and abilities of a firm 's current and potential employees , increase their motivation , reduce shirking , and enhance retention of quality employees while encouraging non-performers to leave the firm . These High Performance Work Practices include comprehensive employee recruitment and selection procedures , incentive compensation and performance management systems , and extensive employee involvement and training (Jones Wright , 1992 : 271-299 U .S . Department of Labor 1993 : 21-23

Arguments made in related research are that a firm 's current and potential human resources are important considerations in the development and execution of its strategic business plan . This literature , although largely conceptual , concludes that human resource management practices can help to create a source of sustained competitive advantage , especially when they are aligned with a firm 's competitive strategy (Begin , 1991 : 34-53 Butler , Ferris Napier 1991 : 45-63 Cappelli Singh , 1992 : 165-192 Jackson Schuler , 1995 237-264 Porter , 1985 : 56-83 Schuler , 1992 : 19-32 Wright McMahan 1992 : 295-320

In both this largely theoretical literature and the emerging conventional wisdom among human resource professionals there is a growing consensus that organizational human resource policies can , if properly configured , provide a direct and economically significant contribution to firm performance . The presumption is that more effective systems of HRM practices , which simultaneously exploit the potential for complementarities or synergies among such practices and help to implement a firm 's competitive strategy , are sources of sustained competitive advantage . Unfortunately , very little empirical evidence supports such a belief . What empirical work does exist has largely focused on individual HRM practices to the exclusion of overall HRM systems

The belief that individual employee performance has implications for firm-level outcomes has been prevalent among academics and practitioners for many years . Interest in this area has recently intensified however as scholars have begun to argue that , collectively , a firm 's employees can also provide a unique source of competitive advantage that is difficult for its competitors to replicate . For example , Wright and McMahan (1992 : 295-320 , drawing on Barney 's (1991 : 99-120 resource-based theory of the firm , contended that human resources can provide a source of sustained competitive advantage when four basic requirements are met . First , they must add value to the firm 's production processes : levels of individual performance must matter Second , the skills the firm seeks must be rare . Since human performance is normally distributed , Wright and McMahan noted , all human resources meet both of these criteria . The third criterion is that the combined human capital investments a firm 's employees represent cannot be easily imitated . Although human resources are not subject to the same degree of imitability as equipment or facilities , investments in firm-specific human capital can further decrease the probability of such imitation by qualitatively differentiating a firm 's employees from those of its competitors . Finally , a firm 's human resources must not be subject to replacement by technological advances or other substitutes if they are to provide a source of sustainable competitive advantage . Although laborsaving technologies may limit the returns for some forms of investment in human capital , the continuing shift toward a service economy and the already high levels of automation in many industries make such forms of substitution increasingly less probable

Wright and McMahan 's work points to the importance of human resources in the creation of firm-specific competitive advantage . At issue , then , is whether , or how , firms can capitalize on this potential source of profitability . Bailey (1993 : 71-89 ) contended that human resources are frequently "underutilized " because employees often perform below their maximum potential and that organizational efforts to elicit discretionary effort from employees are likely to provide returns in excess of any relevant costs . Bailey argued that HRM practices could affect such discretionary effort through their influence over employee skills and motivation and through organizational structures that provide employees with the ability to control how their roles are performed

HRM practices influence employee skills through the acquisition and development of a firm 's human capital . Recruiting procedures that provide a large pool of qualified applicants , paired with a reliable and valid selection regimen , will have a substantial influence over the quality and type of skills new employees possess . Providing formal and informal training experiences , such as basic skills training , on-the-job experience , coaching , mentoring , and management development , can further influence employees ' development

The effectiveness of even highly skilled employees will be limited if they are not motivated to perform , however , and HRM practices can affect employee motivation by encouraging them to work both harder and smarter There are several examples of firm efforts to direct and motivate employee behavior . These include the use performance appraisals that assess individual or work group performance , linking these appraisals tightly with incentive compensation systems , the use of internal promotion systems that focus on employee merit , and other forms of incentives intended to align the interests of employees with those of shareholders (e .g , ESOPs and profit- and gain-sharing plans

Finally , Bailey (1993 : 71-89 ) noted that the contribution of even a highly skilled and motivated workforce will be limited if jobs are structured , or programmed , in such a way that employees , who presumably know their work better than anyone else , do not have the opportunity to use their skills and abilities to design new and better ways of performing their roles . Thus , HRM practices can also influence firm performance through provision of organizational structures that encourage participation among employees and allow them to improve how their jobs are performed . Cross-functional teams , job rotation , and quality circles are all examples of such structures

Thus , the theoretical literature clearly suggests that the behavior of employees within firms has important implications for organizational performance and that human resource management practices can affect individual employee performance through their influence over employees skills and motivation and through organizational structures that allow employees to improve how their jobs are performed . If this is so , a firm 's HRM practices should be related to at least two dimensions of its performance . First , if superior HRM practices increase employees discretionary effort , I would expect their use to directly affect intermediate outcomes , such as turnover and productivity , over which employees have direct control . Second , if the returns from investments in superior HRM practices exceed their true costs , then lower employee turnover and greater productivity should in turn enhance corporate financial performance . Therefore , in anticipation of an estimation model that focuses on these dependent variables , my review of the empirical literature concentrates on prior work examining the influence of HRM practices on employee turnover , productivity , and corporate financial performance

Prior Empirical Work

Individual HRM Practices and Firm Performance

Turnover . Prior work has examined the determinants of both individual employees ' departures and aggregate organizational turnover , although most of the prior work has focused on the former . For example , Arnold and Feldman (1982 : 350-360 , Baysinger and Mobley (1983 : 269-319 , and Cotton and Tuttle (1986 : 55-70 ) concluded that perceptions of job security , the presence of a union , compensation level , job satisfaction organizational tenure , demographic variables such as age , gender education , and number of dependents , organizational commitment , whether a job meets an individual 's expectations , and the expressed intention to search for another job were all predictive of employees ' leaving Sheridan (1992 : 1036-1056 ) found that perceptions of organizational culture influenced turnover . Thus , the theoretical rationale for examining the effects of HRM practices on turnover lies in their effects on these individual-level factors . Among the few empirical s on the effects of specific HRM practices on aggregate turnover , the work of McEvoy and Cascio (1985 : 342-353 , who showed that job enrichment interventions and realistic job previews were moderately effective in reducing turnover , is notable

Productivity . Research on the impact of HRM practices on organizational productivity is more extensive . Cutcher-Gershenfeld (1991 : 241-260 found that firms adopting "transformational " labor relations--those emphasizing cooperation and dispute resolution--had lower costs , less scrap , higher productivity , and a greater return to direct labor hours than did firms using "traditional " adversarial labor relations practices . Katz , Kochan , and Weber (1985 : 509-526 ) demonstrated that highly effective industrial relations systems , defined as those with fewer grievances and disciplinary actions and lower absenteeism increased product quality and direct labor efficiency , and Katz , Kochan and Keefe (1987 : 56-73 ) showed that a number of innovative work practices improved productivity . Katz , Kochan , and Gobeille (1983 : 3-17 and Schuster (1983 : 415-430 ) found that quality of work life (QWL quality circles , and labor-management teams increased productivity Barrel (1994 : 411-425 ) established a link between the adoption of training programs and productivity growth , and Holzer (1987 : 56-73 showed that extensive recruiting efforts increased productivity . Guzzo Jette , and Katzell 's (1985 : 275-291 ) meta-analysis demonstrated that training , goal setting , and sociotechnical systems design had significant and positive effects on productivity . Links between incentive compensation systems and productivity have consistently been found as well (Gerhart Milkovich , 1992 : 481-569 Weitzman Kruse 1990 : 95-141 . Finally , employee turnover also has an important influence on organizational productivity (Brown Medoff , 1978 355-378

Corporate financial performance . A number of authors have explored the links between individual HRM practices and corporate financial performance . For example , Cascio (1991 : 56-81 ) and Flamholtz (1985 78-83 ) argued that the financial returns associated with investments in progressive HRM practices are generally substantial . Similarly , work in the field of utility analysis (Schmidt , Hunter , MacKenzie Muldrow 1979 : 609-626 ) has concluded that the value of a one-standard-deviation increase in employee performance measured in dollars (SDy ) is equivalent to 40 percent of salary (per employee ) and that the organizational implications of human resource management practices that can produce such an increase are considerable . Although most of the empirical work on this has been conducted in laboratories , Becker and Huselid (1992 : 395-415 ) presented field data suggesting that SDy may in fact be well in excess of 40 percent of salary . Similarly , Terpstra and Rozell (1993 : 27-48 ) found a significant and positive link between the extensiveness of recruiting , selection test validation , and the use of formal selection procedures and firm profits , and Russell , Terborg , and Powers (1985 : 849-863 ) demonstrated a link between the adoption of employee training programs and financial performance . The use of performance appraisals (Borman , 1991 : 271-326 ) and linking such appraisals and compensation have also been consistently connected with increased firm profitability (Gerhart Milkovich , 1992 : 481-569

j . Strategic approach to quality

Essentially , discussion on the interface between quality and human resource management (HRM ) must be based on a conceptual analysis of what quality means . However 'definitions of quality are notoriously hard to produce (Gamble Jones , 1991 : 12-14 , particularly in the service industry (Jennings , 1992 : 45-63

A logical starting point may be the often-quoted definition given by the British Standards Institution (BSI : quality is "the features and characteristics of a product or service that bear on its ability to satisfy a need (British Standards Institution , 1983 . This definition relates to the BSI national standards (BS 5750 ) and herein lies its limitation in the context of the hospitality industry . BS 5750 is systems-oriented as the Department for Enterprise succinctly states "the BS 5750 series are the national standards for quality systems (Department for Enterprise , 1992 : 67-82 . The systems approach is appropriate for the manufacturing sector for which it was originally designed because quality of the end product can be ensured by having quality systems in the manufacturing process . The definition is however , at best limited and at worst inappropriate in the context of the hospitality industry

This is the case because , firstly , the product of the hospitality industry is not an 'end ' product rather , it is a combination of tangible and important intangible component parts (Jones Lockwood 1989 : 29-51 , experienced not necessarily at the end of a process , but often as pan of the process . Secondly , implicit in the systems approach is that quality is achieved by meeting a threshold of acceptability whereby the product has 'fitness for purpose (Juran , 1979 : 76-95 in the hospitality industry the product most often goes beyond this threshold and can be offered in varying degrees above the threshold of acceptability , as indicated by the hotel rating system for example

More appropriate to the hospitality industry may be a product approach to quality definition , which subsumes the notion of systems supporting but not producing , quality . Such an approach is in keeping with the definition proffered by Berry (1991 ' 38-49 : quality is "meeting customer needs and reasonable expectations . Again though this approach is limited . Customers in particular sectors of the hospitality industry for instance in the hotel sector , look for more from the product than the sum is paramount . Consequently , an experience approach to defining quality in the hospitality industry may provide the solution to the definitional difficulty . The merit in such an approach lies in its attempt to take account of the industrial context and product content of the hospitality industry , which can only facilitate a meaningful definition (Dotchin Oakland , 1992 : 56-81

While attempts have been made to define quality specifically in the hospitality industry that go beyond the systems approach and even include the experience approach (Johns , 1992 : 3 , the issue remains a of debate . This is the case despite the attempts of the BSI to set quality systems in the context of the service industry in their BS 5750 Part 8 (1991 : 7 ) publication , where a definition of quality in the services is not given

In the absence of consensus , the definition of quality (relevant to the hospitality industry ) adopted for this is that management (TQM ) is "a holistic approach which requires customer orientation , empowered people , attention to process , a good quality system and continuous improvement (Dotchin Oakland , 1992 : 3 . To some extent , this definition includes and exceeds the systems and product approaches , indicates that there is a role for human resources and recognizes that dynamism is involved in achieving and maintaining quality

Furthermore , implicit in this definition is a strategic dimension in that quality is expressed as 'holistic . The term 'strategy ' refers to the broad directions , or holistic perspective , taken by an organization to plan for and secure its long term goals . Although "the state of strategic thinking and the relationship to 'quality ' as a strategic issue often appears confused (Gamble Jones , 1991 : 36-49 ) a case for quality management being inherently and necessarily strategic can be made

An obvious point , firstly , is that the very term 'suggests a holistic , pan-organizational perspective . This is a view espoused by Collard (1992 : 111-123 , for one , who contends that quality management involves a long-term approach , integration into the management of the organization , and a clearly delineated focus , all of which is intrinsically strategic in perspective . Moreover , Collard (1992 : 111-123 ) expressly states that a strategic perspective of quality is 'absolutely critical

Secondly , quality is commonly described in terms of the entirety of organizational involvement , as aptly illustrated by the Department for Enterprise (1992 : 45 ) which states in its literature that TQM "involves whole companies getting organised , in every department , every activity and every single person , at every level . Such involvement is inherently strategic as it can only be organized and operated from a strategic base

Lastly , with regard to implementing quality which is a of considerable attention in literature , a cornerstone is organizational commitment . This position is taken by Gamble and Jones (1991 : 56-72 ) for example . For organizational commitment to be ensured , it must emanate from senior management , strategic level (Institute of Personnel Management , 1990 : 38-51 . TQM can , therefore , be described as inherently and necessarily strategic in definition , extent of organizational involvement and implementation

j . Quality and strategic HRM--theoretical perspectives

Cooke and Armstrong (1990 : 75-83 ) advise that strategy "is a declaration of intent--it defines the direction in which the business is going to achieve sustained competitive advantage . Strategic plans to gain and sustain a competitive advantage are particularly important in the UK hotel industry due to its highly competitive nature . British companies are , theless , suspected of failing to adopt or follow a long-term planned approach to their operations under pressure from external investors to secure short-term profits , they stand accused of eschewing long-term planning and capital investment programmes

With longer-term development constrained by short-term obligations personnel matters have tended to be peripheral to or excluded from high level company decision-making . The very nature of the contractual employment relationship is the short term , and in consequence 'bottom line ' calculations can tempt employers to treat their employees strictly in a format bounded by the terms of the employment contract and the requirements of employment law , but rarely to advance beyond these limits . Consequently , it can be argued that the essence of personnel management has been to manage employees within these narrow , reactive boundaries

Over the past few years , however , changes to the external environment have encouraged employers to scrutinize their organizational decision-making processes . In particular , a number of related factors can be cited in providing a favourable context for employers to adopt a more strategic approach to their relationship with employees . These contextual factors derive from the changing nature of the service markets (or of the product markets ) in which organizations operate . They include skill and labour shortages , the impact of new technology pressures of competition , the drive for quality and consequent inclinations in management style towards achieving employee commitment rather than mere compliance

In employment relations terms , these factors have combined to encourage the emergence of the HRM concept of personnel management , in which the role of employees in helping organizations to secure their broader objectives becomes a feature central to company policy . Implicit in this approach is recognition of the employee 's value as an investment and a medium through which the business objectives can be achieved . Business planning is critically important because the cornerstone of HRM personnel policies (Sisson Townley , 1986 : 39-54 , are derived from business plans , and the success of business plans is contingent upon policies and practices

With these potentially more central roles for personnel management has emerged an opportunity for personnel practitioners to become identified with a broader functional role than that assured under the traditional reactive personnel banner outlined earlier . The HRM manager is assumed to have more involvement in corporate affairs and the ways in which employees and their managers contribute to these affairs

Management literature supports this notion of personnel management involvement at a strategic level , with "personnel policy choice seen as a pivotal aspect of strategic decision-making which has a profound long term impact on organisational performance (Gunnigle , 1991 : 211-241 Indeed , many commentators contend that a strategic dimension is an integral , if not inherent , element of HRM

Despite the volume and cogency of literature supporting the notion of integration between HRM and business strategy , there is also literature which stresses that the practice of integration is not widespread Included is the work of Legge (1978 : 68-78 , Guest (1990 : 29 ) and Purcell (1989 : 39-56 . Purcell 's work is based on large diversified companies , including those in the service sector , from which he concludes that "current trends in corporate strategy . render the ideals of HRM (as specified by Guest , 1987 : 24-29 ) unobtainable . Storey and Sisson (1990 : 45-63 ) review strategic HRM in a wider context and conclude there is generally "a British management failure to adopt a strategic approach with regard to human resources . Given that a strategic dimension can be said to be central to HRM , implicit in such contentions is that HRM is failing to be adopted in practice as a metamorphosis of personnel management

There now exists , however , an opportunity for renewed interest in and application of HRM theory through the increasingly concentrated focus on one of the contextual factors cited earlier , namely quality . While the relationship between quality and HRM has to date received negligible attention in literature--notwithstanding the role of training generally and customer care training in particular--there is an interface between the two

In any industry , some degree of reliance is placed on its human resources for the product . Therefore , any quality management effort must , arguably , involve a human resource dimension . Furthermore , the interface between quality and HRM can most effectively occur at a strategic level , given the strategic dimension of each as discussed earlier

In the hospitality industry the dependence on human resources is significant , not least due to the outlined importance of the experiential element in the product . Well-documented characteristics of the hospitality industry include its labour intensity and intensification (Bell , 1991 : 65-73 , particularly in the hotel and accommodation sector (Mullins , 1992 : 45-72 , and quality staff dependence

Subsequently , in the context of the hospitality industry , quality and human resources can be described as being strategically and inextricably linked . The relationship between quality and HRM is of heightened importance in the highly labour-intensive and increasingly competitive hotel sector . This point is underlined by Mullins (1992 : 56-71

Many members of the workforce are in direct contact with the customer and are seen as being involved in achieving the objectives of the hotel The quality of service offered is dependent not only upon the skills but also upon the attitudes of staff . Both are essential if the demands of the customer are to be met satisfactorily

Thus , in short , not only is there interface between quality and HRM in the hospitality industry but interaction even to the point of synergy the nexus is the particular contribution of HRM to achieving and maintaining quality . The BSI (1991 : 36 ) underscores this contention in recognizing the involvement of 'human aspects ' in quality in the service industry

In spite of the centrality of their role , staff are typically not well treated by employers in the hospitality industry (Wood , 1992 : 41-51 nor indeed by the general public (Gurdon , 1992 : 68-72 . Personnel management typically is of low organizational status (Wood , 1992 41-51 . Furthermore , the implementation of quality and HRM is rendered more remote as the effects of the recession are acutely felt by hoteliers (Heathcote , 1992 : 45

Generally , then , despite isolated examples of the hospitality industry--particularly the hotel sector--investing in quality , it can be said that the industry as a whole is failing to embrace quality and HRM

k . Theories of Human Resource Management

Indeed , there is abundant evidence provided by recent research that the HR practices employed by firms have a significant impact on organizational financial performance (Arthur 1995 : 34-65 Dyer 1993 112 Huselid 1995 : 635-672 Huselid , Jackson Schuler 1995 : 67-85 Olian , Schnell , Scully , Sims , Smith Smith 1995 : 56-68 . Huselid (1995 : 635-672 , for example , estimated that increasing the use of "High Performance Work Practices (a sophisticated system of synergistic human resource practices ) by one standard deviation would result in a positive per employee effect of 18 ,461 on firm market value . He conjectures however , that this value would accrue over a period of years . Further Huselid and his colleagues (Huselid et al . 1995 : 56-85 ) posited that a one standard deviation increase in HRM effectiveness was associated with 34 ,318 19 ,189 , and 11 ,663 (per employee ) higher sales , profits , and market value , respectively

The aforementioned intensification of competition has prompted much research in other areas of organizational science , as well . Of special interest is the provision of incentives to organizational leadership that will elicit the appropriate managerial activities to ensure corporate success and viability . A quite frequently addressed issue , and one which has been examined from a number of various perspectives , is the agency relationship between the owner of the firm (or principal ) and the CEO (or agent (Fama 1980 : 288-307 ) and the principal-agent problem as defined in agency theory (Jensen Meckling 1976 : 305-360 . Agency theory is concerned with the alignment of top management and stockholder interests such that management will perform in a manner that maximizes stockholder wealth and satisfaction . While it is assumed that this alignment will be in the best interests of the organization , there is no specification in agency theory of which particular management activities might be the optimal course of pursuit with regard to corporate performance

Ideally , incenting top management to maximize shareholder value should engender investment in and development of the sources of core competencies , positive financial performance , and sustained competitive advantage . If the human resources of a firm are indeed a key source of sustainable competitive advantage , as many theoreticians and practitioners argue , investment in these resources should be a strategic competitive priority . However , a great likelihood may have the opposite effect . That is , management 's efforts to satisfy stockholder demands may be to the detriment of investment of time , effort , and resources in human capital

The discussion that follows reviews the theoretical tenets of agency theory . It also reviews how that theory may play out in actual practice based on institutional and resource dependence assumptions . It is proposed that , in times of scarce financial resources , stockholder satisfaction and investment in human resources may be competing interests . Utilizing Oliver 's (1988 : 543-561 ) framework for strategic decision making , a theoretical analysis is conducted regarding the relative strengths and magnitude of influence that may be exerted by these competing interests . Implications of this analysis are discussed and directions for future research are proposed

Agency Theory and the Efficiency of the Financial Market

Agency Theory

At issue in agency theory is the "principal-agent " problem (Jenson Meckling 1976 : 305-360 ) purported by economists to be the inevitable result of non-owner management of an organization . A principal-agent relationship involves the entrusting of duty or authority by the owner (the "principal ) to another party (the "agent ) to act on the owner 's behalf . The use of the word "entrust " is somewhat misleading , however in that the principal does not trust the agent to act in his best interest , but assumes that the agent is opportunistic and will pursue personal interests , which are in conflict with those of the principal In economic language , a "moral hazard " exists that the agent may take undue advantage of this entrusted authority and incur undesirable agency costs for the principal

For instance , stockholders or owners are likely to be less risk averse than agents in that owners can reduce or diversify their risk by investing in numerous firms (Jensen Meckling 1976 : 305-360 , while agents are largely dependent on the compensation derived from their one management job . Managers , then , seeking to protect their own self interests , are less likely to invest the firm 's assets in ventures with the potential for high returns to stockholders , but also involve some risk of failure . While these risks might seem reasonable to the stockholder with a diversified portfolio , the manager risks discharge from the job and diminished reputation in the labour market , and is unlikely to act exclusively in the best interests of stockholders

The probability that such self-interest based , opportunistic behaviour will occur is dependent on the amount of control which the principal may exercise over the agent 's activities and the degree of information asymmetry which exists between agent and principal (Akerlof 1970 488-500 . Low principal control over agent and high information asymmetry in favor of the agent , allows the agent great discretion to pursue his own interests (Gomez-Mejia 1994 : 161-222 . To counter the agent 's propensity to engage in opportunistic behaviour , the principal must monitor the behaviour of the agent , or provide incentives to align the interests of the agent with his own

In publicly held corporations , the stockholders (principals ) engage managers (agents ) to act in their behalf in the daily conduct of business . It is assumed in agency theory that the managers may act in their own self-interests to the detriment of stockholder welfare , and therefore must be monitored to limit the opportunity for this undesirable behaviour or incented in such a way as to align the interests of management with those of stockholders , thereby creating shared risk if losses occur . Management compensation which is coupled to firm performance is posited to accomplish this objective , and there is abundant evidence of monitoring and influence tactics on the part of large shareholders and institutional investors in to curb any opportunistic actions by management

Such monitoring and risk sharing constrains the strategic decision making of managers in that the outcomes of those strategic choices are likely to have direct consequences for the managers ' compensation and possibly his employment status (Gomez-Mejia 1994 : 161-222 . Empirical evidence supports that such incentives do indeed affect the executive focus (Zajac 1990 : 217-231

Further , Hoskisson and Hitt (1994 : 78-94 ) provided a theoretically well-grounded argument for the impact of such financial control systems on executive focus and , in turn , on corporate competitiveness . They posited that the association between extensive diversification and a decline in a firm 's competitiveness is largely attributable to reduced R D and innovation . In highly diversified firms , where strategic control over executive action is not feasible , heavy reliance on financial controls and the associated risk for the executive creates risk-aversion on the part of the executive and a bias toward short-term efficiency The authors contended that this shift in perspective may result in decreased investment in R D and other long-term activities (such as human resources ) that contribute to long-term organizational welfare

Efficiency of the Financial Market

It is proposed by some economists that stockholders and other market forces operate to insure efficiency in corporate management . A notion largely ignored by agency theorists , however , is the possibility that the control mechanisms utilized by stockholders may result in a short-term orientation of managers with regard to strategic decisions Indeed , research has shown that some externally controlled organizations construct top management compensation to purposefully incent short-term performance (Lawless Gomez-Mejia 1994 : 45-63 . In addition , incentives incorporated into top management compensation plans to elicit behaviours advantageous to long-term corporate welfare do not always carry the restraints or restrictions assumed to make them long-term incentives Quite often stock and stock options are considered to engender a long-term management focus . However , more frequently than not , these options may be exercised at any point in time

There is ample evidence (presented later in this article ) that stockholder pressures on management are increasingly directed toward short-term financial performance . A short-term orientation in strategy determination could have serious implications for investment in human resources , where the benefits from such investment are likely to accrue over a longer period . Indeed , the pressures exerted on managers by stockholders may "mould the human resource practices of the entire firm (Gomez-Mejia 1994 ,

. 200 ) such that the result of those pressures may be something quite apart from the purported achievement of financial market driven efficiency

At this point , we depart from agency theory to look at the implications of monitoring , and incenting of executives , and financial market pressures on organizations from a resource dependence /institutional theories perspective in to illustrate this contention

The Issue : Competing Demands

. what happened to (these companies ) was of far more significance than just whether or not stockholders got the highest possible dollar . It took people out of jobs . It closed factories across several states . It shut down completely the research facilities of the major textile company in America . It put a burden of debt to such an extent that any fluctuation in interest rates upward would cause serious internal financial problems

The pace , scope , and impact of the corporate restructuring phenomenon has , and should , cause concern among the members of this body . The takeover process raises fundamental policy questions regarding the efficiency of our capital formation , the integrity of our capital markets , and the interrelationship between shareholders , management directors , and other corporate constituencies such as employees and communities (S .Hrg . 101-499 : Corporate Takeover Legislation 1989

These pronouncements , which Senator Terry Sanford and Senator Nancy Kassebaum made before the Senate Subcommittee on Securities , incorporate two of the most pressing concerns facing corporations today : the pressures exerted by the financial market and the implications of those pressures for human resource investment . Organizations are under extreme pressure to maximize shareholder wealth in the form of substantial quarterly dividends and ever increasing stock value . The liquidity of the stock market , growing stockholder activism , and the increasing demand for stockholder voice in corporate governance ensure that stockholder demands are an ever present consideration for organizational management . Research has shown the interface between organizational strategy and the financial environment to be quite extensive (Oviatt 1988 : 214-225 ) and because of this relationship , stock price stockholders , and the financial market must be considered as important factors in strategic decision making (Rapaport 1981 : 139-149

Concurrently , organizations are under increasing pressure from the government and from society for organizational attention to human resource concerns . Recent legislation has added to the list of human resource practice regulatory demands . Global competitiveness requires careful consideration of human resource practices and deliberate action by corporations to recruit , develop , and maintain a skilled , productive and stable workforce

Satisfaction of the demands of these aforementioned constituencies promises benefits to the organization by enhancing the firm 's reputation with stockholders , avoiding costly legal penalties , and so forth However , there are inherent and inevitable costs involved in fulfilling these demands as well . Satisfaction of stockholder demands may involve such expenses as restructuring costs , stock buy-back activities , payment of quarterly dividends regardless of profit levels , and various other tactical manoeuvres to keep stock prices up . Many of the costs associated with human resource activities involve financial outlays for provision of benefits however , even human resource activities , which are no- or low-cost options , entail expenses for program development implementation , and administration , regardless of actual program costs Herein lays the dilemma for corporations . When operating under conditions of scarce financial resources , how are these numerous demands to be met ? Is it possible for an organization to determine the strategy for balancing conflicting demands , which will offer optimal benefit to the organization as well as to the various stakeholders

External Control versus Strategic Choice

There are numerous theories about determinants of corporate structure policy , and strategy . Those pertinent to this include institutional theory and resource dependence theory (both of which incorporate an idea of external control or constraint on organizational decisions , two variations of strategic choice theory , and an incorporation of the external control theories with strategic choice Oliver (1988 : 543-561 ) to construct a framework of strategic choice determinants and choice categories to predict organizational strategic responses has used the latter of these

Institutional Theory

Institutional theory has evolved over the years from a simple theory of shared social beliefs and norms , which inevitably permeate organizational culture , policy , and structure , to a theory , which incorporates a more heterogeneous set of institutional constituencies exerting a variety of pressures on organizations for conformity to their expectations (DiMaggio Powell 1983 : 147-160 . These institutional expectations are phenomena , which are so socially ingrained as to have become fact or taken for , granted , and thereby constitute norms . The rules or norms of various institutional constituents are propagated by society through relational channels or through interdependencies among constituents . The norms are perpetuated by pressures for conformity by various institutional constituents , and through the credentialing of these norms by education or regulation (Meyer Rowan 1977 : 340-363 Institutional constituents may be government , regulatory agencies , laws professions , interest groups , or general public opinion (Pfeffer Salancik 1978 : 69-82

Institutional theory is based on the notion of social legitimacy , which implies that since organizations operate in and extract resources from society , they are subject to assessment , according to social norms , as to the proper and efficient utilization of those resources (Parsons 1956 : 63-85 . According to the institutionalism 's perspective , the survival of the firm is dependent on the firm 's compliance with these norms (Covaleski Dirsmith 1988 : 562-587 ) in that it is through this compliance that the firm is determined to be socially fit or legitimate (Dowling Pfeffer 1975 : 122-136 . It is because of this legitimacy that the firm is able to obtain resources , employees , prestige , and acceptability in its roles as an organization . In addition incorporation of the institutionalized rules into corporate structure and policy is an assertion by the corporation that it is behaving properly and responsibly , and protects the organization from having its conduct constantly scrutinized (Meyer Rowan 1977 : 340-363 Institutional theory focuses on passive organizational compliance with these institutional demands in to obtain the benefits of legitimacy (Oliver 1988 : 543-561 . Any deviation by an organization from the institutional norms results in a decrease in social legitimacy and the benefits which legitimacy provides (Meyer Rowan 1977 : 340-363

Incorporation of the practices and policies dictated by these institutionalized rules , however , decreases an organization 's control over efficiency and places constraints on strategic decision-making (Myer Rowan 1977 : 340-363 . Moreover , institutional rules are often in conflict with an organization 's goal of efficient performance and institutional rules emanating from the various constituents in an organization 's environment may conflict with each other (Meyer Rowan 1977 : 340-363

Resource Dependence Theory

Like institutional theory , the resource dependence theory posits organizational choice to be constrained by a number of external pressures . Resource dependence proposes that the organization is interconnected with the external environment and must respond to the expectations and pressures exerted by the various sources (Pfeffer Salancik 1978 : 38-57 . Resource dependence theory also asserts that the pressures exerted upon organizations by various constituents may represent conflicting demands (Pfeffer Salancik 1978 : 38-57 . Which demands will be seen as most powerful and most urgent by the organization is determined by which of the constituents has control over resource flows . Power is obtained through control over the allocation of resources only if resources are scarce , critical , and no substitutes for these resources are available (Pfeffer Salancik 1978 : 38-57

The basic differences between resource dependence theory and institutional theory is the impetus for organizational compliance with external demands (norms , legitimacy in institutional theory versus control of resources , economic dependence in resource dependence theory , and the extent of organizational discretion in strategy formulation (passive compliance in institutional theory versus constrained choice in resource dependence theory (Oliver 1988 543-561

Strategic Choice

In contrast to institutional and resource dependence theories , in which organizations behave predictably in response to environmental constituents ' demands , Child (1972 : 1-22 ) proposes a strategic choice approach to the organizational-external environment interface . Strategic choice asserts that there is interaction between firms and the environment , and that based on the dynamics of that interaction management makes strategic decisions about the appropriate response

Oliver 's Framework of Strategic Choice

Oliver (1988 : 543-561 ) combines elements from both institutional theory and resource dependence theory to demonstrate how responses of organizations to environmental constituents may range from passive compliance to active resistance . This framework outlines the likelihood of organizational resistance to external pressures for conformity in relation to the degree of pressure exerted by the institutional constituent . Oliver outlines five choice categories and the meaning of those choices . The choices are acquiescence , compromise , avoidance defiance , and manipulation (listed in of increasing organizational resistance to external demands

Oliver (1988 : 543-561 ) posits that the willingness or the ability of an organization to conform to institutional pressures is driven by five factors which determine the choice of strategic response . The categories of response are cause , constituents , content , control , and context

Cause . Cause has to do with the degree of social legitimacy or economic benefit which the organization expects to derive from compliance with institutional expectations

Constituents . Multiple and conflicting pressures may be exerted on a corporation by numerous institutional constituents which constrain the organization 's ability to conform (i .e , conforming to the expectations of one institutional constituent may preclude the ability to comply with another . The choice likelihood is predictable by the organization 's resource dependence on the constituents

Content . The content of the institutional demands and the degree to which they are congruent with organizational goals or the extent to which conformity to those demands would constrain organizational discretion determine the choice response . Oliver (1988 : 543-561 proposes that there may be an interaction of cause , constituents , and control , so that organizations would be willing to make a trade-off between discretionary power and economic viability when resource dependence on a particular institutional constituent is extreme

Control . Control has to do with the degree of legal coercion implicit in the institutional demands and /or the extent of voluntary diffusion of institutional norms

Context . Context involves the degree of uncertainty in the organization 's environment , and the degree of interconnectedness in the institutional environment

Examples of the existence of such inefficiencies in management , which might lead to the long-run decline of an organization , are numerous Consequences arising from the inefficiency of management in succumbing to stockholder demands to the detriment of investment in human resources are discussed in the sections that follow

Employee Recruitment . Lack of investment in human resources may decrease an organization 's social legitimacy if such investment is viewed as desirable by employees and by the public at large (Dowling Pfeffer 1975 : 122-136 . A reduction in social legitimacy will affect an organization 's ability to effectively recruit employees , if legitimacy is criteria utilized by prospective employees in making employment choices . A positive reputation in the eyes of employees can be viewed as evidence of social legitimacy and may enable firms to attract broader and deeper applicant pools (e .g , Fombrum 1996 : 78-95 . Some evidence of the effect of social legitimacy exists in that mechanisms of the labour market work to reward those corporations with favourable reputations and penalize those with unfavourable reputations (Fama 1980 : 288-307 . Even Kanter 's (1989 : 47-67 ) notion of employability security (as opposed to employment security ) suggests that those firms who will be able to attract the most highly qualified employees are those firms who will contribute to individuals ' stores of human capital through training and valuable and challenging learning experiences

Employers in danger of having decreased social legitimacy due to inattentiveness to human resource issues may seek to conceal their lack of investment in human resources by using such issue-avoidance tactics as giving the appearance of being employee oriented . This may be accomplished through advertisements or "all talk " campaigns . This appearance may counteract the lack of investment and provide the employer with some degree of social legitimacy , and thereby , with the unearned benefit to attract and retain employees (Greenberg 1988 155-158 . Failure to establish a favorable reputation could be detrimental to the corporation in that the ability to attract and retain highly skilled , knowledgeable employees is becoming ever more vital to long-term competitive advantage . Furthermore , the purely cosmetic "all talk " or "window dressing " efforts by organizations can lead to long-term negative effects through increased employee distrust and cynicism (e .g , Kanter Mirvis 1989 : 27-85

Employee Commitment and Productivity . If employees perceive that they are slig...