A summary of the CIPD Research Report
This work represents the latest findings from the CIPD’s ongoing research programme with the School of Management, University of Bath, looking at how HR practice impacts on business performance.
The research programme with Bath University began in 1997 and the first results were published in 2003 as Understanding the People and Performance Link: Unlocking the Black Box (Purcell et al). This work demonstrated the role of people management practice in maximising organisational performance. However the work concluded that HR practices in themselves do not equate with business performance. What they can do is create skilled people who are motivated to perform well and are given the opportunity to carry out work which is productive and in the interests of achieving business objectives. Other factors have a strong influence on whether or not this will translate into business performance and this includes the role of line managers in enacting and enabling practices and the role of organisational values and culture.
This model was also explored in knowledge-intensive firms where the reliance on human capital is central to the organisation’s performance, because often the product of the organisation is the knowledge and skills of the people it employs. This was reported in another CIPD research report, People and Performance in Knowledge Intensive Firms (Swart et al 2003). At the same time that this work was being carried out the CIPD was also working with Professor Harry Scarbrough at Warwick University, looking at the issues of Human Capital - what it is and its significance for how people are managed. The findings were published in a further report, Evaluating Human Capital, (Scarbrough and Elias, 2002). This work indicated that there may be important links between people management practice and knowledge-based performance.
As a result of these collective findings, we extended the project with Bath to explore further how knowledge is acquired, generated, captured and processed in knowledge-intensive firms and how it translates into knowledge-based performance. In other words, we know that human capital is important and that HRM practices can aid in the transformation of human capital into organisational performance, but for HR practices to be effective we need to know more about this transformation process. Such an understanding will allow the HR practitioner to be more closely involved in the generation of valuable firm-level outputs through the conversion of human capital (knowledge and skills of people) to intellectual capital (products and services sold in the marketplace).
Professional service firms are particularly reliant on this conversion process and provide a fruitful focus for the exploration of the links between HR practices and knowledge-based performance. This research was therefore developed with the specific aim of unlocking the knowledge-based black box by exploring the key processes linking people management practices and organisational performance in a series of professional service firms (PSFs). In particular, we wanted to understand how people management practices can contribute to the creation of tangible value, in the form of knowledge-based outputs, in law firms, management consultancies, software houses and marketing agencies.
The resulting research report, Managing people and performance in professional service firms, sets out the three key HRM challenges, at the strategy and practice levels, that are presented by adopting the knowledge-based approach to organisational performance. These challenges are focused upon:
- the scope of HRM
- the focus of HRM
- the linkages between HRM and knowledge-based outputs.
Firstly, it addresses the scope of HRM and calls for a widening of the HRM remit to include the management of key relationships and organisational processes. Here the research suggests that the HRM field needs to move forward to include the management of all the knowledge stocks that PSFs would rely upon in the generation of intellectual capital. This comprises:
- human capital (knowledge and skills of people)
- social capital (relationships in the firm)
- organisational capital (processes, procedures and technologies)
- structural capital (work organisation and physical structures)
- client and network capital (relationships between firms).
Secondly, the work examines the focus of the HRM function by looking more closely at the heart of the business process within any service organisation, i.e. the client interface model. This process is categorised into five generic stages:
- winning the business
- establishing the account
- working with the client
- delivering to the client
- post-project review .
At each of these stages the work examines the stocks of knowledge which are relied upon to generate, share or integrate knowledge.
The work therefore argues that HR practitioners should be more closely involved with the management of core client interface processes. It pushes to the forefront issues such as resource allocation within the project environment.
Finally, the work concludes with the HR wheel which provides a guiding framework, or a tool, for the HR practitioner to optimise knowledge-based performance in their organisations through the management of both stocks and flows of knowledge. To aid this process the researchers suggest a number of actions that can be taken by HR practitioners to build and develop all forms of capital and to facilitate their integration.
Overall, the report emphasises the need to manage not just all forms of capital but both people and knowledge to optimise intellectual capital.
KINNIE, N. et al. (2006) Managing people and knowledge in professional service firms. Research report. London: CIPD.