Align people with objectives
HR policies can be designed so employee behaviour, skills and rewards support the business's objectives, such as lower costs, higher quality or innovation.
Cambridge International A Level Business · Topic 7.4
Human Resource Management Strategy
Human resource strategy is the medium- to long-term plan for managing people so that the workforce contributes to the organisation's objectives. This topic links HR choices to competitiveness, workforce flexibility, employee performance and the growing use of technology.
Hard & soft HRMFlexible workforcesEmployee performanceManagement by objectivesIT & AI in HRM
What you need to know
You should be able to compare hard and soft HR strategies, evaluate different flexible-working arrangements, calculate and interpret measures of workforce performance, explain why performance may be poor, recommend appropriate improvement strategies, apply management by objectives and analyse how IT and AI are changing HRM.
Exam focusHR decisions are highly contextual. A flexible contract, pay system or HR strategy may be suitable for one workforce but damaging for another. Link every judgement to the skills of employees, variability of demand, labour costs, business objectives and the need to retain knowledge.
Approaches to human resource management
Human resource strategyA medium- to long-term plan designed to achieve a business's human-resource objectives and support its wider corporate objectives.
HR strategy concerns how a business acquires, develops, motivates, rewards and retains people. It should not be viewed as a separate personnel activity: workforce decisions influence productivity, quality, innovation, labour costs and the ability of the organisation to implement its overall strategy.
Why businesses develop HR strategies
Changing organisational structures
Delayering, empowerment and teamworking place more people-management responsibility on line managers and require deliberate policies for recruitment, development and motivation.
Psychological approaches to motivation
Modern HR strategies often recognise that social and psychological needs matter alongside pay. Job design, participation and development can therefore form part of the strategy.
No single HR package
Businesses often combine elements from different approaches. The appropriate mix depends on corporate objectives, management philosophy, labour-market conditions and the type of workforce.
Hard and soft HR strategies
Hard HRM
Employees are treated mainly as a resource whose quantity and cost should be managed efficiently. The approach is generally shorter-term and more control-oriented.
- Workforce size changes readily with demand.
- Pay and other labour costs are tightly controlled.
- Communication tends to be mainly downward.
- Managers retain more control over working methods.
- External recruitment may be used to fill immediate skill needs.
- Appraisal is more likely to judge past performance.
- Leadership tends to be closer to Theory X and autocratic methods.
Soft HRM
Employees are regarded as a valuable asset to be developed over time. The approach is longer-term and places more emphasis on commitment and involvement.
- Consultation, delegation and empowerment are more common.
- Training and employee development receive greater emphasis.
- Promotion from within can support long-term development.
- Appraisal is more likely to focus on development.
- Leadership tends to be closer to Theory Y and democratic methods.
- Job design and recognition are used to support motivation.
Advantages and drawbacks of hard HRM
Possible advantages
- Workforce flexibility: staff numbers can be adjusted to match demand.
- Lower short-term costs: the business may rely on a small skilled core plus lower-cost employees and technology.
- Management control: senior managers can direct operations closely and keep attention on corporate targets.
Possible drawbacks
- High labour turnover can increase recruitment and induction costs.
- New employees may initially have lower productivity.
- Limited responsibility, promotion and development can weaken motivation.
- Heavy dependence on pay may ignore social and psychological motivators.
Advantages and drawbacks of soft HRM
Possible advantages
- A strong employer reputation can attract and retain skilled applicants.
- Lower labour turnover helps the business preserve knowledge and experience.
- Participation can generate creative ideas from employees who understand operations and customers.
- Training and development can build skills needed for future change.
Possible drawbacks
- Training, higher pay and improved conditions can be expensive.
- The business may train employees who are later recruited by competitors.
- Reliance on permanent full-time staff can make capacity harder to adjust when demand changes.
- A long-term approach may be less suitable when the work is low-skilled or demand is highly unstable.
Evaluation: neither hard nor soft HRM is automatically superior. A business using highly skilled employees whose knowledge is difficult to replace may gain more from a soft approach, while a business facing large seasonal changes in demand may need some harder, more flexible elements. Many firms combine both.
Flexible workforces
Flexible workforceA workforce in which the business relies less on permanent full-time employees and makes greater use of arrangements such as part-time, temporary, variable-hours and remote working.
Workforce flexibility can give a business a competitive advantage when labour requirements vary. Extra labour can be used when demand is high, while the business avoids paying for unnecessary labour when demand is low. The effect on employees, however, depends greatly on the particular contract used.
Core and peripheral workers
Peripheral workforce
Part-time, temporary, freelance or self-employed workers who can be added when needed. Some may be low-skilled; others may be specialists needed only occasionally.
Why combine them?
The business protects important knowledge in the core while using the peripheral workforce to respond to changes in workload and specialist requirements.
Types of flexible working
Temporary workers
Employed for a defined period, often to cover seasonal peaks or provide specialist skills for a limited time.
Part-time working
Employees work fewer hours than the standard full-time week. This can help a business staff predictable busy periods without employing everyone full-time.
Job-sharing
Two people divide the duties of one full-time job. Complementary skills can be useful, but good handover and communication are essential.
Annualised hours
The employee agrees to work a total number of hours across the year. Weekly hours can rise in busy periods and fall in quiet periods.
Zero-hours contracts
The employer does not guarantee a fixed number of hours, and the worker does not have to accept every offer of work. This provides flexibility but can create income insecurity.
Flexitime
Employees have freedom over start and finish times while normally attending during agreed core hours and completing the required total hours.
Homeworking
Employees carry out duties from home rather than travelling to a central workplace. Digital communication makes this possible for many service and administrative roles.
Shift-working
Different groups work at different times so the business can operate for long periods or continuously. This can improve use of expensive assets.
Compressed working hours
A full-time total of hours is completed over fewer days, such as four longer days instead of five standard days.
Gig work
Flexible, temporary or freelance work is matched to customers through platforms. Workers are commonly treated as contractors rather than permanent employees.
The gig economy
Gig working can help a business control labour costs because people are used only when required. It can also provide flexibility for people who want irregular work. However, the lack of guaranteed hours or earnings can make income uncertain, and workers may find that unpredictable work interferes with family life and rest.
Advantages and disadvantages of flexible-working contracts
| For businesses | For employees | |
|---|---|---|
| Advantages | Match labour to fluctuations in demand; access specialist skills without permanent employment; reduce some training and non-wage costs; improve competitiveness; some flexible arrangements can strengthen recruitment and retention. | Better work–life balance for some workers; easier to combine work with childcare, study or other commitments; homeworking can reduce commuting time and cost; irregular contracts may suit people who only want work at certain times. |
| Disadvantages | Communication can be harder; some contracts may increase labour turnover; insecure employment can damage motivation and productivity; coordination can become more difficult. | Income and hours may be uncertain; remote or irregular work can reduce social contact; limited visibility may affect career progression; communication and handovers can be difficult. |
Context example: a retailer with predictable weekend peaks may use part-time workers effectively. A specialist engineering company, by contrast, may be damaged if excessive use of short-term contracts causes experienced employees and technical knowledge to leave.
Evaluation: separate the effects of different flexible contracts. Flexitime and homeworking may improve motivation and retention, whereas zero-hours or gig arrangements can reduce labour costs but may create insecurity and high turnover. Do not treat all flexible working as the same.
Measurement, causes and consequences of poor employee performance
Managers need evidence before changing recruitment, training, pay or job design. Workforce measures can reveal whether performance is improving, but each indicator should be interpreted alongside the nature of the business and the reasons behind the figures.
Measures of employee performance
Labour productivity
Labour productivity = output per period ÷ number of employees at workShows output produced per employee. Higher productivity can reduce labour cost per unit and improve price competitiveness or profit margins.
Labour turnover
Labour turnover (%) = staff leaving during the period ÷ average number of staff × 100Shows the proportion of employees leaving. Some turnover can bring new ideas, but excessive turnover can create recruitment, training and lost-productivity costs.
Absenteeism
Absenteeism (%) = staff absent on a given day ÷ total staff × 100Frequent absence may indicate weak morale or motivation and can raise labour costs because work must be covered by others.
Health and safety
H&S absence (%) = working days lost for H&S reasons ÷ total possible working days × 100Shows the effect of accidents and unsafe working conditions. Poor safety can increase costs, reduce morale and damage the employer's reputation.
Worked calculation
Data: a manufacturer has 750 employees, produces 2,250,000 units in the year and 50 employees leave.
Labour productivity: 2,250,000 ÷ 750 = 3,000 units per employee.
Labour turnover: 50 ÷ 750 × 100 = 6.67%.
If productivity is 15% lower than the previous year: current productivity represents 85% of the previous figure, so 3,000 ÷ 0.85 ≈ 3,529 units per employee in the previous year.
What can influence labour productivity?
Productivity is not determined by employee effort alone. It can be affected by the quantity and quality of capital equipment, technology, workforce skills and motivation. This is why a low figure does not automatically prove that employees are lazy or poorly managed.
Causes of poor employee performance
Poor job design
Repetitive, excessively stressful or over-demanding work can reduce motivation and quality and damage work–life balance.
Inappropriate leadership or management
Highly skilled employees may perform badly under excessive control, while inexperienced employees may struggle if given too little guidance. Poor communication also leads to unclear targets and weak feedback.
Demotivation
Low pay, weak relationships and unpleasant or unsafe conditions can create dissatisfaction, reducing effort and increasing the likelihood of employees leaving.
Insufficient resources
Employees cannot perform efficiently without the necessary training, skills, equipment and reliable technology.
Ineffective recruitment and selection
A person may have been appointed without the skills, experience or personal qualities required for the job.
Consequences of poor performance
Higher unit costs
Low productivity raises labour cost per unit and may reduce the firm's ability to compete on price.
Weaker competitiveness
The business may lose sales, market share or profit if rivals are more productive or offer better quality.
Long-term damage
Poor performance can reduce innovation, damage the employer brand and create further recruitment and training costs.
Interpretation: a high labour-turnover percentage is more serious where employees are expensive to train and organisational knowledge matters. In a low-skilled seasonal business, a higher rate may be less damaging. Always interpret the figure in context.
Strategies for improving employee performance
The most suitable improvement strategy should address the underlying cause of weak performance. Spending on training will have little effect, for example, if the real problem is badly designed jobs or a leadership style that demotivates employees.
Training
Develops job-related skills and can improve health and safety. It can also help managers handle employees more effectively. The main limitations are cost and the risk that trained employees leave.
Motivation and job design
Empowerment, teamwork, responsibility, achievement and recognition can make work more meaningful and reduce labour turnover and absenteeism.
Pay systems
Piece-rate and performance-related pay link rewards to output or targets. Financial incentives can raise effort, especially where output is measurable.
Team pay
A team receives a reward when collective targets are achieved. This can encourage cooperation, information-sharing and joint responsibility for results.
Employer branding
Building a reputation as a good place to work can help attract strong applicants and retain experienced employees, particularly where skills are scarce.
Flexible-employment contracts
Arrangements such as flexitime, homeworking and job-sharing may improve work–life balance, motivation and retention when they fit employee needs.
Team pay versus individual merit pay
Team pay
- Rewards cooperation and teamwork.
- Encourages information-sharing.
- Can motivate the group to improve work systems.
- Supports flexibility and a wider organisational focus.
Individual merit pay
- Creates stronger competition between individuals.
- May encourage employees to protect information or focus narrowly on personal targets.
- Can be useful where individual contribution is easy to identify.
- May weaken cooperation if rewards are perceived as unfair.
Management by objectives (MBO)
Management by objectivesAn approach in which managers and subordinates agree objectives, identify the support needed to achieve them, and later evaluate performance against those objectives.
1. Agree targetsManager and employee identify clear objectives.
2. Agree supportResources, authority, training or other support are negotiated.
3. Perform & monitorThe employee works towards the target while progress is reviewed.
4. Evaluate & resetResults are assessed and new objectives are developed.
MBO links individual and team objectives to departmental targets, corporate objectives and ultimately the mission of the business. Its effectiveness depends on these objectives being coordinated rather than each part of the organisation pursuing unrelated targets.
Advantages of MBO
- Target-setting and review can improve communication between managers and employees.
- Employees understand what success looks like and how their work contributes to wider goals.
- Performance reviews can identify training and development needs.
- Achievement of agreed goals can provide recognition and support higher-level motivational needs.
Limitations of MBO
- Targets can be threatening or demotivating if employees believe they are unrealistic.
- The approach requires commitment throughout the organisation.
- Highly specialised work can be difficult to reduce to simple measurable targets.
- Objectives may become outdated quickly when markets, technology or other external conditions change.
High-grade evaluation: performance improvement should be diagnosis-led. If the cause is inadequate skill, training may be appropriate; if the problem is low recognition or autonomy, job redesign may be stronger; if poor performance is caused by obsolete equipment, changing the workforce alone will not solve it.
Roles of IT and AI in human resource management
Technology has expanded the amount of workforce data available to HR managers and has automated many administrative activities. This can make HR processes faster and can free specialists to spend more time on strategic people issues.
Five technology trends affecting HRM
Data analyticsAI can interrogate large workforce datasets and identify patterns.
Cloud computingStores large amounts of HR data and allows authorised access and collaboration.
Mobile technologyImproves access to HR systems and communication across locations.
Social mediaSupports recruitment, communication and team-building.
Internet of thingsConnected devices and wearables can collect data about activity and work processes.
Recruitment and selection
Technology can reduce the cost and time of recruitment. Online platforms and social media connect employers with applicants, while AI can scan application forms and CVs to identify candidates who meet specified criteria. Some businesses also use automated interview tools or chatbots. The source material suggests a combined approach can be useful: technology can assess large volumes of information and job-related criteria, while human HR specialists focus on interpersonal qualities and cultural fit.
Managing employee performance
Performance-management software can track tasks and goals continuously rather than relying only on occasional appraisal meetings. Employees record completed work, colleagues and managers can provide feedback, and the accumulated information can support formal review.
Set goalsIndividual tasks are linked to organisational objectives.
Record progressEmployees update completed tasks and milestones.
Give feedbackManagers and colleagues identify strengths and improvements.
ReviewData supports regular discussions and formal appraisal.
Employee wearables
Wearable devices can be used to monitor location or work activity, provide augmented instructions and identify potentially hazardous activities. In a warehouse, for example, technology can help an employee select the correct item or alert the business to a safety risk.
Communication between HR and employees
Digital platforms can reduce reliance on crowded email inboxes. Messaging systems, file-sharing tools, social intranets and newsfeeds can make it easier for HR to communicate with employees in different locations and can support engagement with HR initiatives.
Creating a more diverse workforce
HR technology can help managers monitor recruitment and workforce data for patterns involving gender or ethnicity. It can also be used to identify pay differences and provide evidence for actions designed to create a more diverse and inclusive workforce.
How technology changes the role of HR
Less routine administration
Digital databases replace paper files and allow records to be searched, updated and analysed rapidly.
More data for decisions
Cloud systems can store large datasets that HR specialists use to produce focused reports.
Faster routine processes
Payroll and other records can be updated efficiently and shared with authorised users.
More strategic HR work
With less time spent on administration, HR managers can focus on long-term workforce needs, organisational values and the culture required to achieve corporate objectives.
Evaluation: the value of HR technology depends on how it is used. Automating a poor HR process will not automatically improve workforce performance. Managers still need appropriate objectives, human judgement and a clear understanding of the people and skills the organisation requires.
7.4 revision checklist
Questions open in a pop-up. Each answer is marked immediately, with an explanation so you know why it is correct or incorrect.