CREATION AND EARLY DEVELOPMENT OF HUMAN RESOURCE MANAGEMENT DEPARTMENTS

This paper deals with the creation of HRM departments in small to medium-sized firms. It presents propositions based on ef ficiency, agency and institutional theory regarding the transfer of personnel practices from the top management to the newly created department. Applications are made towards a strategic and systemic view of HRM. Implications follow . (*) I wish to thank Professors Paul Edwards (U. of Warwick), Anthony Ferner (U. of Warwick), Carlos García Pont (IESE), Marianne J. Koch (U. of Oregon), Alan D. Meyer (U. of Oregon), and Richard Steers (U. of Oregon) for helpful comments. A CONCEPTUAL APPROACH T O THE CREATION AND EARL Y DEVELOPMENT OF HUMAN RESOURCE MANAGEMENT DEP ARTMENTS Researchers in personnel tend to focus on human resource management (HRM) issues in lar ge organizations, thus paying scant attention to phenomena which are peculiar to small to medium-sized firms (Bacon, Ackers, Storey , & Coates, 1996; Hendry , Arthur, & Jones, 1995; Purcell, 1993). This paper is about one of those understudied phenomena: the creation and initial development of HRM departments. Studying the process of early formalization of the personnel function is important both for its own sake and because of its relationship with two of the most intriguing issues currently debated in the field: 1) the seemingly contradictory approaches of either increasing the status of the HRM function by making it more “strategic” (Golden & Ramanujam, 1985; Pfef f r, 1994; Ulrich, 1997) or else minimizing its role by devolving personnel responsibilities to the line (Lowe, 1992; McGovern, Gratton, HopeHailey, Stiles, & Truss, 1997; Stewart, 1996); and 2) the need to move away from the traditional piecemeal treatment of personnel practices (Beer , Spector , Lawrence, Mills, & Walton, 1984; Butler , Ferris, & Napier , 1991) by looking at them from a systems perspective (Ichniowski, Shaw, & Prennushi, 1997; MacDuf fie, 1995; Wright & McMahan, 1992; Wright & Snell, 1991). The single line of research that has consistently looked at the creation and evolution of HRM departments, still usually in lar ge companies, comprises a handful of studies of a rather historical, aggregated nature (Baron, Dobbin, & Jennings, 1986; Dulebohn, Ferris, & Stodd, 1995; Jacoby , 1985). On the one hand, these studies identify major external influences on the formalization of the personnel function, cutting across long periods of time, and thus succeed in describing the social and economic trends shaping the institutional context in which the development of the HRM function is embedded. On the other hand, they are much more limited when it comes to indicating the top strategic management processes that are said to have grown increasingly influential in determining the transformations of today’ s HRM function (Kochan & Capelli, 1984; Kochan, Katz, & McKersie, 1986). Extant research on the creation and development of HRM departments needs to be complemented by work that 1) takes into account the specifics of small to medium-sized companies, 2) focuses on the relatively shorter time periods during which personnel departments are created and stabilize as distinct or ganizational units, and 3) underlines the strategic role played by the top management team in structuring the personnel function. This paper contributes to that work by making sense of two tendencies af fecting the ownership of responsibility for HRM practices in small to medium-sized firms. First, creating an HRM department involves transferring ownership of HRM practices from the top management to the new department. Second, the HRM department is never likely to own the practices completely since 1) top management may retain total or partial ownership of some of the practices, and 2) the HRM department may in turn transfer some practices back to the line. Drawing on rational-ef ficiency, agency and institutional theory , we present a set of propositions on the logic behind the process of transferring responsibility for personnel practices from the top management team to the HRM department. Implications for practice and research will follow . Bir th of the human resource management depar tment Historical accounts of the introduction of HRM departments center on frictions sparked by the transfer of authority over personnel practices, in lar ge companies, between foremen and production managers, on the one hand, and personnel managers, on the other (Jacoby, 1985: 161-165). For two reasons, however , those accounts bear little resemblance to the processes by which companies currently introduce and institutionalize a separate HRM function. This is due, first of all, to dif ferences in or ganizational size: anecdotal evidence shows that firms begin to consider whether to create personnel departments as they begin to employ around one or two hundred employees, well before they reach a much lar ger size. Secondly, the tasks transferred to the new HRM department were previously performed, personally, by the top management, rather than by production foremen and supervisors (Myers, 1986: 18-26). Therefore, creating HRM departments in small to medium-sized firms becomes less a matter of two parties –foremen and personnel staf f– arguing over who should design and implement personnel practices, and more a matter of whether and to what extent the top management trusts the new department to perform those practices. Ef f iency, agency and institutional considerations will help us develop a conceptual framework that encompasses these processes of conflict and trust between the top management and the HRM staf f. HRM Staff and Top Management Relations: Ef ficiency, Agency and Institutional Views During the first stages of or ganizational growth, the top managers –excluding, for the sole purposes of this study , the HR managers– fix the content of the HRM practices. The top managers are usually personally involved in hiring, evaluating employee performance, setting salary and wage levels, analyzing training needs and so on. Because top managers also define the strategy of the firm, the content of those initial, highly informal HRM practices corresponds quite precisely to the strategy (Baron, Burton, & Hannan, 1996; Hannan, Burton, & Baron, 1996). W e can define this as a situation of “natural fit” between strategy and HRM because of the perfect match or degree of harmony between the two. As the company grows, the top managers may begin to delegate some HRM responsibilities to certain managers and supervisors. But the growth of the firm eventually leads to increasing complexity in the management of people. At that point, top management may realize that they need to bring in someone to keep track of employment issues (Bendix, 1956: 21 -212). The HRM department is then born as a separate function. Of course, maintaining the natural fit between strategy and HRM may become increasingly dif ficult as newly appointed personnel managers introduce standard practices that are not fitted to the specific circumstances of the firm and its strategy . Left unchecked, this process of deterioration of the natural fit ends in a state of HRM strategy isolation (Smith, Boroski, & Davis, 1992) in the face of institutional pressures to conform to practices set forth by key players –such as professional associations of HR managers– in what can be called the personnel “societal sector” (Scott & Meyer , 1991a). 2