74 SITUATING HUMAN RESOURCE MANAGEMENT
or less of total cost) but workers have a major effect on how well the technology
is utilized or exploited. It thus pays to remunerate and train them very well,
making better use of their skills and ensuring their motivation is kept high. As
they find ways of making the equipment meet or even exceed its specifications,
the unit costs of labour fall and productivity rises. Thus, in this kind of
context, the firm can easily sustain high wage levels. It is more importantnotto
alienate this kind of labour, because of the productivity impacts of disrupted
production, than it is to worry about wage levels. As Osterman (1987: 55)
explains:
The concept of cost must be broadened to include potential as well as actual costs.
Employees can impose costs on the firm through errors of various kinds. For exam-
ple, a particular kind of capital equipment may be simple to operate and require
little skill but yet be very expensive and subject to damage through employee error.
Many firms will choose to employ higher-skill labour and create stable employment
systems...because of potential downside costs.
Clearly, then, the problem of securing cost-effective labour, of making labour
productive at reasonable cost, invites some careful thinking about likely costs
and benefits. This is far from easy. In reaching a suitable ‘solution’ or a rel-
atively stable, cost-effective model of labour management, firms are always
confronted to some degree by thestrategictensions associated with labour
scarcity and motivation. In all countries where forced labour has been elimi-
nated, firms need to compete in labour markets to secure talented staff(Coff
1997; Windolf 1986), a problem that was severe in the global market for IT
workers in the 1990s. Even where there are high levels of unemployment (as
in much of continental Europe), labour shortages can continue in particular
sectors.
Well-resourced organizations that have the ability to pay the going rate or
better, and are able to offer good development opportunities, tend to dom-
inate in this contest. As a result, many small firms remain fragile, tenuous
organizations with ongoing recruitment problems (Hendry, Arthur, and Jones
1995; Storey 1985). The goal of securing reasonable productivity in the firm
is seriously compromised if the firm cannot make competitive job offers. It
then struggles to build the capabilities it needs to meet its business objectives
or respond to its clients’ demands. In the extreme, the tension associated
with labour scarcity can become a full-blown ‘capability crisis’, compromis-
ing productivity and profitability and threatening the firm’s reputation and
viability.
A second major tension—associated with themotivationof workers once
they are actually hired—stems from the nature of the employment contract as
an exchange relationship which, unlike the sale and purchase of commodities,
involves an ongoing and unpredictable interaction between the parties. Future
behaviour matters to the parties but neither party can accurately predict it