- 1 The Economic Objectives of HRM
The job forWrms in what economists call the ‘short run’ is to secure their economic
viability in the industry or industries in which they have chosen to compete. In
order to support economic viability,Wrms are naturally concerned with labor
productivity, with the problem of how to establish a cost-eVective system of
labor management (Boxall and Purcell 2003 ; Geare 1977 ; Godard 2001 ; Osterman
1987 ). Cost eVectiveness can be understood as the need for everyWrm to stabilize a
production system that enables it to compete in its chosen market (Rubery 1994 ;
Rubery and Grimshaw 2003 ). The economics of production systems, involving
what is possible with certain types of technology and work organization, varies very
signiWcantly across industries (Batt and Doellgast 2005 ). In other words, there are a
limited number of viable ways of producing products or services (sometimes called
‘dominant designs’) in each industry segment and theWrm’s HR strategy needs to
support them or theWrm will fail. The process of forming a pattern of HRM that
will underpin business viability takes place at founding and during the early growth
of successfulWrms (Boxall and Purcell 2003 ). Founding leaders play a key role in
this process: they either establish the basic HR strategy needed for viability or the
Wrm fails. This allows for their personal values and philosophies to have an impact
(as, for example, inWrms such as the John Lewis Partnership in the UK and Hewlett
Packard in the USA) but only in a way that supports the need to be economically
viable or does not undermine it.
The fundamental need to adapt HR strategy to the economics of production
introduces major variation into HRM. Very expensive, high-skill models of labor
management, incorporating rigorous selection, high pay, and extensive internal
development, are unusual amongWrms in those services, such as fast food, gas
stations, and supermarkets, which are characterized by intense, margin-based
competition (Boxall 2003 ). In such circumstances,Wrms typically adopt a low-
commitment model of labor management, oVering adequate rather than excellent
service standards because customers are more price than quality sensitive. On the
other hand, as Godard and Delaney ( 2000 ) argue, costly, high-commitment HR
practices are more often found where the production system is capital intensive or
where high technology is involved. In these conditions, the absolute level of labor
cost may be quite low but workers have a major eVect on how well the technology is
utilized. It is thus economically ‘eYcient’ to remunerate and train them very well,
making better use of their skills, and ensuring their motivation is kept high. In fact,
high-commitment models of HRM of this kind are now frequently a ‘table stake’
in certain types of advanced manufacturing and in many knowledge-intensive
professional service industries in the high-wage countries (Boxall and Purcell
2003 ). Firms either adopt these systems or they won’t survive in the business.
Identifying cost eVectiveness as the most basic economic driver in HRM helps to
explain why employers do not, however, adopt high-commitment models of HRM
the goals of hrm 57