Human resource management

Setting human resource objectives#

FoundationAQA 7132 3.6.1DfE GCE Business - human resource objectives

Human resource management (HRM) is the management of the people in an organisation - recruiting, developing, motivating and retaining them and managing the relationship between employer and employees. Human resource objectives are the specific targets set for the workforce to support the corporate objectives, and typically include targets for labour productivity, unit labour costs, employee engagement and satisfaction, talent development and training, diversity and equal opportunities, and alignment of the workforce with the firm's needs. Because people are often a firm's largest cost and its main source of quality, service and innovation, HR objectives connect directly to the firm's competitiveness.

A key conceptual distinction is between hard and soft HRM, two philosophies of how to treat employees. Hard HRM regards employees as a resource to be deployed as efficiently and cheaply as any other - it emphasises tight control, minimal pay, temporary and flexible contracts, and treats labour as a cost to be minimised. Soft HRM regards employees as the firm's most valuable asset and a source of competitive advantage - it emphasises development, involvement, good pay and conditions, and long-term commitment, treating labour as an investment. Most firms sit somewhere between the two, and the appropriate blend depends on the firm's strategy: a low-cost operator may lean hard, a service or knowledge business soft.

HR objectives must be consistent with the other functions and with the corporate objectives. A marketing objective to raise service quality implies HR objectives for training and engagement; an operations objective to cut unit costs implies HR objectives for productivity and unit labour costs; a growth objective implies workforce planning to recruit the right people at the right time. HR sits alongside finance as an enabler - a plan the workforce cannot deliver, because it lacks the skills, numbers or motivation, will fail regardless of how good it looks on paper. Workforce (human resource) planning - forecasting the number and type of employees the firm will need and ensuring supply meets demand - is the practical expression of this.

The value of clear HR objectives is that they align the workforce with the strategy, allow people-performance to be measured, and guide investment in recruitment, training and reward. Their limitations, and the source of evaluation, are the tensions they contain: pushing hard on productivity and unit labour costs (a hard approach) can undermine engagement, quality and retention (soft goals), and vice versa. The right emphasis depends on the firm's competitive strategy, the type of work (routine or knowledge-based), the labour market, and the time horizon - and the strongest answers weigh these tensions for the specific business rather than assuming that either treating people well or squeezing costs is always right.

Worked example

Choosing an HRM approach

A low-cost parcel-delivery firm and a specialist software house each ask whether to adopt hard or soft HRM. Advise each.

The delivery firm
Its strategy is cost leadership, its work largely routine, and the labour market for drivers is wide. A harder HRM approach - flexible contracts, tight cost control, productivity targets - fits, though pushed too far it raises turnover and harms service.
The software house
Its strategy is differentiation through skilled, creative staff who are hard to replace. A softer HRM approach - development, involvement, good reward, retention - protects its key asset; treating such staff as a disposable cost would drive them to rivals.
Evaluate
Each approach fits the strategy and work. But even the delivery firm needs enough 'soft' to retain reliable drivers, and the software house needs enough 'hard' to control costs - so the choice is a blend weighted by strategy, not an absolute.

Result: The delivery firm leans hard (cost control, flexibility) and the software house soft (development, retention), each matching its strategy and workforce - though both need a blend, showing the choice is one of emphasis, not extremes.

Typical mistakes

Assuming soft HRM is always better - a low-cost strategy may rationally lean towards harder HRM.
Treating HR objectives in isolation from the workforce planning and finance needed to deliver them.

Active revision

A budget hotel chain and a management consultancy have very different HR needs. Analyse whether each should lean towards hard or soft HRM.

Active recall

Recall the key points — then reveal.

Sources: GCE AS and A level subject content for business (Department for Education) · AQA A-level Business 7132 specification (AQA)

Analysing human resource performance#

AdvancedAQA 7132 3.6.1DfE GCE Business - analysing HR performance

Labour turnover over time (illustrative)

Fig. 1Illustrative rising labour turnover. A rising trend against a stable industry norm signals a growing problem worth investigating - pay, management or morale.

A firm measures the performance of its workforce with several quantitative indicators. Labour productivity is output per employee over a period, calculated as total output divided by the number of employees; rising productivity means more output from the same people, lowering labour cost per unit and raising competitiveness. Labour cost per unit is total labour costs divided by units of output - the figure that connects HR performance directly to unit costs and pricing; note that higher wages need not raise labour cost per unit if they raise productivity by more. These two measures together capture how efficiently the firm is using its people.

Labour turnover measures the rate at which employees leave and must be replaced, calculated as the number of employees leaving in a period divided by the average number employed, multiplied by 100. Some turnover is healthy - it brings in fresh ideas and lets the firm adjust its workforce - but high turnover is costly and often a warning sign: it incurs recruitment, induction and training costs, loses experience and productivity, disrupts teams and can signal poor pay, management or morale. Labour retention is the flip side - the proportion of employees who stay - and a high retention rate (low turnover) usually indicates a satisfied, stable workforce, though excessively low turnover can also mean stagnation.

Absenteeism measures the proportion of working time lost to absence, calculated as the number of days (or staff-days) lost through absence divided by the total possible working days, multiplied by 100. High absenteeism raises costs (cover, lost output) and, like high turnover, often signals underlying problems with motivation, workload, management or working conditions. Read together, these HR metrics form a dashboard: a firm with rising turnover, rising absenteeism and falling productivity almost certainly has a people problem that will eventually show up in costs, quality and customer service.

Interpreting these figures is where the analysis earns marks, and the cautions matter. A single figure means little without comparison - with the firm's past, with the industry norm, or with a target - because 'good' turnover or absenteeism varies enormously by sector (retail and hospitality naturally run higher than professional services). The metrics describe symptoms, not causes: high turnover could reflect poor pay, poor management, a buoyant local job market, or simply the nature of the work, and the right response depends entirely on which. And the numbers say nothing about the quality of the people who leave or stay. So HR data should be interpreted in context, compared over time and against benchmarks, and used to prompt investigation of causes rather than treated as a verdict.

\text{Labour productivity} = \frac{\text{Total output}}{\text{Number of employees}}

Labour productivity

Output per employee. Higher productivity lowers labour cost per unit and raises competitiveness.

\text{Labour turnover} = \frac{\text{Number of staff leaving}}{\text{Average number employed}} \times 100\%

Labour turnover

The rate at which staff leave and must be replaced. High turnover is costly and often signals poor pay, management or morale.

\text{Labour cost per unit} = \frac{\text{Total labour costs}}{\text{Units of output}}

Labour cost per unit

Connects HR performance to unit cost. Higher wages need not raise this if they raise productivity by more.

\text{Absenteeism} = \frac{\text{Staff-days lost to absence}}{\text{Total possible working days}} \times 100\%

Absenteeism rate

The proportion of working time lost to absence. High absenteeism raises costs and often signals motivation or workload problems.

Worked example

Working the HR dashboard

A manufacturer employs on average 200 people. During the year 30 left, output was 480,000 units and total labour costs were £6,000,000. Calculate labour turnover, labour productivity and labour cost per unit, and interpret the figures.

Labour turnover
Turnover = staff leaving / average number employed x 100 = 30 / 200 x 100 = 15 per cent.
Labour productivity
Productivity = total output / number of employees = 480,000 / 200 = 2,400 units per employee.
Labour cost per unit
Labour cost per unit = total labour costs / units = 6,000,000 / 480,000 = £12.50 per unit.
Interpret
A 15 per cent turnover is only meaningful against the industry norm and the firm's past - moderate for manufacturing, concerning if rising. The £12.50 labour cost per unit should be tracked over time: investment that lifts productivity above 2,400 units would cut it even if wages rose. The figures flag areas to investigate, not conclusions.

Result: Labour turnover is 15 per cent, productivity 2,400 units per employee and labour cost per unit £12.50. Whether these are good depends on comparison with the past and the industry, and on the causes behind them - the metrics are a dashboard for investigation, not a verdict.

Typical mistakes

Dividing by the wrong base in turnover (use the average number employed, not just those who left).
Assuming higher wages always raise labour cost per unit - they lower it if productivity rises by more.

Active revision

A firm employs on average 200 staff, of whom 30 left this year, produced 480,000 units and paid £6,000,000 in total labour costs. Calculate its labour turnover, productivity and labour cost per unit, and analyse its position.

Active recall

Recall the key points — then reveal.

Sources: GCE AS and A level subject content for business (Department for Education) · AQA A-level Business 7132 specification (AQA)

Organisational design and structure#

StandardAQA 7132 3.6.1DfE GCE Business - organisational design

An organisational hierarchy

Fig. 2A functional organisation chart. The number of levels is the hierarchy; the number reporting to each manager is the span of control.

Organisational structure is the way a business arranges its people into roles, reporting lines and levels of authority, usually shown on an organisation chart. Several key terms describe it. The hierarchy is the number of levels of authority from top to bottom. The chain of command is the line of authority down which instructions pass. The span of control is the number of subordinates a manager directly supervises. Delegation is passing authority (though not ultimate responsibility) down the chain, and accountability is being answerable for the use of that authority. These terms interlock: a structure with many levels tends to have narrow spans of control, and one with few levels tends to have wide spans.

Structures are often described as tall or flat. A tall structure has many levels in the hierarchy and narrow spans of control: it offers close supervision, clear promotion ladders and well-defined roles, but communication up and down the long chain is slow and can be distorted, decisions are slow, and it is expensive in managers. A flat structure has few levels and wide spans of control: it speeds communication and decisions, cuts management costs, and can empower staff through greater delegation, but it can overstretch managers, leave staff under-supervised and offer fewer promotion rungs. The right shape depends on the size of the firm, the nature of the work and the capability of staff.

Delayering - removing one or more levels from the hierarchy (usually middle management) - is a common way to flatten a structure. Its benefits are lower management costs, faster communication and decisions, and greater empowerment of remaining staff; its risks are that it widens spans of control perhaps too far, overloads remaining managers, damages morale through the redundancies involved, and can lose valuable experience. A related choice is between centralisation, where decision-making authority is kept at the top (giving tight control, consistency and a clear direction, but slower response and less local flexibility), and decentralisation, where authority is pushed down to lower levels or local units (giving faster, more responsive, locally informed decisions and motivating staff, but risking inconsistency and loss of central control).

The design of the structure has real consequences for performance and links across the specification. Structure affects the speed and quality of decisions, the cost of management, communication, motivation (through delegation and empowerment) and the firm's ability to respond to change - a theme returned to in managing strategic change, where flexible structures aid adaptation. There is no perfect structure: it must fit the firm's size, strategy, environment and people, and it typically needs to change as the firm grows (an entrepreneurial start-up cannot keep an informal structure once it has hundreds of staff). Evaluating a structure means judging its fit with these factors and the trade-offs it makes between control and flexibility, cost and supervision.

Worked example

Evaluating a change of structure

A chain of 40 stores runs a tall, centralised structure in which every local decision goes to head office. Store managers complain of slow responses and low autonomy. Evaluate delayering and decentralisation.

Diagnose
The tall, centralised structure means long chains of command and no local authority, causing slow decisions and demotivated store managers - symptoms the change is meant to cure.
Benefits of the change
Delayering would speed communication and cut management cost; decentralising decisions to store managers would give faster, locally informed responses and motivate them through empowerment.
Risks and judgement
Wider spans could overstretch remaining managers, and decentralisation risks inconsistency across stores and loss of central control over brand and buying. A balanced answer decentralises operational decisions (staffing, local promotions) while keeping strategic ones (pricing, range) central. The right degree depends on how much local variation the business wants and the capability of store managers.

Result: Delayering and partial decentralisation would speed decisions and motivate managers, but the firm should keep strategic decisions central to protect consistency - the appropriate balance depends on store-manager capability and the need for a uniform brand.

Typical mistakes

Confusing span of control (subordinates per manager) with the chain of command (the line of authority).
Assuming flat structures or decentralisation are always better - they can overstretch managers and lose control.

Active revision

A growing retailer with a tall, centralised structure finds decisions too slow. Evaluate whether it should delayer and decentralise.

Active recall

Recall the key points — then reveal.

Sources: GCE AS and A level subject content for business (Department for Education) · AQA A-level Business 7132 specification (AQA)

Motivation in theory#

StandardAQA 7132 3.6.2DfE GCE Business - motivation theories

Maslow's hierarchy of needs

Fig. 3Maslow's hierarchy: people are motivated by the lowest unmet need. Once basic needs are met, belonging, esteem and self-actualisation motivate.

Motivation - the drive that makes people work willingly and well - is central to HR because motivated staff are more productive, produce higher quality, stay longer and give better service. Four theories anchor the specification. F.W. Taylor's scientific management (early 20th century) held that workers are motivated chiefly by money, and that productivity is maximised by breaking work into simple, standardised tasks, selecting and training workers for them, and paying by results (piece rates). Taylorism raised output in routine manufacturing but treated people as machines, ignoring their social and psychological needs, and can produce boredom, resentment and poor quality - so its financial-incentive insight is real but partial.

Elton Mayo's human relations theory grew from the Hawthorne studies, which found - almost by accident - that workers' productivity rose when they were given attention, worked in teams and felt their views mattered, regardless of physical conditions. Mayo's insight was that social factors - teamwork, communication, recognition and a sense of belonging - motivate as powerfully as money. This shifted management thinking towards involving employees, building teams and communicating, and it underpins many modern non-financial motivators. Its limitation is that it can understate the continuing importance of pay and can be hard to translate into consistent practice.

Abraham Maslow's hierarchy of needs arranges human needs in five ascending levels: physiological (pay for food and shelter), safety (job security, safe conditions), social (belonging, teamwork, friendship), esteem (recognition, status, responsibility) and, at the top, self-actualisation (achieving one's full potential). Maslow argued that people are motivated by the lowest unmet need, and that once a level is largely satisfied it no longer motivates - attention moves up to the next. The practical lesson is that a firm must first meet basic needs (fair pay, security) but that, beyond a point, more money motivates less than opportunities for belonging, recognition and personal growth. Its limitations are that people do not always follow the neat order and that the levels are hard to measure.

Frederick Herzberg's two-factor theory distinguishes two separate sets of factors. Hygiene factors (pay, working conditions, company policy, supervision, job security) do not motivate when present, but cause dissatisfaction when absent or poor - they must be got right just to reach a neutral baseline. Motivators (achievement, recognition, the work itself, responsibility, advancement) are the factors that genuinely drive satisfaction and effort. Herzberg's radical implication is that improving pay and conditions only removes dissatisfaction; to truly motivate, a firm must enrich the job itself - through greater responsibility, meaningful work and recognition (job enrichment). Together these four theories move from a purely financial view of motivation towards a richer picture in which money is necessary but non-financial factors are decisive, and they set up the practical methods of the next section. Their shared limitation is that they generalise about human nature, and the right motivators vary between individuals, cultures and jobs.

Herzberg's two-factor theory

Fig. 4Herzberg: hygiene factors only remove dissatisfaction; genuine motivation comes from the motivators - so a firm must enrich the job, not just improve pay.

Worked example

Applying motivation theory to a problem

A software firm pays competitively but suffers low motivation and rising turnover among its developers, who complain of repetitive work and little recognition. Use Herzberg to diagnose and recommend action.

Diagnose with Herzberg
Pay is competitive, so the hygiene factor is satisfied - which is why more money would not fix the problem. The complaints (repetitive work, no recognition) are missing motivators: the work itself, achievement and recognition.
Recommend targeted action
Enrich the jobs: give developers more challenging and varied projects, greater responsibility and autonomy, and visible recognition for achievement - Herzberg's motivators - rather than another pay rise.
Evaluate
Because hygiene is already met, addressing motivators should lift satisfaction and cut turnover at modest cost. But individuals differ (some may value pay or security more), so the firm should combine job enrichment with attention to each person's needs.

Result: Herzberg shows the problem is a lack of motivators, not of pay, so job enrichment - challenge, responsibility and recognition - is the right remedy, tailored to individual developers rather than another across-the-board pay rise.

Typical mistakes

Treating Herzberg's hygiene factors (such as pay) as motivators - they only prevent dissatisfaction.
Assuming money always motivates most, ignoring Mayo, Maslow and Herzberg's emphasis on non-financial factors.

Active revision

Staff at a call centre are well paid but bored and leaving. Use a motivation theory to analyse the problem and recommend how to improve motivation.

Active recall

Recall the key points — then reveal.

Sources: GCE AS and A level subject content for business (Department for Education) · AQA A-level Business 7132 specification (AQA)

Motivation in practice, engagement and recruitment#

StandardAQA 7132 3.6.2DfE GCE Business - motivation in practice

In practice firms motivate through a mix of financial and non-financial methods, and the theory of the previous section guides the mix. Financial methods include time-based pay (a wage or salary), piece rates (pay per unit, in the spirit of Taylor), commission (pay linked to sales), performance-related pay and bonuses, profit-sharing and share-ownership schemes, and fringe benefits. Financial rewards are powerful for meeting basic needs and for jobs with measurable output, but they can distort behaviour (chasing the measured target at the expense of quality or teamwork), and - following Herzberg - once pay is adequate, more of it motivates less than the work itself.

Non-financial methods aim at the higher needs and the motivators. Job enrichment gives employees more challenging, meaningful work with greater responsibility; job enlargement and job rotation add variety; empowerment and delegation give staff authority over their work; teamworking meets social needs; and recognition, praise, consultation and opportunities for development and promotion address esteem and self-actualisation. These methods are often cheaper than pay rises and, the theories suggest, more powerful for lasting motivation - but they require a supportive management style and culture, and they take time and skill to implement well.

Employee engagement - the extent to which employees feel committed to, and enthusiastic about, their work and their organisation - is the modern umbrella for much of this. Engaged employees are more productive, provide better service, are more innovative, and are more likely to stay. Firms build engagement through good communication (two-way, so staff feel heard), involvement in decisions, meaningful work, recognition, development and a positive culture. The link to performance is why engagement has become a leading HR objective, though measuring it and proving the causal link to profit is difficult, which supports evaluation.

Motivation also depends on getting the right people in the first place, so recruitment, selection, training and development are part of the picture. Recruitment and selection - defining the role, attracting candidates (internally or externally) and choosing among them through applications, interviews, tests and assessment - determine the raw material the firm has to motivate and develop; a poor hire is costly and hard to fix. Training (induction, on-the-job and off-the-job) and development build the skills and confidence that raise productivity and quality and, importantly, are themselves motivating (they meet esteem and self-actualisation needs and signal that the firm values its people). The evaluative theme is that motivation is not a single lever but a system - reward, job design, engagement, recruitment and training must reinforce one another, and the right combination depends on the workforce, the work and the firm's strategy.

Worked example

Designing a motivation package

A warehouse has adequate pay but low engagement, high absenteeism and monotonous work. It has a limited budget. Recommend how to raise motivation.

Read the situation with theory
Pay is adequate (Herzberg hygiene met), so extra pay would do little. The problems - monotony, low engagement, absenteeism - point to missing motivators and unmet social and esteem needs (Maslow).
Choose cost-effective methods
Introduce job rotation to reduce monotony, teamworking to meet social needs, recognition schemes and involvement in decisions for esteem, and a small team bonus linked to attendance and performance to tackle absenteeism directly.
Evaluate
These are cheaper than an across-the-board pay rise and target the actual causes. Success depends on managers implementing them genuinely - tokenistic 'recognition' can backfire - and on tailoring to what staff value; some may still respond most to the modest bonus.

Result: A low-cost package of job rotation, teamworking, recognition and a targeted attendance bonus addresses the real causes (monotony, unmet social and esteem needs) better than a pay rise - provided managers implement the non-financial methods sincerely.

Typical mistakes

Reaching automatically for a pay rise, ignoring cheaper and often more effective non-financial methods.
Confusing job enlargement/rotation (more or varied tasks) with job enrichment (more responsibility and challenge).

Active revision

A supermarket wants to raise motivation among shelf-stackers without a large budget. Recommend a mix of financial and non-financial methods and justify it.

Active recall

Recall the key points — then reveal.

Sources: GCE AS and A level subject content for business (Department for Education) · AQA A-level Business 7132 specification (AQA)

Managing employer-employee relations#

StandardAQA 7132 3.6.3DfE GCE Business - employer-employee relations

Resolving industrial disputes

Fig. 5Methods of resolving disputes escalate from direct negotiation to third-party conciliation, mediation and arbitration (in the UK, via ACAS).

Employer-employee relations are the ongoing relationship between a business and its workforce, and managing them well is essential to productivity, retention and the avoidance of costly disputes. Good relations rest first on communication - the accurate, timely, two-way exchange of information. Effective communication keeps employees informed, gives them a voice, reduces uncertainty and rumour, and builds trust; poor communication breeds misunderstanding, resistance and conflict. Firms use many channels (meetings, briefings, intranets, surveys, suggestion schemes), and the aim is genuine two-way dialogue rather than one-way instruction.

Because individual employees have little bargaining power against an employer, employees are often represented collectively. Employee representation can take the form of trade unions (independent organisations that represent members' interests, negotiate pay and conditions through collective bargaining, and can organise industrial action), works councils or staff associations, and worker directors or employee representatives on committees. Representation gives employees a stronger, collective voice, can improve communication and can make agreements more durable; from the employer's side, negotiating with representatives can be more efficient than dealing with individuals, though it can also formalise conflict and constrain management.

Where employer and employees cannot agree - typically over pay, conditions, job security or change - industrial disputes can arise, and in the extreme lead to industrial action such as strikes, overtime bans or work-to-rule. Disputes are damaging to both sides: the employer loses output, sales and reputation, and employees lose pay and risk their jobs. Methods of avoiding and resolving disputes therefore matter. Prevention rests on good communication, fair treatment and involving employees in decisions. Resolution methods include negotiation and compromise, conciliation and mediation (a neutral third party helps the sides reach their own agreement) and arbitration (a neutral third party imposes or recommends a settlement) - in the UK, bodies such as ACAS provide these services.

The overarching evaluative point is that the interests of employer and employees are partly opposed (over the division of value between profit and pay) and partly shared (both benefit from a successful, stable business), so relations management is about handling conflict while building cooperation. A firm that treats employees as adversaries invites disputes, low morale and high turnover; one that builds partnership through communication, fair reward and genuine involvement tends to enjoy flexibility, loyalty and productivity. The right approach depends on the industry, the workforce, the presence and power of unions, and the firm's HRM philosophy (hard or soft) - and the strongest answers weigh the cost of accommodating employees against the far larger cost of a breakdown in relations.

Worked example

Resolving a threatened dispute

A manufacturer must change shift patterns to meet new demand, but the workforce, represented by a union, threatens to strike. Recommend how to handle the situation.

Assess the stakes
A strike would halt production, lose sales and damage customer relationships and reputation; the workforce would lose pay and trust would fall. Both sides have a shared interest in avoiding it.
Choose an approach
Communicate the business reasons for the change openly and early; negotiate with the union to find a compromise (phased changes, compensation, protecting the vulnerable); and, if talks stall, use conciliation through ACAS to help both sides reach their own agreement rather than imposing one.
Evaluate
Genuine consultation and compromise are likely to resolve the dispute at a modest cost and preserve long-term relations, whereas imposing the change risks a damaging strike. The best approach depends on union strength and how essential the change is - but the cost of a breakdown usually dwarfs the cost of accommodation.

Result: Open communication, negotiation and, if needed, ACAS conciliation are the right way to resolve the dispute, because the cost of a strike far exceeds the cost of a negotiated compromise - though the firm's leverage depends on union power and the urgency of the change.

Typical mistakes

Portraying trade unions as purely negative - representation can improve communication and produce durable agreements.
Confusing conciliation/mediation (a third party helps the sides agree) with arbitration (a third party decides).

Active revision

A factory faces a threatened strike over proposed shift changes. Evaluate how the business should manage employer-employee relations to resolve the dispute.

Active recall

Recall the key points — then reveal.

Sources: GCE AS and A level subject content for business (Department for Education) · AQA A-level Business 7132 specification (AQA)

Key points

Choosing an HRM approach

Key points

Working the HR dashboard

Key points

Evaluating a change of structure

Key points

Applying motivation theory to a problem

Key points

Designing a motivation package

Key points

Resolving a threatened dispute

Sources

Human resource management

Key points

Choosing an HRM approach

Key points

Working the HR dashboard

Key points

Evaluating a change of structure

Key points

Applying motivation theory to a problem

Key points

Designing a motivation package

Key points

Resolving a threatened dispute

Sources