Description
Description explain the alignment between effective people management business strategy.
In spite of a growing body of evidence to support the enormous
financial performance obtained through effective people
management, organisations are still moving in the opposite
direction by utilising practices that are contrary to what is
known regarding sound people management (Huselid, 1995;
Huselid, Jackson & Schuler, 1997; Templer & Hofmeyer, 1989;
Pfeffer, 1998). Notwithstanding the positive findings of effective
people management, companies continue to pursuit restruct-
uring and retrenchments as a means to increase organisational
effectiveness and decrease expenses. This is very often the
detriment to sound people management.
Previous international empirical studies have consistently
found a significant relationship between people management
and organisational performance (Auther, 1994; Becker &
Gerhart, 1996; Delery & Doty, 1996; Haynes & Fryer, 2000;
Huselid, 1995; Huselid et al., 1997; Pfeffer, 1998; Welbourne
& Andrews, 1996; and Youndt, Snell, Dean & Lepak, 1996).
However, there appears to be little understanding of
the magnitude and the direction of the relationship (Borucki,
1989), or the process to realise improved organisational
performance through effective people management (Huselid
et al., 1997). The study by Veldsman, Van der Linde
and Conidaris (1998) found that the people management
contribution to the success of South African companies
was poor and needed to be reviewed. The study showed that
the people management component in South African
organisations was unable to support the business strategy
in order to leverage strong organisational performance. It
would thus appear that there was a misalignment between
people management components and business goals in South
African organisations.
The financial service sector is one of fastest growing sectors
both internationally and in South Africa. In the 1998
World Competitiveness Report, the South African banking
sector ranked thirteenth out of 53 nations (The South
African Banking Review, 1998). In order to remain
competitive, financial services firms in the United States,
Canada, Latin America, Australia, South Africa and Asia Pacific
are creating business strategies, products, structures and
alliances that identif y these firms more broadly as financial
services companies (Van Gorp, Hall, Keene, Holden, & Soh,
1997). The traditional distinctions between banks, insurance
companies and brokerage firms are falling away as all compete
for the same assets with increasingly similar products and
services. Technology, deregulation and globalisation are
causing a revolution in the financial services industry,
whilst mergers and consolidations are reshaping the industry
nationally and worldwide (South African Banking Review,
1999). These trends are evident in the South African financial
services sector.
RUWAYNE KOCK
Department of Human Resource Management
Rand Afrikaans University
GERT ROODT
Department of Human Resource Management
Rand Afrikaans University
THEO H. VELDSMAN
People Effectiveness Consulting Group
CS Holdings
ABSTRACT
The aim of the study was to determine the nature of the alignment between people management effectiveness,
business strategy and organisational performance within the banking and insurance sector in South Africa. From the
field study, it was evident that the majority of the participating companies fell short of people management best
practices and were therefore unable to support their business strategies, which were in line with best practices. The
organisational performance data was insufficient to determine the nature of the alignment between organisational
performance, people management, and business strategy. The South African banking and insurance industry needs
to realign their people management component to support the appropriate business strategy and to produce a
desired level of organisational performance. A limitation of this study was the small sample size, which may have
had some effect on the interpretation of the results. However, the sample represents a significant proportion of the
South African banking and insurance sector. Although the magnitude and the direction of the relationships are still
unclear, the opportunity exists for further longitudinal research.
OPSOMMING
Die doel van die studie was om die onderlinge verhouding tussen mensbestuursdoeltreffendheid,
besigheidstrategie en organisasieresultate binne die Suid-Afrikaanse bank- en versekeringsektor te ondersoek. Die
studie het duidelik gewys dat toonaangewende bestuurspraktyke by die meerderheid van die deelnemende
organisasies ontbreek. Die mensbestuur was nie in staat om die besigheidstrategieë te ondersteun nie wat wel met
wêreldwye beste praktyke ooreenstem. Inligting oor organisasieresultate was onvoldoende om enige afleiding te
maak. Mensbestuur in die Suid-Afrikaanse bank- en versekeringsektor moet met die besigheidstrategie belyn word
om die verwagte organisasieresultate te lewer. Die relatiewe klein steekproefgrootte was ‘n tekortkoming in die
studie wat die vertolking van die resultate wesenlik bemoeilik. Die steekproefgrootte verteenwoordig egter ‘n hoë
persentasie van die Suid-Afrikaanse bank- en versekeringsektor. Alhoewel die omvang en sterkte van die onderlinge
verhoudinge nog onduidelik is, is die potensiaal vir verdere navorsing wenslik.
THE ALIGNMENT BETWEEN EFFECTIVE PEOPLE MANAGEMENT,
BUSINESS STRATEGY AND ORGANISATIONAL PERFORMANCE IN
THE BANKING AND INSURANCE SECTOR
Requests for copies should be addressed to: R Kock, Department of Human
Resource Management, RAU, PO Box 524, Aukland Park, 2006
83
SA Journal of Industrial Psychology, 2002, 28(3), 83-91
SA Tydskrif vir Bedryfsielkunde, 2002, 28(3), 83-91
International research in the banking industry has arrived at
conclusions that support the significant relationship between
better people management (customer services), business
strategy and organisational performance (Delery & Doty, 1996;
Schneider & Bowen, 1985; Schmit & Allscheid, 1995). However,
the findings by Schmit & Allscheid, (1995) found a less
consistent relationship between the business strategies and
customer service (people). There is a need to further
investigate the alignment between people management,
business strategy and organisational performance to better
understand the value-add of people. For these reasons, the
broad aim of this study is to determine the alignment between
people management effectiveness, business strategy and
organisational performance within the banking and insurance
sector in South Africa.
People management: a conceptual model
The study by Veldsman et al. (1998) provides a conceptual model
(see Figure 1) to evaluate people management effectiveness in
organisations. This model was used as a guideline to analyse
people management effectiveness in this study.
According to the above conceptual model of people
management (see Figure 1), the business strategy represents
the setting within which the company’s people management
has to unfold; alignment refers to the consistency between the
business strategy and the strategic people intent, people
policies and practices of the company; the organisation’s
strategic people intent consists of the strategic people issues
and priorities pursued; its people philosophy; the psycho-
social contract reflecting the basic relationship between
the organisation and its members; and the profile of its
people; the people management policy and practices represent
the policy choices and interventions adopted by the
organisation to unleash the contribution of its people; the
delivery process represents the actualisation of the strategic
people intent, and the execution of the people policies and
practices; and the outcomes, show the result of all of the
aforementioned. The people management conceptual
framework depicted in Figure 1 encompasses an integrated
and systematic approach to people management. The term
people management was used interchangeably with human
resource management in this report.
A shortcoming of the Veldsman et al. (1998) study was the
inability to measure the organisational performance (i.e.
performance, quality of life, and the people value-add), because
of the absence of comparable data. The study by Dyer and Reeves
(1995) was used to expand on the Veldsman et al. (1998)
definition of organisational performance. According to Dyer and
Reeves’ (1995) definition, organisational performance consists of
human resource outcomes (i.e. absenteeism; turnover;
individual and group performance), organisational outcomes
(productivity, quality and service), and financial outcomes
(return on invested capital or return on asset and stock value or
shareholder return). For the purpose of this study,
organisational performance was defined in terms of the
aforementioned three categories, i.e. financial, organisational
and people management performance measurements.
According to Drago (1990) common financial indicators include:
sales growth, return on investment (ROI), return on sales, return
on equity (ROE), and earnings per share. In more recent research
by Delery and Doty (1996), return on average assets (ROA) and
return on equity (ROE) were used as financial measures in the
banking industry. These financial measures support the
measurements used in previous research (Borucki, 1989;
Caliguiri & Stroh, 1995; Dyer & Reeves, 1995). Huselid et al.
(1997) argues that the accounting-based profitability indicators
was subject to numerous biases not presented in market-based
measures, which are generally considered to be a more accurate
reflection of a firm’s financial health. For these reasons, the
financial indicators of this study consisted of efficiency ratios,
profits, return on assets, total assets, return on equity, capacity
adequacy ratios, and advanced growth.
According to Dyer and Reeve (1995) organisational outcome
measurements included productivity, quality and service.
Huselid et al. (1997) defined employee productivity as the net
sales (revenue) per employee. This definition was consistent
with prior empirical work and tends to reflect employees’ efforts
(Auther, 1994; Delery & Doty, 1996; Huselid, 1995; Huselid et al.,
1997). However Huselid et al. (1997) considered the productivity
indicator as an incomplete measure of a firm’s overall
profitability and therefore needed to be considered with other
financial measurements. Instead of productivity indicators,
Delany & Huselid (1996) chose perceptual measures of the
organisations’ performance in their study. They selected
perceived organisational performance such as product quality,
customer satisfaction and new product development. Although
perceptual data introduces limitations through increased
measurement error and the potential for mono-method bias, it
was not unprecedented to use such measures (Delany & Huselid,
1995). For the purpose of this study organisational outcomes
consisted of service and product quality, customer satisfaction
and new product development.
KOCK, ROODT, VELDSMAN 84
Figure 1: A conceptual model of people management in organisations
The Saratoga report (1997) was used to establish the appropriate
people management key performance indicators (KPI). The key
performance indicators (KPI) demonstrated the value-add of
people management in organisations. For the purpose of this
study people management outcomes consisted of average profit
per employee; average revenue per total employees; average cost
per total employees; total human resource cost per total
employees; the human value add ratio; remuneration per
revenue/total costs/profits; absence rate; and training cost per
total number of employees.
An overview of empirical research findings
Delery and Doty (1996) draws on three dominant modes of
theorising about strategic people management: the
universalistic, contingency and configurational perspectives.
The universalistic framework proposes that some people
management practices are universally effective (Delery &
Doty, 1996; Delany & Huselid, 1995; Huselid 1995; Pfeffer,
1998; Templer & Hofmeyr, 1989). This means that
organisations that adopt these best practices will reap the
benefits of higher profits. The contingency framework
proposes that the effectiveness of people management
practices is contingent on the organisational strategy
(Caligiuri & Stroh, 1995; Huselid et al., 1997; Templer &
Cattnoe, 1991; Youndt et al., 1996). This means that
organisations, which adopt human resource practices that are
appropriate to its strategy, are more effective. The
configuration framework proposes that the consistency within
people management practices and strategies is necessary to
enhance performance (Auther, 1994; Delery & Doty, 1996;
Dyer & Reeves, 1995 Haynes & Fryer, 2000; MacDuffie, 1995).
This means that the bundling of people management practices
into strategies will enhance organisational performance,
which supports the research findings that high involvement,
high performance, or high commitment management
practices support the achievement of superior economic
performance (Auther, 1994; Becker & Gerhart, 1996; Delery &
Doty, 1996; Huselid, 1995; Huselid et al., 1997; Pfeffer, 1998;
Welbourne & Andrews, 1996; Youndt et al., 1996).
Notwithstanding these modes of theorising about effective
people management, there appears to be little understanding of
the processes required to realise this human potential or the
specific conditions under which the human potential is realised.
A major limitation of most of the past studies is the
establishment of the causal relationship between people
management and organisational performance. Table 1 provides a
selected overview of strategic people management theories.
Universalistic Approach
This approach proposes that the adoption of universal people
management best practices is more effective, i.e. produce
superior organisational performance. The study conducted by
Huselid et al. (1997) supports the contention that investments in
people are a potential source of competitive advantage. The
study found that technical human resource management
practices such as recruitment; selection; performance
measurement; training; and the administration of compensation
and benefits have become institutionalised in United States
firms. However, the study found no relationship between
technical people management practice effectiveness and firm
performance. Technical people management practice
effectiveness is thus argued to be insufficient to produce a
competitive advantage. However, the study confirmed the
significant relationship between the strategic people
management effectiveness and employee productivity, financial
and market value. In spite of these results, they acknowledged
that there were various conditions in the internal and external
environment, which may have influenced both the people
management activities and the firm’s performance. Although the
study included control measures in the statistical analyses, other
causal models were still possible.
Delany and Huselid (1996) found a positive relationship
between people management practices and the perception of
firm performance. They used “perceived organisational
performance” and “perceived market performance” to measure
organisation performance. The results confirmed that
progressive people management practices were positively related
to perceptual measures of organisational performance.
Huselid, (1995) found that high performance work practices
resulted in higher turnover (7.05 percent increase per
employee), greater productivity ($ 27,044 more in sales) and
corporate financial performance ($18,641 more in market value
and $ 3,814 more in profits). Although Huselid concluded that
the high impact of performance management practices on
corporate financial performance was due to their influence on
turnover and productivity, the source of the remaining gains
was unclear.
In spite of the above studies, the nature of the alignment
between effective people management and organisational
performance, as a source of competitive advantage, remains
unclear. A secondary objective of the study was thus to
determine the effectiveness of the people management in the
participating companies by comparing their people manage-
ment with best practices.
Contingency Approach
This approach suggests that the alignment of people
management with the appropriate strategy is more effective.
Auther (1994) confirmed that strategy was significantly related
to improved performance (34 percent fewer labour to produce
a ton of steel) and better scrap rates (63 percent). Nonetheless,
Auther was unable to test the fit between business strategy and
people strategy. The study conducted by Schneider and Bowen
(1985) found that service and people related organisational
management practices were related to improved customers
service quality in bank branches. Schmit and Allscheid (1995)
demonstrated a relationship between employees’ attitudes
and customer satisfaction but were unable to explain the
relationship between employee attitudes and profits. Youndt
et al. (1996) supported the perspective that different types
of people management strategies required different
people management systems. They concluded that the link
between people management and strategy required deeper
understanding of how to manage people to improve
competitiveness.
In an important longitudinal study conducted by Borucki (1989)
the research design and conceptual model lent itself to
expanding the conceptual approach to better understand the
complex relationship between strategic people management and
organisational performance. This research provided strong
support for an emphasis on people management to drive
organisational performance and goal attainment. It stressed the
importance of people management to achieve strategic
objectives. Accordingly, people management needs to support
the implementation of the business strategy to leverage superior
organisational performance.
According to Jackson and Schuler (1995) current literature does
not fully consider the complexity of the model to describe the
relationship between strategy and people management. The
argument for internal and external fits remains compelling to
understand the alignment between effective people
management and business strategy. Another secondary objective
of this study was to determine the nature of the alignment
between effective people management and business strategy.
Configuration Approach
This approach suggests that organisations, which bundle people
management into strategies, will be more effective. The study of
nearly two hundred banks by Delery and Doty (1996) supports
the notion that some configurations of people management
EFFECTIVE PEOPLE MANAGEMENT 85
KOCK, ROODT, VELDSMAN 86
TABLE 1
STRATEGIC PEOPLE MANAGEMENT THEORIES
Authors People Management Summary
Perspective
Delany & Huselid (1996) Universalistic A positive relationship existed between human resource management practices and the perception of the
firms’ performance. They used “perceived organisational performance” and “perceived market performance”
to measure organisation performance. This allowed Delany and Huselid to assess the impact of progressive
human resource practices on financial measures.
Huselid (1995) Universalistic High performance work practices, which are one standard deviation above the mean are associated with
lower turnover (7.05 percent decrease per employee), greater productivity ($ 27,044 more in sales) and
corporate financial performance ($18,641 in more in market value and $ 3, 814 in profits).
Templer & Hofmeyr Universalistic It is possible to predict effectiveness from the way human resources are managed, and this prediction holds
(1989) across a wide range of organisations and a large number of employees.
Caliguiri & Stoh (1995) Contingency/ This paper examined the relationship between mulinaional corporations’ global management strategies
Universalistic and the resulting international human resource practices. The HR practices vary by global strategies:
ethnocentric; regiocentric; polycentric; and geocentric. These strategies were found to be related to
economic variables (return on capital, sales growth, return on equity profit margin)
Templer & Cattanoe Contingency The research confirmed that a continuous process of what is happening to the organisation and where the
(1991) business is going must inform the human resource strategy. HRM effectiveness is a function of the extent
to which it adapts to the context and strategy within the organisation. Only through an HRM audit can
it be demonstrated that the ultimate source of value is the people who work in the organisation. Human
resource strategies must be concerned with the design and management of organisational processes of
the business.
Huselid, Jackson & Contingency The study focused on the impact of the overall Human Resource Management (HRM) quality on the firm’s
Schuler (1997) performance. The study found that the technical HRM effectiveness (i.e. recruitment, selection,
performance measurement, training and the administration of compensation and benefits) were higher
than the strategic HRM effectiveness. The results clearly indicated the extent to which technical HRM has
become institutionalised in US firms. They found no relationship between the technical HRM effectiveness
and the firms’ performance. The study confirmed the significant relationship between the strategic people
management effectiveness and employee productivity, financial and market value.
Schneider & Bowen Contingency Organisational management practices that are both services related and human resource provide cues that
(1985) customers use to evaluate service quality.
Schmit & Allscheid Contingency Significant relationship was demonstrated between employees’ attitudes, customer satisfaction and profits
(1995) in service firms. A less significant relationship existed between employee attitudes and profits in service
firms.
Pfeffer (1998) Contingency Numerous firms such as Singapore Airlines have succeeded financially by emphasising employee well-being
and customer service.
Youndt, Snell, Dean Contingency Different types of people strategies (i.e. flexibility) require different people management systems.
Jr, & Lepak (1996)
Borucki (1989) Contingency Attempted to determine the impact and direction of the causality of strong financial performance on HR
performance and effectiveness. The conceptual model lent itself to expanding the conceptual approach to
understand the complex relationship between strategic human resources and organisational performance.
This research provides strong support for an emphasis on human resources management to drive
organisational performance and goal attainment. It emphasises the importance of people management to
achieve strategic objectives.
Veldsman, Van der Linde Contingency The study found that the people management contribution to the success of South African companies is
& Conidaris, (1998) poor and needs to be renewed. The people management component in South African organisations was
unable to support the business strategy to leverage strong organisational performance. There thus appear
to be a misalignment of the people management and business strategies in South African organisations.
Haynes & Fryer (2000) Configuration The ideal configuration of Human Resource Management policies and practices to a high quality strategy
will lead to a better understanding of the linkage between human resource management and service
quality.
Delery & Doty (1996) Configuration This study of nearly two hundred banks suggests that some configurations of HR practices are better than
other practices. They estimated that banks with a better configurations have nearly a 50 percent higher
ROA and ROE than banks whose HR practices was just one standard deviation out of strategic alignment.
Dyer & Reeves, (1995) Configuration The configurations of activities are considered more important in enhancing labour productivity than
any single activity. Some human resource configurations are clearly better than others at enhancing
labour productivity, controlling employee turnover, and improving product quality. This logic of bundling
has inspired several attempts to build typologies of human resource strategies. It was concluded that there
are solid theoretical reasons for firms to bundle their human resources activities into strategies.
MacDuffie (1995) Configuration Demonstrates a positive relationship between innovative human resource practices and economic
performance. The overall evidence strongly supported the distinct bundling of human resource practices
in an integrated system with the production/business strategy.
Pil & MacDuffie (1996) Configuration Found that the organisations’ benefits from high involvement work arrangement increased with about 35
percent over five year period. One of the most interesting findings from the analysis was that the plants
that most needed improvements were not more likely to adopt the best management practices to improve
performance.
practices are better than others. These banks had nearly 50
percent higher ROA and ROE than the banks whose human
resource practices were just one standard deviation out of
strategic alignment. This view supported the study conducted by
Dyer and Reeves (1995), who found that the configurations of
people management activities are considered more important in
enhancing labour productivity than any other single activity.
They argue that some people management configurations are
clearly better than others at enhancing labour productivity,
controlling employee turnover, and improving product quality.
This logic of bundling has inspired several attempts to build
typologies of people strategies (Dyer & Reeves, 1995). There
appear to be solid theoretical reasons for organisations to bundle
their people management activities into strategies.
Similarly, the automobile assembly plants study conducted by
MacDuffie (1995) demonstrated a positive relationship between
innovative people management practices and economic
performance. The overall evidence strongly supported the
distinct bundling of people management practices in an
integrated system with the business strategy (MacDuffie, 1995).
These results provide strong statistical evidence of a positive
relationship between innovative people management practices
and economic performance. However, this study faced the
dilemma of how to measure innovative people management
practices. For example, some teams (or departments) may engage
in more progressive people management practices than others.
In a follow up study, Pil and MacDuffie (1996) found that
organisations benefited from high involvement work
arrangement. One of the most interesting findings from the
research was that the assembly plants that most needed
improvements were least likely to adopt the best management
practices to improve performance. These organisations did not
consider people as a critical component to improve performance
and ultimately their competitive advantage.
Although the longitudinal study by Haynes and Fryer (2000)
shed some light on the relationship between people
management and performance, the alignment between effective
people management bundles, business strategy and
organisational performance still remains unclear (Auther, 1995;
Borucki 1989; Delery & Doty, 1996; Dyer & Reeves, 1995;
Huselid, 1995; Pfeffer, 1998; Veldsman et al., 1998). The final
secondary objective of this study was to investigate the nature of
the alignment between effective people management and
organisational performance.
The critical question is: Is there an alignment between people
management effectiveness, business strategy and the
organisational performance in the South African banking and
insurance sector? It is evident from the overview of empirical
research that the magnitude and the direction of relationships
are vague, and the complexity of relationships is also not fully
understood. Therefore, it can be postulated that:
1. There is an alignment between effective people management
and business strategy in the South African banking and
insurance sector;
2. There is an alignment between effective people management
and enhanced organisational performance in the South
African banking and insurance sector and;
3. There is an alignment between effective people management
business strategy and enhanced organisational performance
in the South African banking and insurance sector.
METHOD
A field study was conducted to investigate the alignment
between people management effectiveness, business strategy
and organisational performance in the South African banking
and insurance sector. Ambiguous interpretations of results are
typical in non-experimental field studies, primarily because of a
lack of control of extraneous variables (Mc Guigan, 1993). The
variables in this type of research are often difficult to define,
which complicates the control of the extraneous variables.
Huselid et al. (1997) confirmed that a variety of conditions in the
internal and external environment might influence both people
management activities and the performance of the companies
that present a source of extraneous variances. To reduce the
effect on these variables, the study was conducted in a single
industry to minimise the differences between companies in the
different industries.
Participating Organisations
A sampling frame of twenty-seven banking and insurance
companies was selected from the financial services sector listed
on the Johannesburg Stock Exchange (JSE). These listed
companies were selected to provide access to financial
information. The questionnaires were sent to respondents via
electronic mail to save cost and to minimise reply time. A
response rate of 33% (N= 9) was obtained after several follow-up
electronic mail and telephonic attempts. The sample consisted of
five banking companies and four insurance companies, which
represent a total number of 89676 employees and total revenue
of R59.6 billion. Human resource executives (50%), senior
managers (25%), and middle managers (25%) from the
respective companies completed the questionnaires. Although
the sample represents a significant proportion of the financial
and insurance sector, the small size may result in the inflation of
the error variance (i.e. measurement error). Consequently results
need to be interpreted with caution.
Measuring instruments
A survey questionnaire was used to assess the alignment
between people management effectiveness, business strategy
and organisational performance. The Ernst and Young People
Management Benchmarking Questionnaire (Veldsman et al.,
1998) was adapted to assess business strategy and people
management effectiveness. The questionnaire was designed to
elicit information about how companies compare with best
practice. The Saratoga Questionnaire (Saratoga Consulting and
HRM Consulting, 1997) was adapted to assess organisational
performance.
The research questionnaire consisted of six sections. The
different sections elicited the following information of
participating organisations: Section 1: Background information;
Section 2: Business strategy; Section 3: Alignment and Strategic
People Intent; Section 4: People Management Policies and
Practices; Section 5: People Management Delivery Process; and
Section 6: Organisational Performance. A four-point Likert-type
scale was used for Sections 3 to 5 and in Section 6 the results
from the most recent financial year of participating companies
were obtained.
Statistical analysis
The data from the questionnaires was analysed by the Statistical
Consulting Services of Rand Afrikaans University. Descriptive
analyses were conducted. The calculations of frequencies, means
and standard deviations were used to interpret the results from
the study.
RESULTS
The following keys were used to interpret results: Mean scores of
1,0 – 2,9 were defined as short of best practice (traditional
practice); 3,0 – 3,9 as best practice; and a score of 4 as leading
practice. The entrepreneurial and dynamic growth strategies
were postulated to require leading and best people management
approaches respectively, demanded typically by a high risk,
rapid changing, ongoing renewing and externally focussed
environment (Veldsman et al., 1998). The profit maintenance,
turnaround and liquidation/divesture strategies were postulated
to require traditional people management approaches,
demanded typically by a low risk, stable, maintenance and
internally focussed environment (Veldsman et al., 1998).
EFFECTIVE PEOPLE MANAGEMENT 87
Business strategy
The business strategy was assessed in terms of the fol-
lowing possible strategies: entrepreneurial; dynamic growth;
profit maintenance; liquidation/divestiture; and turnaround
strategies (Schuler, 1992). The results of the study indi-
cated that 66% of the participants pursued a dynamic
growth strategy; 11% a profit maintenance strategy; 11%
an entrepreneurial strategy; and 11% a turnaround strategy
(see Table 2). The majority (66%) of participating com-
panies were in line with best practice, pursuing a dynamic
growth strategy.
TABLE 2
BUSINESS STRATEGY SCORES
Business Strategy Frequency Percent
Entrepreneurial 1 11%
Dynamic Growth 6 67%
Profit maintenance 1 11%
Turnaround 1 11%
Alignment of business and people strategies
Alignment was assessed in terms of all round participation in
the generation of business and people strategies; joint
ownership of such strategies; and setting up and maintenance
of clear links in terms of content, process, execution and
tracking between these strategies (Veldsman et al., 1998). The
results of the study indicated that participating companies
were slightly short of best practice on the alignment between
the business and people management strategies in terms of
participation (mean = 2,9; S.D. = 0,6); joint ownership (mean =
2,9; S.D. = 0,6); but in line with best practice on clear links
(mean = 3; S.D. = 0,9). The overall alignment of business
strategy and people management falls short of best practice
(mean = 2,9; S.D. = 0,7).
Strategic People Intent
Strategic people intent was assessed in terms of people
philosophy, psychosocial contract and people profile. The results
indicated that the overall strategic people intent (mean = 2,7;
S.D. = 0,6) falls short of best practice (see Table 3).
The people philosophy was assessed in terms of: an ethical facet
(How do we treat our people?); content facet (How do we view
our people?); structure facet (How do we formalise the
relationship with our people); process facet (How do we relate
to our people?); and benefit facet (How must our people benefit
from the relationship with our organisation?) (Veldsman et al.,
1998). The results indicated that the companies were in line
with best practice on the ethical facet (mean = 3,2; S.D. = 0,7);
content facet (mean = 3,0; S.D. = 0,6); benefits facet (mean = 3,0;
S.D. = 0,9) but was short of best practice on the structure (mean
= 2,9; S.D. = 0,6) and process facets (mean = 2,7; S.D. = 0,6). The
overall People Philosophy (mean = 3,0; S.D. = 0,7) was in line
with best practice.
The psychosocial contract refers to the invisible and
unwritten set of mutual expectations that evolve over time
between the various parties who have an interest in the
organisation (Veldsman et al., 1998). The psychosocial
contract was short of best practice (mean =2,4; S.D. = 0,8) with
a strong partnership contract (mean = 2,9; S.D. = 1,1), a lower
presence of exchange contract (mean = 2,6; S.D. = 0,7) and an
even weaker control contract (mean = 1,8; S.D. = 0,7). The
people profile assessed the organisation’s picture of the ideal
person to attract, deploy and retain (Veldsman et al., 1998).
The overall people profile was just short of best practice (mean
= 2,9; S.D. = 0,6).
People Policies and Practices
People policies and practices were assessed in terms of specific
choices of interventions utilised by the participating
organisations to manage their people (Veldsman et al.1998). The
people management policies and practices were compared to 12
groupings of people management best practices. The overall
people management policies and practices (mean = 2,8; S.D. =
0,8) were short of best practice.
TABLE 3
PEOPLE MANAGEMENT SCORES
Dimensions Mean SD
Overall Alignment 2,9 0,7
Participation 2,9 0,6
Joint ownership 2,9 0,6
Clear links 3,0 0,9
Overall People Strategic Intent 2,7 0,6
Overall People Philosophy 3,0 0,7
Ethics 3,2 0,7
Content 3,0 0,6
Structure 2,9 0,6
Process 2,7 0,6
Benefit 3,0 0,9
Overall Psycho-social Contract 2,4 0,8
Exchange contract 2,6 0,7
Partnership contract 2,9 1,1
Control contract 1,8 0,7
Overall People Profile 2,9 0,6
Overall People Management Policies and Practices 2,8 0,8
Human Resource Needs Planning 2,3 0,7
Conditions of Service 2,8 0,8
Design of Work and organisation 2,7 1,0
Recruitment and Selection 2,8 0,8
Induction 3,0 1,0
Performance Management 3,2 0,7
Training and Development 3,0 0,7
Reward and Recognition 3,0 0,5
Employee Well-being 2,4 0,9
Relation Management 2,8 0,8
Community Involvement/Social Responsibility 3,2 0,7
HR Information/Administration 2,7 0,9
Overall People management Service Delivery 2,6 0,7
Delivery paradigm 2,9 1,0
Delivery position 2,6 1,0
HR Roles 2,8 0,7
HR Delivery Style 2,0 2,0 0 0
The results indicated that companies were in line with best practice
with regard to induction (mean = 3,0; S.D. = 1,0); performance
management (mean = 3,2; S.D. = 0,7); training and development
(mean = 3,0; S.D. = 0,7); reward and recognition (mean = 3,0; S.D.
= 0,5); and community involvement/social responsibility (mean =
3,2; S.D. = 0,7) practices. The aforementioned policies and practices
may be bundled as development and retaining practices.
However, more traditional policies and practices were followed
with regard to human resource needs planning (mean = 2,3; S.D. =
0,7); design of work and organisation (mean = 2,7; S.D. = 1,0);
conditions of service (mean = 2,8; S.D. = 0,8); recruitment and
selection (mean = 2,8; S.D. = 0,8); employee well-being (mean = 2,4;
S.D. = 0,9); relationship management (mean = 2,8; S.D. = 0,8); and
human resource information and administration (mean = 2,7; S.D.
= 0,9). These policies and practices may be bundled as attracting,
placing and building commitment policies and practices.
KOCK, ROODT, VELDSMAN 88
People delivery process
The people delivery process was assessed in terms of four
elements, namely: the paradigm underlying the delivery
process; the positioning of the delivery process; the delivery
roles; and the style of delivery (Veldsman et al., 1998). The
overall people delivery process was short of best practice (mean
= 2,6; S.D. = 0,7).
The people management delivery paradigm was just short of best
practice (mean = 2,9; S.D. = 1,0) with a preferred short term,
operational time perspective but in line with best practice with
regards to an integrated service delivery function. The
positioning of the delivery process was short of best practice
(mean = 2,6; S.D. = 1,0) with a specialist driven disciplinary base
positioned remotely from business clients.
The people management delivery role was short of best practice
(mean = 2,8; S.D. = 0,7) with a stronger people champion,
strategic partner and change agent role, and a weaker
administrative role. The results indicated that the people
management delivery styles were more traditional (mean = 2,0;
S.D. = 0) with strong joint decision-maker, expert and advocate
styles. This delivery style focused on the direct involvement of
professionals with a strong task orientation towards the delivery
of people management interventions.
The overall people management fall short of best practices and
was therefore misaligned with the dynamic growth strategy,
which requires progressive people practices i.e. best practices.
Organisational Performance: Financial, Organisational and
People Measurements
TABLE 4
FINANCIAL OUTCOMES SCORES
Dimensions Figures
Revenue R6.6 billion
Expenses R3.6 billion
Efficiency ratio 53.7%
Profit after tax R2.1 billion
Table 4 shows that the mean revenue of the participating
companies amounted to R6.6 billion; mean operating expenses
to R3.6 billion; and mean profit after tax to R2.1 billion. The
results from one of the participants were excluded because the
company is a non-profit government organisation and therefore
incomparable. Mean profit after tax of R2.1 billion falls short of
the industry standard of R7.0 billion for 1999. The efficiency of
the financial services sector was determined by expressing
operating expenses as a percentage of total income, i.e. cost-to-
income ratios. The overall efficiency ratio (mean = 53,7 %; S.D.
= 22.2%) was better than best practice (i.e. a 60 per cent
efficiency ratio).
TABLE 5
ORGANISATIONAL OUTCOME SCORES
Dimensions Mean SD
Overall Organisation outcomes 3,1 0,5
Service quality 2,9 0,3
Product quality 3,6 0,5
Customer satisfaction 2,8 0,4
New product development 3,2 0,4
The results also indicated that the participating companies were
in line with best practice (mean = 3,1; S.D. = 0,5) on overall
organisational outcomes (see Table 5). The participating
companies perceived themselves to be in line with best practice
on product quality (mean = 3,6; S.D. = 0,5) and new product
development (mean = 3,2; S.D. = 0,4) but were short of best
practice on service quality (mean = 2,9; S.D. = 0,3) and customer
satisfaction (mean = 2,8; S.D. = 0,4).
The average number of employees (headcount) of the
participating companies was 9964 employees. The average
revenue per employee was R598 153; the average expense per
employees was R327 592; and the average profit per employees
was R187 406 (see Table 6). The profits fall short of industry
standards and therefore these results may also be interpreted as
short of best practice. The people management of participating
companies fell short of best practice and was therefore unable to
produce enhanced organisational performance, which was in
line with industry standard. However, a variety of conditions in
the internal and external environment of the participating
organisations may have had an influence on both the people
management and organisational performance.
TABLE 6
PEOPLE MANAGEMENT OUTCOME SCORES
Dimensions Figures
Average revenue per total employees R598 153.00
Average expense per total employees R327 592.00
Average profit per total employees R187 406.00.
DISCUSSION
The powerful trends changing the face of the financial industry
will accelerate as South Africa enters the 21st century (South
African Banking Review, 1999). These trends create the setting in
which South African banking and insurance companies need to
formulate their strategic people intent.
Due to the small sample size, the error variance (measurement
error) could have been inflated and consequently the results
must be interpreted with caution. Caution also needs to be
taken when generalising the findings reported in this study to
the overall financial services industry in South Africa.
TABLE 7
OVERALL FINDINGS
Dimensions Short of Best Best Practices Leading
Practices Practices
Dominant Business Dynamic
Strategy Growth
Alignment of Business and 2,9
People Strategies
Strategic People Intent
Philosophy 3,0
Psycho-social Contract 2,4
Profile 2,7
People Management Policy 2,8
and Practices
People Delivery Process 2,8
Organisational Performance X
EFFECTIVE PEOPLE MANAGEMENT 89
It is evident from the results that the majority of the
participating companies are in pursuit of a dynamic growth
strategy. These companies generally expand through the
development of products and services within set parameters and
guidelines. This supported the findings that participating
companies were in line with best practice on product quality
and new product development. There appears to be little or no
alignment between business and people strategies in
participating companies. This misalignment may be ascribed to
the low levels of participation and ownership of these strategies
in these companies. In spite of this, there were clear links
between the business strategies and people strategies in terms of
the content, process, execution and tracking of these strategies.
Although there is limited participation and ownership by all
employees in the strategy formulation, the people philosophy
(i.e. thinking) is closely linked to business objectives.
However, the true indicator of a people philosophy is portrayed
in the actual people management policies and practices
pursued. The operationalisation of people philosophy into
people practices and delivery falls short of best practice. The
participating companies seem to pursue low involvement, low
commitment people management policies and practices, with a
strong focus on developing and retaining people. The typical
people management policies associated with these practices
included induction; performance management; training and
development; reward and recognition; and community
involvement/social responsibility. It seems that less emphasis is
placed on attracting, placing and building the commitment of
people. The policies associated with these practices include
conditions of services; human resource needs planning;
recruitment and selection (attract); design of work and
organisation (placement); employee well-being; and relationship
management (commitment).
In the war for talent, the participating companies appear to
focus on retaining and developing internal candidates, but
neglect the attraction and placement of new skills. This focus
may be ascribed to the shortage of skills in the South African
labour market. The low commitment practices may be based on
the past antagonistic relationship between management and
employees. However, increasingly, this situation within the
employee relation’s arena is changing towards building
economic empowerment, as opposed to the traditional struggle
for worker rights. The increasing shareholding of unions in
multinational businesses is an indication of the times. Human
resource information and administration practices were also
lagging behind best practice and appear unable to support
people management policies and practices. These findings
appear to support the solid theoretical reason of bundling
people management activities into appropriate strategies (Auther,
1994; Delery & Doty 1996; Dyer & Reeves, 1995; Haynes & Fryer,
2000; MacDuffie, 1995).
The people service delivery of the participating companies
focused on a short term, operational time perspective with an
external focus on business needs and priorities. Although
people delivery focused on direct involvement in the business
needs and priorities, the remote location of the people
management delivery may result in inadequate servicing of
people and line managment. The alignment between the people
delivery process and people management policies and practices
may support the actualisation of the strategic people intent, but
is insufficient to support the realisation of a dynamic growth
business strategy. These results support the contention that
people management, which is aligned with the appropriate
business strategy is more effective and critical for the
achievement of business objectives (Caligiuri & Stroh, 1995;
Huselid et al., 1997; Schuler & Jackson, 1995; Templer &
Cattanoe, 1991; Youndt et al., 1996; Veldsman et al., 1998).
To conclude, the people management policies, practices and
delivery of participating companies in this study were misaligned
with the dynamic growth strategy and thus unable to sufficiently
unleash the contribution of people to business success.
Mean profit after tax fell short of industry standards. According
to The South African Banking Review (1999), this decline in
profitability was a common phenomenon in the South African
financial services industry and throughout the world. The
financial service industry’s response to these trends was
manifested in a reduction of costs and an increase in revenue to
maintain a satisfactory level of return on equity (Ibid). The latter
is apparent in the high efficiency ratios of participating
companies. The traditional approach to people management
followed by the majority of participating may be a contributing
factor to the poor results reported on the service quality and
customer satisfaction. However, the performance data from the
study was insufficient to conclusively determine the effects of an
alignment between effective people management, business
strategy and organisational performance.
In the competitive financial industry, people need to be a
differentiating factor to achieve superior organisational
performance. This everlasting debate must be put to rest and the
banking and insurance industry must focus on leveraging people
to produce a desired level of performance. Companies in this
sector need to improve the level of participation of all
employees in their strategy formulation, and to develop
commitment and ownership to the business objectives. They
must achieve both the internal and external alignment of their
people management strategies in order to enable the
achievement of the desired organisational performance.
Furthermore, the configuration of people management practices
of participating companies must be internally aligned to
encourage the achievement of personal, and ultimately
organisational objectives.
The front-end service delivery process needs to be in the
immediate vicinity of their clients to ensure an appropriate
business context and efficient service delivery. The back-end of
the delivery process requires being centralised in a consulting or
shared services mode. The people management professionals
should play a critical role as strategic business partners with a
long-term, strategic perspective and a strong customer
orientation. This role needs to be balanced with a strong expert
people champion role to support employee needs.
To reduce the effect of extraneous variables, the study was
conducted in a single industry. The sample consisted of financial
services sector companies listed on the Johannesburg Stock
Exchange to ensure access to financial information. This limited
the study to small sample of companies in the banking and
insurance sector. The small sample size thus made the
determination of the statistical significant relationship between
people management and business strategy impossible. The
questionnaires were also completed by representatives of the
organisations, i.e. human resource directors and managers, and
may not necessarily reflect the opinion of the whole organisation.
The organisational performance data was incomplete and
therefore incomparable. As a result of these limitations, caution
needs to taken in making generalisations about the findings with
reference to the financial services industry.
Although the magnitude and the direction of the relationships
are still unclear, an opportunity exists for further longitudinal
research to determine the effect of the alignment between
effective people management, business strategy and
organisational performance.
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EFFECTIVE PEOPLE MANAGEMENT 91
doc_494476123.pdf
Description explain the alignment between effective people management business strategy.
In spite of a growing body of evidence to support the enormous
financial performance obtained through effective people
management, organisations are still moving in the opposite
direction by utilising practices that are contrary to what is
known regarding sound people management (Huselid, 1995;
Huselid, Jackson & Schuler, 1997; Templer & Hofmeyer, 1989;
Pfeffer, 1998). Notwithstanding the positive findings of effective
people management, companies continue to pursuit restruct-
uring and retrenchments as a means to increase organisational
effectiveness and decrease expenses. This is very often the
detriment to sound people management.
Previous international empirical studies have consistently
found a significant relationship between people management
and organisational performance (Auther, 1994; Becker &
Gerhart, 1996; Delery & Doty, 1996; Haynes & Fryer, 2000;
Huselid, 1995; Huselid et al., 1997; Pfeffer, 1998; Welbourne
& Andrews, 1996; and Youndt, Snell, Dean & Lepak, 1996).
However, there appears to be little understanding of
the magnitude and the direction of the relationship (Borucki,
1989), or the process to realise improved organisational
performance through effective people management (Huselid
et al., 1997). The study by Veldsman, Van der Linde
and Conidaris (1998) found that the people management
contribution to the success of South African companies
was poor and needed to be reviewed. The study showed that
the people management component in South African
organisations was unable to support the business strategy
in order to leverage strong organisational performance. It
would thus appear that there was a misalignment between
people management components and business goals in South
African organisations.
The financial service sector is one of fastest growing sectors
both internationally and in South Africa. In the 1998
World Competitiveness Report, the South African banking
sector ranked thirteenth out of 53 nations (The South
African Banking Review, 1998). In order to remain
competitive, financial services firms in the United States,
Canada, Latin America, Australia, South Africa and Asia Pacific
are creating business strategies, products, structures and
alliances that identif y these firms more broadly as financial
services companies (Van Gorp, Hall, Keene, Holden, & Soh,
1997). The traditional distinctions between banks, insurance
companies and brokerage firms are falling away as all compete
for the same assets with increasingly similar products and
services. Technology, deregulation and globalisation are
causing a revolution in the financial services industry,
whilst mergers and consolidations are reshaping the industry
nationally and worldwide (South African Banking Review,
1999). These trends are evident in the South African financial
services sector.
RUWAYNE KOCK
Department of Human Resource Management
Rand Afrikaans University
GERT ROODT
Department of Human Resource Management
Rand Afrikaans University
THEO H. VELDSMAN
People Effectiveness Consulting Group
CS Holdings
ABSTRACT
The aim of the study was to determine the nature of the alignment between people management effectiveness,
business strategy and organisational performance within the banking and insurance sector in South Africa. From the
field study, it was evident that the majority of the participating companies fell short of people management best
practices and were therefore unable to support their business strategies, which were in line with best practices. The
organisational performance data was insufficient to determine the nature of the alignment between organisational
performance, people management, and business strategy. The South African banking and insurance industry needs
to realign their people management component to support the appropriate business strategy and to produce a
desired level of organisational performance. A limitation of this study was the small sample size, which may have
had some effect on the interpretation of the results. However, the sample represents a significant proportion of the
South African banking and insurance sector. Although the magnitude and the direction of the relationships are still
unclear, the opportunity exists for further longitudinal research.
OPSOMMING
Die doel van die studie was om die onderlinge verhouding tussen mensbestuursdoeltreffendheid,
besigheidstrategie en organisasieresultate binne die Suid-Afrikaanse bank- en versekeringsektor te ondersoek. Die
studie het duidelik gewys dat toonaangewende bestuurspraktyke by die meerderheid van die deelnemende
organisasies ontbreek. Die mensbestuur was nie in staat om die besigheidstrategieë te ondersteun nie wat wel met
wêreldwye beste praktyke ooreenstem. Inligting oor organisasieresultate was onvoldoende om enige afleiding te
maak. Mensbestuur in die Suid-Afrikaanse bank- en versekeringsektor moet met die besigheidstrategie belyn word
om die verwagte organisasieresultate te lewer. Die relatiewe klein steekproefgrootte was ‘n tekortkoming in die
studie wat die vertolking van die resultate wesenlik bemoeilik. Die steekproefgrootte verteenwoordig egter ‘n hoë
persentasie van die Suid-Afrikaanse bank- en versekeringsektor. Alhoewel die omvang en sterkte van die onderlinge
verhoudinge nog onduidelik is, is die potensiaal vir verdere navorsing wenslik.
THE ALIGNMENT BETWEEN EFFECTIVE PEOPLE MANAGEMENT,
BUSINESS STRATEGY AND ORGANISATIONAL PERFORMANCE IN
THE BANKING AND INSURANCE SECTOR
Requests for copies should be addressed to: R Kock, Department of Human
Resource Management, RAU, PO Box 524, Aukland Park, 2006
83
SA Journal of Industrial Psychology, 2002, 28(3), 83-91
SA Tydskrif vir Bedryfsielkunde, 2002, 28(3), 83-91
International research in the banking industry has arrived at
conclusions that support the significant relationship between
better people management (customer services), business
strategy and organisational performance (Delery & Doty, 1996;
Schneider & Bowen, 1985; Schmit & Allscheid, 1995). However,
the findings by Schmit & Allscheid, (1995) found a less
consistent relationship between the business strategies and
customer service (people). There is a need to further
investigate the alignment between people management,
business strategy and organisational performance to better
understand the value-add of people. For these reasons, the
broad aim of this study is to determine the alignment between
people management effectiveness, business strategy and
organisational performance within the banking and insurance
sector in South Africa.
People management: a conceptual model
The study by Veldsman et al. (1998) provides a conceptual model
(see Figure 1) to evaluate people management effectiveness in
organisations. This model was used as a guideline to analyse
people management effectiveness in this study.
According to the above conceptual model of people
management (see Figure 1), the business strategy represents
the setting within which the company’s people management
has to unfold; alignment refers to the consistency between the
business strategy and the strategic people intent, people
policies and practices of the company; the organisation’s
strategic people intent consists of the strategic people issues
and priorities pursued; its people philosophy; the psycho-
social contract reflecting the basic relationship between
the organisation and its members; and the profile of its
people; the people management policy and practices represent
the policy choices and interventions adopted by the
organisation to unleash the contribution of its people; the
delivery process represents the actualisation of the strategic
people intent, and the execution of the people policies and
practices; and the outcomes, show the result of all of the
aforementioned. The people management conceptual
framework depicted in Figure 1 encompasses an integrated
and systematic approach to people management. The term
people management was used interchangeably with human
resource management in this report.
A shortcoming of the Veldsman et al. (1998) study was the
inability to measure the organisational performance (i.e.
performance, quality of life, and the people value-add), because
of the absence of comparable data. The study by Dyer and Reeves
(1995) was used to expand on the Veldsman et al. (1998)
definition of organisational performance. According to Dyer and
Reeves’ (1995) definition, organisational performance consists of
human resource outcomes (i.e. absenteeism; turnover;
individual and group performance), organisational outcomes
(productivity, quality and service), and financial outcomes
(return on invested capital or return on asset and stock value or
shareholder return). For the purpose of this study,
organisational performance was defined in terms of the
aforementioned three categories, i.e. financial, organisational
and people management performance measurements.
According to Drago (1990) common financial indicators include:
sales growth, return on investment (ROI), return on sales, return
on equity (ROE), and earnings per share. In more recent research
by Delery and Doty (1996), return on average assets (ROA) and
return on equity (ROE) were used as financial measures in the
banking industry. These financial measures support the
measurements used in previous research (Borucki, 1989;
Caliguiri & Stroh, 1995; Dyer & Reeves, 1995). Huselid et al.
(1997) argues that the accounting-based profitability indicators
was subject to numerous biases not presented in market-based
measures, which are generally considered to be a more accurate
reflection of a firm’s financial health. For these reasons, the
financial indicators of this study consisted of efficiency ratios,
profits, return on assets, total assets, return on equity, capacity
adequacy ratios, and advanced growth.
According to Dyer and Reeve (1995) organisational outcome
measurements included productivity, quality and service.
Huselid et al. (1997) defined employee productivity as the net
sales (revenue) per employee. This definition was consistent
with prior empirical work and tends to reflect employees’ efforts
(Auther, 1994; Delery & Doty, 1996; Huselid, 1995; Huselid et al.,
1997). However Huselid et al. (1997) considered the productivity
indicator as an incomplete measure of a firm’s overall
profitability and therefore needed to be considered with other
financial measurements. Instead of productivity indicators,
Delany & Huselid (1996) chose perceptual measures of the
organisations’ performance in their study. They selected
perceived organisational performance such as product quality,
customer satisfaction and new product development. Although
perceptual data introduces limitations through increased
measurement error and the potential for mono-method bias, it
was not unprecedented to use such measures (Delany & Huselid,
1995). For the purpose of this study organisational outcomes
consisted of service and product quality, customer satisfaction
and new product development.
KOCK, ROODT, VELDSMAN 84
Figure 1: A conceptual model of people management in organisations
The Saratoga report (1997) was used to establish the appropriate
people management key performance indicators (KPI). The key
performance indicators (KPI) demonstrated the value-add of
people management in organisations. For the purpose of this
study people management outcomes consisted of average profit
per employee; average revenue per total employees; average cost
per total employees; total human resource cost per total
employees; the human value add ratio; remuneration per
revenue/total costs/profits; absence rate; and training cost per
total number of employees.
An overview of empirical research findings
Delery and Doty (1996) draws on three dominant modes of
theorising about strategic people management: the
universalistic, contingency and configurational perspectives.
The universalistic framework proposes that some people
management practices are universally effective (Delery &
Doty, 1996; Delany & Huselid, 1995; Huselid 1995; Pfeffer,
1998; Templer & Hofmeyr, 1989). This means that
organisations that adopt these best practices will reap the
benefits of higher profits. The contingency framework
proposes that the effectiveness of people management
practices is contingent on the organisational strategy
(Caligiuri & Stroh, 1995; Huselid et al., 1997; Templer &
Cattnoe, 1991; Youndt et al., 1996). This means that
organisations, which adopt human resource practices that are
appropriate to its strategy, are more effective. The
configuration framework proposes that the consistency within
people management practices and strategies is necessary to
enhance performance (Auther, 1994; Delery & Doty, 1996;
Dyer & Reeves, 1995 Haynes & Fryer, 2000; MacDuffie, 1995).
This means that the bundling of people management practices
into strategies will enhance organisational performance,
which supports the research findings that high involvement,
high performance, or high commitment management
practices support the achievement of superior economic
performance (Auther, 1994; Becker & Gerhart, 1996; Delery &
Doty, 1996; Huselid, 1995; Huselid et al., 1997; Pfeffer, 1998;
Welbourne & Andrews, 1996; Youndt et al., 1996).
Notwithstanding these modes of theorising about effective
people management, there appears to be little understanding of
the processes required to realise this human potential or the
specific conditions under which the human potential is realised.
A major limitation of most of the past studies is the
establishment of the causal relationship between people
management and organisational performance. Table 1 provides a
selected overview of strategic people management theories.
Universalistic Approach
This approach proposes that the adoption of universal people
management best practices is more effective, i.e. produce
superior organisational performance. The study conducted by
Huselid et al. (1997) supports the contention that investments in
people are a potential source of competitive advantage. The
study found that technical human resource management
practices such as recruitment; selection; performance
measurement; training; and the administration of compensation
and benefits have become institutionalised in United States
firms. However, the study found no relationship between
technical people management practice effectiveness and firm
performance. Technical people management practice
effectiveness is thus argued to be insufficient to produce a
competitive advantage. However, the study confirmed the
significant relationship between the strategic people
management effectiveness and employee productivity, financial
and market value. In spite of these results, they acknowledged
that there were various conditions in the internal and external
environment, which may have influenced both the people
management activities and the firm’s performance. Although the
study included control measures in the statistical analyses, other
causal models were still possible.
Delany and Huselid (1996) found a positive relationship
between people management practices and the perception of
firm performance. They used “perceived organisational
performance” and “perceived market performance” to measure
organisation performance. The results confirmed that
progressive people management practices were positively related
to perceptual measures of organisational performance.
Huselid, (1995) found that high performance work practices
resulted in higher turnover (7.05 percent increase per
employee), greater productivity ($ 27,044 more in sales) and
corporate financial performance ($18,641 more in market value
and $ 3,814 more in profits). Although Huselid concluded that
the high impact of performance management practices on
corporate financial performance was due to their influence on
turnover and productivity, the source of the remaining gains
was unclear.
In spite of the above studies, the nature of the alignment
between effective people management and organisational
performance, as a source of competitive advantage, remains
unclear. A secondary objective of the study was thus to
determine the effectiveness of the people management in the
participating companies by comparing their people manage-
ment with best practices.
Contingency Approach
This approach suggests that the alignment of people
management with the appropriate strategy is more effective.
Auther (1994) confirmed that strategy was significantly related
to improved performance (34 percent fewer labour to produce
a ton of steel) and better scrap rates (63 percent). Nonetheless,
Auther was unable to test the fit between business strategy and
people strategy. The study conducted by Schneider and Bowen
(1985) found that service and people related organisational
management practices were related to improved customers
service quality in bank branches. Schmit and Allscheid (1995)
demonstrated a relationship between employees’ attitudes
and customer satisfaction but were unable to explain the
relationship between employee attitudes and profits. Youndt
et al. (1996) supported the perspective that different types
of people management strategies required different
people management systems. They concluded that the link
between people management and strategy required deeper
understanding of how to manage people to improve
competitiveness.
In an important longitudinal study conducted by Borucki (1989)
the research design and conceptual model lent itself to
expanding the conceptual approach to better understand the
complex relationship between strategic people management and
organisational performance. This research provided strong
support for an emphasis on people management to drive
organisational performance and goal attainment. It stressed the
importance of people management to achieve strategic
objectives. Accordingly, people management needs to support
the implementation of the business strategy to leverage superior
organisational performance.
According to Jackson and Schuler (1995) current literature does
not fully consider the complexity of the model to describe the
relationship between strategy and people management. The
argument for internal and external fits remains compelling to
understand the alignment between effective people
management and business strategy. Another secondary objective
of this study was to determine the nature of the alignment
between effective people management and business strategy.
Configuration Approach
This approach suggests that organisations, which bundle people
management into strategies, will be more effective. The study of
nearly two hundred banks by Delery and Doty (1996) supports
the notion that some configurations of people management
EFFECTIVE PEOPLE MANAGEMENT 85
KOCK, ROODT, VELDSMAN 86
TABLE 1
STRATEGIC PEOPLE MANAGEMENT THEORIES
Authors People Management Summary
Perspective
Delany & Huselid (1996) Universalistic A positive relationship existed between human resource management practices and the perception of the
firms’ performance. They used “perceived organisational performance” and “perceived market performance”
to measure organisation performance. This allowed Delany and Huselid to assess the impact of progressive
human resource practices on financial measures.
Huselid (1995) Universalistic High performance work practices, which are one standard deviation above the mean are associated with
lower turnover (7.05 percent decrease per employee), greater productivity ($ 27,044 more in sales) and
corporate financial performance ($18,641 in more in market value and $ 3, 814 in profits).
Templer & Hofmeyr Universalistic It is possible to predict effectiveness from the way human resources are managed, and this prediction holds
(1989) across a wide range of organisations and a large number of employees.
Caliguiri & Stoh (1995) Contingency/ This paper examined the relationship between mulinaional corporations’ global management strategies
Universalistic and the resulting international human resource practices. The HR practices vary by global strategies:
ethnocentric; regiocentric; polycentric; and geocentric. These strategies were found to be related to
economic variables (return on capital, sales growth, return on equity profit margin)
Templer & Cattanoe Contingency The research confirmed that a continuous process of what is happening to the organisation and where the
(1991) business is going must inform the human resource strategy. HRM effectiveness is a function of the extent
to which it adapts to the context and strategy within the organisation. Only through an HRM audit can
it be demonstrated that the ultimate source of value is the people who work in the organisation. Human
resource strategies must be concerned with the design and management of organisational processes of
the business.
Huselid, Jackson & Contingency The study focused on the impact of the overall Human Resource Management (HRM) quality on the firm’s
Schuler (1997) performance. The study found that the technical HRM effectiveness (i.e. recruitment, selection,
performance measurement, training and the administration of compensation and benefits) were higher
than the strategic HRM effectiveness. The results clearly indicated the extent to which technical HRM has
become institutionalised in US firms. They found no relationship between the technical HRM effectiveness
and the firms’ performance. The study confirmed the significant relationship between the strategic people
management effectiveness and employee productivity, financial and market value.
Schneider & Bowen Contingency Organisational management practices that are both services related and human resource provide cues that
(1985) customers use to evaluate service quality.
Schmit & Allscheid Contingency Significant relationship was demonstrated between employees’ attitudes, customer satisfaction and profits
(1995) in service firms. A less significant relationship existed between employee attitudes and profits in service
firms.
Pfeffer (1998) Contingency Numerous firms such as Singapore Airlines have succeeded financially by emphasising employee well-being
and customer service.
Youndt, Snell, Dean Contingency Different types of people strategies (i.e. flexibility) require different people management systems.
Jr, & Lepak (1996)
Borucki (1989) Contingency Attempted to determine the impact and direction of the causality of strong financial performance on HR
performance and effectiveness. The conceptual model lent itself to expanding the conceptual approach to
understand the complex relationship between strategic human resources and organisational performance.
This research provides strong support for an emphasis on human resources management to drive
organisational performance and goal attainment. It emphasises the importance of people management to
achieve strategic objectives.
Veldsman, Van der Linde Contingency The study found that the people management contribution to the success of South African companies is
& Conidaris, (1998) poor and needs to be renewed. The people management component in South African organisations was
unable to support the business strategy to leverage strong organisational performance. There thus appear
to be a misalignment of the people management and business strategies in South African organisations.
Haynes & Fryer (2000) Configuration The ideal configuration of Human Resource Management policies and practices to a high quality strategy
will lead to a better understanding of the linkage between human resource management and service
quality.
Delery & Doty (1996) Configuration This study of nearly two hundred banks suggests that some configurations of HR practices are better than
other practices. They estimated that banks with a better configurations have nearly a 50 percent higher
ROA and ROE than banks whose HR practices was just one standard deviation out of strategic alignment.
Dyer & Reeves, (1995) Configuration The configurations of activities are considered more important in enhancing labour productivity than
any single activity. Some human resource configurations are clearly better than others at enhancing
labour productivity, controlling employee turnover, and improving product quality. This logic of bundling
has inspired several attempts to build typologies of human resource strategies. It was concluded that there
are solid theoretical reasons for firms to bundle their human resources activities into strategies.
MacDuffie (1995) Configuration Demonstrates a positive relationship between innovative human resource practices and economic
performance. The overall evidence strongly supported the distinct bundling of human resource practices
in an integrated system with the production/business strategy.
Pil & MacDuffie (1996) Configuration Found that the organisations’ benefits from high involvement work arrangement increased with about 35
percent over five year period. One of the most interesting findings from the analysis was that the plants
that most needed improvements were not more likely to adopt the best management practices to improve
performance.
practices are better than others. These banks had nearly 50
percent higher ROA and ROE than the banks whose human
resource practices were just one standard deviation out of
strategic alignment. This view supported the study conducted by
Dyer and Reeves (1995), who found that the configurations of
people management activities are considered more important in
enhancing labour productivity than any other single activity.
They argue that some people management configurations are
clearly better than others at enhancing labour productivity,
controlling employee turnover, and improving product quality.
This logic of bundling has inspired several attempts to build
typologies of people strategies (Dyer & Reeves, 1995). There
appear to be solid theoretical reasons for organisations to bundle
their people management activities into strategies.
Similarly, the automobile assembly plants study conducted by
MacDuffie (1995) demonstrated a positive relationship between
innovative people management practices and economic
performance. The overall evidence strongly supported the
distinct bundling of people management practices in an
integrated system with the business strategy (MacDuffie, 1995).
These results provide strong statistical evidence of a positive
relationship between innovative people management practices
and economic performance. However, this study faced the
dilemma of how to measure innovative people management
practices. For example, some teams (or departments) may engage
in more progressive people management practices than others.
In a follow up study, Pil and MacDuffie (1996) found that
organisations benefited from high involvement work
arrangement. One of the most interesting findings from the
research was that the assembly plants that most needed
improvements were least likely to adopt the best management
practices to improve performance. These organisations did not
consider people as a critical component to improve performance
and ultimately their competitive advantage.
Although the longitudinal study by Haynes and Fryer (2000)
shed some light on the relationship between people
management and performance, the alignment between effective
people management bundles, business strategy and
organisational performance still remains unclear (Auther, 1995;
Borucki 1989; Delery & Doty, 1996; Dyer & Reeves, 1995;
Huselid, 1995; Pfeffer, 1998; Veldsman et al., 1998). The final
secondary objective of this study was to investigate the nature of
the alignment between effective people management and
organisational performance.
The critical question is: Is there an alignment between people
management effectiveness, business strategy and the
organisational performance in the South African banking and
insurance sector? It is evident from the overview of empirical
research that the magnitude and the direction of relationships
are vague, and the complexity of relationships is also not fully
understood. Therefore, it can be postulated that:
1. There is an alignment between effective people management
and business strategy in the South African banking and
insurance sector;
2. There is an alignment between effective people management
and enhanced organisational performance in the South
African banking and insurance sector and;
3. There is an alignment between effective people management
business strategy and enhanced organisational performance
in the South African banking and insurance sector.
METHOD
A field study was conducted to investigate the alignment
between people management effectiveness, business strategy
and organisational performance in the South African banking
and insurance sector. Ambiguous interpretations of results are
typical in non-experimental field studies, primarily because of a
lack of control of extraneous variables (Mc Guigan, 1993). The
variables in this type of research are often difficult to define,
which complicates the control of the extraneous variables.
Huselid et al. (1997) confirmed that a variety of conditions in the
internal and external environment might influence both people
management activities and the performance of the companies
that present a source of extraneous variances. To reduce the
effect on these variables, the study was conducted in a single
industry to minimise the differences between companies in the
different industries.
Participating Organisations
A sampling frame of twenty-seven banking and insurance
companies was selected from the financial services sector listed
on the Johannesburg Stock Exchange (JSE). These listed
companies were selected to provide access to financial
information. The questionnaires were sent to respondents via
electronic mail to save cost and to minimise reply time. A
response rate of 33% (N= 9) was obtained after several follow-up
electronic mail and telephonic attempts. The sample consisted of
five banking companies and four insurance companies, which
represent a total number of 89676 employees and total revenue
of R59.6 billion. Human resource executives (50%), senior
managers (25%), and middle managers (25%) from the
respective companies completed the questionnaires. Although
the sample represents a significant proportion of the financial
and insurance sector, the small size may result in the inflation of
the error variance (i.e. measurement error). Consequently results
need to be interpreted with caution.
Measuring instruments
A survey questionnaire was used to assess the alignment
between people management effectiveness, business strategy
and organisational performance. The Ernst and Young People
Management Benchmarking Questionnaire (Veldsman et al.,
1998) was adapted to assess business strategy and people
management effectiveness. The questionnaire was designed to
elicit information about how companies compare with best
practice. The Saratoga Questionnaire (Saratoga Consulting and
HRM Consulting, 1997) was adapted to assess organisational
performance.
The research questionnaire consisted of six sections. The
different sections elicited the following information of
participating organisations: Section 1: Background information;
Section 2: Business strategy; Section 3: Alignment and Strategic
People Intent; Section 4: People Management Policies and
Practices; Section 5: People Management Delivery Process; and
Section 6: Organisational Performance. A four-point Likert-type
scale was used for Sections 3 to 5 and in Section 6 the results
from the most recent financial year of participating companies
were obtained.
Statistical analysis
The data from the questionnaires was analysed by the Statistical
Consulting Services of Rand Afrikaans University. Descriptive
analyses were conducted. The calculations of frequencies, means
and standard deviations were used to interpret the results from
the study.
RESULTS
The following keys were used to interpret results: Mean scores of
1,0 – 2,9 were defined as short of best practice (traditional
practice); 3,0 – 3,9 as best practice; and a score of 4 as leading
practice. The entrepreneurial and dynamic growth strategies
were postulated to require leading and best people management
approaches respectively, demanded typically by a high risk,
rapid changing, ongoing renewing and externally focussed
environment (Veldsman et al., 1998). The profit maintenance,
turnaround and liquidation/divesture strategies were postulated
to require traditional people management approaches,
demanded typically by a low risk, stable, maintenance and
internally focussed environment (Veldsman et al., 1998).
EFFECTIVE PEOPLE MANAGEMENT 87
Business strategy
The business strategy was assessed in terms of the fol-
lowing possible strategies: entrepreneurial; dynamic growth;
profit maintenance; liquidation/divestiture; and turnaround
strategies (Schuler, 1992). The results of the study indi-
cated that 66% of the participants pursued a dynamic
growth strategy; 11% a profit maintenance strategy; 11%
an entrepreneurial strategy; and 11% a turnaround strategy
(see Table 2). The majority (66%) of participating com-
panies were in line with best practice, pursuing a dynamic
growth strategy.
TABLE 2
BUSINESS STRATEGY SCORES
Business Strategy Frequency Percent
Entrepreneurial 1 11%
Dynamic Growth 6 67%
Profit maintenance 1 11%
Turnaround 1 11%
Alignment of business and people strategies
Alignment was assessed in terms of all round participation in
the generation of business and people strategies; joint
ownership of such strategies; and setting up and maintenance
of clear links in terms of content, process, execution and
tracking between these strategies (Veldsman et al., 1998). The
results of the study indicated that participating companies
were slightly short of best practice on the alignment between
the business and people management strategies in terms of
participation (mean = 2,9; S.D. = 0,6); joint ownership (mean =
2,9; S.D. = 0,6); but in line with best practice on clear links
(mean = 3; S.D. = 0,9). The overall alignment of business
strategy and people management falls short of best practice
(mean = 2,9; S.D. = 0,7).
Strategic People Intent
Strategic people intent was assessed in terms of people
philosophy, psychosocial contract and people profile. The results
indicated that the overall strategic people intent (mean = 2,7;
S.D. = 0,6) falls short of best practice (see Table 3).
The people philosophy was assessed in terms of: an ethical facet
(How do we treat our people?); content facet (How do we view
our people?); structure facet (How do we formalise the
relationship with our people); process facet (How do we relate
to our people?); and benefit facet (How must our people benefit
from the relationship with our organisation?) (Veldsman et al.,
1998). The results indicated that the companies were in line
with best practice on the ethical facet (mean = 3,2; S.D. = 0,7);
content facet (mean = 3,0; S.D. = 0,6); benefits facet (mean = 3,0;
S.D. = 0,9) but was short of best practice on the structure (mean
= 2,9; S.D. = 0,6) and process facets (mean = 2,7; S.D. = 0,6). The
overall People Philosophy (mean = 3,0; S.D. = 0,7) was in line
with best practice.
The psychosocial contract refers to the invisible and
unwritten set of mutual expectations that evolve over time
between the various parties who have an interest in the
organisation (Veldsman et al., 1998). The psychosocial
contract was short of best practice (mean =2,4; S.D. = 0,8) with
a strong partnership contract (mean = 2,9; S.D. = 1,1), a lower
presence of exchange contract (mean = 2,6; S.D. = 0,7) and an
even weaker control contract (mean = 1,8; S.D. = 0,7). The
people profile assessed the organisation’s picture of the ideal
person to attract, deploy and retain (Veldsman et al., 1998).
The overall people profile was just short of best practice (mean
= 2,9; S.D. = 0,6).
People Policies and Practices
People policies and practices were assessed in terms of specific
choices of interventions utilised by the participating
organisations to manage their people (Veldsman et al.1998). The
people management policies and practices were compared to 12
groupings of people management best practices. The overall
people management policies and practices (mean = 2,8; S.D. =
0,8) were short of best practice.
TABLE 3
PEOPLE MANAGEMENT SCORES
Dimensions Mean SD
Overall Alignment 2,9 0,7
Participation 2,9 0,6
Joint ownership 2,9 0,6
Clear links 3,0 0,9
Overall People Strategic Intent 2,7 0,6
Overall People Philosophy 3,0 0,7
Ethics 3,2 0,7
Content 3,0 0,6
Structure 2,9 0,6
Process 2,7 0,6
Benefit 3,0 0,9
Overall Psycho-social Contract 2,4 0,8
Exchange contract 2,6 0,7
Partnership contract 2,9 1,1
Control contract 1,8 0,7
Overall People Profile 2,9 0,6
Overall People Management Policies and Practices 2,8 0,8
Human Resource Needs Planning 2,3 0,7
Conditions of Service 2,8 0,8
Design of Work and organisation 2,7 1,0
Recruitment and Selection 2,8 0,8
Induction 3,0 1,0
Performance Management 3,2 0,7
Training and Development 3,0 0,7
Reward and Recognition 3,0 0,5
Employee Well-being 2,4 0,9
Relation Management 2,8 0,8
Community Involvement/Social Responsibility 3,2 0,7
HR Information/Administration 2,7 0,9
Overall People management Service Delivery 2,6 0,7
Delivery paradigm 2,9 1,0
Delivery position 2,6 1,0
HR Roles 2,8 0,7
HR Delivery Style 2,0 2,0 0 0
The results indicated that companies were in line with best practice
with regard to induction (mean = 3,0; S.D. = 1,0); performance
management (mean = 3,2; S.D. = 0,7); training and development
(mean = 3,0; S.D. = 0,7); reward and recognition (mean = 3,0; S.D.
= 0,5); and community involvement/social responsibility (mean =
3,2; S.D. = 0,7) practices. The aforementioned policies and practices
may be bundled as development and retaining practices.
However, more traditional policies and practices were followed
with regard to human resource needs planning (mean = 2,3; S.D. =
0,7); design of work and organisation (mean = 2,7; S.D. = 1,0);
conditions of service (mean = 2,8; S.D. = 0,8); recruitment and
selection (mean = 2,8; S.D. = 0,8); employee well-being (mean = 2,4;
S.D. = 0,9); relationship management (mean = 2,8; S.D. = 0,8); and
human resource information and administration (mean = 2,7; S.D.
= 0,9). These policies and practices may be bundled as attracting,
placing and building commitment policies and practices.
KOCK, ROODT, VELDSMAN 88
People delivery process
The people delivery process was assessed in terms of four
elements, namely: the paradigm underlying the delivery
process; the positioning of the delivery process; the delivery
roles; and the style of delivery (Veldsman et al., 1998). The
overall people delivery process was short of best practice (mean
= 2,6; S.D. = 0,7).
The people management delivery paradigm was just short of best
practice (mean = 2,9; S.D. = 1,0) with a preferred short term,
operational time perspective but in line with best practice with
regards to an integrated service delivery function. The
positioning of the delivery process was short of best practice
(mean = 2,6; S.D. = 1,0) with a specialist driven disciplinary base
positioned remotely from business clients.
The people management delivery role was short of best practice
(mean = 2,8; S.D. = 0,7) with a stronger people champion,
strategic partner and change agent role, and a weaker
administrative role. The results indicated that the people
management delivery styles were more traditional (mean = 2,0;
S.D. = 0) with strong joint decision-maker, expert and advocate
styles. This delivery style focused on the direct involvement of
professionals with a strong task orientation towards the delivery
of people management interventions.
The overall people management fall short of best practices and
was therefore misaligned with the dynamic growth strategy,
which requires progressive people practices i.e. best practices.
Organisational Performance: Financial, Organisational and
People Measurements
TABLE 4
FINANCIAL OUTCOMES SCORES
Dimensions Figures
Revenue R6.6 billion
Expenses R3.6 billion
Efficiency ratio 53.7%
Profit after tax R2.1 billion
Table 4 shows that the mean revenue of the participating
companies amounted to R6.6 billion; mean operating expenses
to R3.6 billion; and mean profit after tax to R2.1 billion. The
results from one of the participants were excluded because the
company is a non-profit government organisation and therefore
incomparable. Mean profit after tax of R2.1 billion falls short of
the industry standard of R7.0 billion for 1999. The efficiency of
the financial services sector was determined by expressing
operating expenses as a percentage of total income, i.e. cost-to-
income ratios. The overall efficiency ratio (mean = 53,7 %; S.D.
= 22.2%) was better than best practice (i.e. a 60 per cent
efficiency ratio).
TABLE 5
ORGANISATIONAL OUTCOME SCORES
Dimensions Mean SD
Overall Organisation outcomes 3,1 0,5
Service quality 2,9 0,3
Product quality 3,6 0,5
Customer satisfaction 2,8 0,4
New product development 3,2 0,4
The results also indicated that the participating companies were
in line with best practice (mean = 3,1; S.D. = 0,5) on overall
organisational outcomes (see Table 5). The participating
companies perceived themselves to be in line with best practice
on product quality (mean = 3,6; S.D. = 0,5) and new product
development (mean = 3,2; S.D. = 0,4) but were short of best
practice on service quality (mean = 2,9; S.D. = 0,3) and customer
satisfaction (mean = 2,8; S.D. = 0,4).
The average number of employees (headcount) of the
participating companies was 9964 employees. The average
revenue per employee was R598 153; the average expense per
employees was R327 592; and the average profit per employees
was R187 406 (see Table 6). The profits fall short of industry
standards and therefore these results may also be interpreted as
short of best practice. The people management of participating
companies fell short of best practice and was therefore unable to
produce enhanced organisational performance, which was in
line with industry standard. However, a variety of conditions in
the internal and external environment of the participating
organisations may have had an influence on both the people
management and organisational performance.
TABLE 6
PEOPLE MANAGEMENT OUTCOME SCORES
Dimensions Figures
Average revenue per total employees R598 153.00
Average expense per total employees R327 592.00
Average profit per total employees R187 406.00.
DISCUSSION
The powerful trends changing the face of the financial industry
will accelerate as South Africa enters the 21st century (South
African Banking Review, 1999). These trends create the setting in
which South African banking and insurance companies need to
formulate their strategic people intent.
Due to the small sample size, the error variance (measurement
error) could have been inflated and consequently the results
must be interpreted with caution. Caution also needs to be
taken when generalising the findings reported in this study to
the overall financial services industry in South Africa.
TABLE 7
OVERALL FINDINGS
Dimensions Short of Best Best Practices Leading
Practices Practices
Dominant Business Dynamic
Strategy Growth
Alignment of Business and 2,9
People Strategies
Strategic People Intent
Philosophy 3,0
Psycho-social Contract 2,4
Profile 2,7
People Management Policy 2,8
and Practices
People Delivery Process 2,8
Organisational Performance X
EFFECTIVE PEOPLE MANAGEMENT 89
It is evident from the results that the majority of the
participating companies are in pursuit of a dynamic growth
strategy. These companies generally expand through the
development of products and services within set parameters and
guidelines. This supported the findings that participating
companies were in line with best practice on product quality
and new product development. There appears to be little or no
alignment between business and people strategies in
participating companies. This misalignment may be ascribed to
the low levels of participation and ownership of these strategies
in these companies. In spite of this, there were clear links
between the business strategies and people strategies in terms of
the content, process, execution and tracking of these strategies.
Although there is limited participation and ownership by all
employees in the strategy formulation, the people philosophy
(i.e. thinking) is closely linked to business objectives.
However, the true indicator of a people philosophy is portrayed
in the actual people management policies and practices
pursued. The operationalisation of people philosophy into
people practices and delivery falls short of best practice. The
participating companies seem to pursue low involvement, low
commitment people management policies and practices, with a
strong focus on developing and retaining people. The typical
people management policies associated with these practices
included induction; performance management; training and
development; reward and recognition; and community
involvement/social responsibility. It seems that less emphasis is
placed on attracting, placing and building the commitment of
people. The policies associated with these practices include
conditions of services; human resource needs planning;
recruitment and selection (attract); design of work and
organisation (placement); employee well-being; and relationship
management (commitment).
In the war for talent, the participating companies appear to
focus on retaining and developing internal candidates, but
neglect the attraction and placement of new skills. This focus
may be ascribed to the shortage of skills in the South African
labour market. The low commitment practices may be based on
the past antagonistic relationship between management and
employees. However, increasingly, this situation within the
employee relation’s arena is changing towards building
economic empowerment, as opposed to the traditional struggle
for worker rights. The increasing shareholding of unions in
multinational businesses is an indication of the times. Human
resource information and administration practices were also
lagging behind best practice and appear unable to support
people management policies and practices. These findings
appear to support the solid theoretical reason of bundling
people management activities into appropriate strategies (Auther,
1994; Delery & Doty 1996; Dyer & Reeves, 1995; Haynes & Fryer,
2000; MacDuffie, 1995).
The people service delivery of the participating companies
focused on a short term, operational time perspective with an
external focus on business needs and priorities. Although
people delivery focused on direct involvement in the business
needs and priorities, the remote location of the people
management delivery may result in inadequate servicing of
people and line managment. The alignment between the people
delivery process and people management policies and practices
may support the actualisation of the strategic people intent, but
is insufficient to support the realisation of a dynamic growth
business strategy. These results support the contention that
people management, which is aligned with the appropriate
business strategy is more effective and critical for the
achievement of business objectives (Caligiuri & Stroh, 1995;
Huselid et al., 1997; Schuler & Jackson, 1995; Templer &
Cattanoe, 1991; Youndt et al., 1996; Veldsman et al., 1998).
To conclude, the people management policies, practices and
delivery of participating companies in this study were misaligned
with the dynamic growth strategy and thus unable to sufficiently
unleash the contribution of people to business success.
Mean profit after tax fell short of industry standards. According
to The South African Banking Review (1999), this decline in
profitability was a common phenomenon in the South African
financial services industry and throughout the world. The
financial service industry’s response to these trends was
manifested in a reduction of costs and an increase in revenue to
maintain a satisfactory level of return on equity (Ibid). The latter
is apparent in the high efficiency ratios of participating
companies. The traditional approach to people management
followed by the majority of participating may be a contributing
factor to the poor results reported on the service quality and
customer satisfaction. However, the performance data from the
study was insufficient to conclusively determine the effects of an
alignment between effective people management, business
strategy and organisational performance.
In the competitive financial industry, people need to be a
differentiating factor to achieve superior organisational
performance. This everlasting debate must be put to rest and the
banking and insurance industry must focus on leveraging people
to produce a desired level of performance. Companies in this
sector need to improve the level of participation of all
employees in their strategy formulation, and to develop
commitment and ownership to the business objectives. They
must achieve both the internal and external alignment of their
people management strategies in order to enable the
achievement of the desired organisational performance.
Furthermore, the configuration of people management practices
of participating companies must be internally aligned to
encourage the achievement of personal, and ultimately
organisational objectives.
The front-end service delivery process needs to be in the
immediate vicinity of their clients to ensure an appropriate
business context and efficient service delivery. The back-end of
the delivery process requires being centralised in a consulting or
shared services mode. The people management professionals
should play a critical role as strategic business partners with a
long-term, strategic perspective and a strong customer
orientation. This role needs to be balanced with a strong expert
people champion role to support employee needs.
To reduce the effect of extraneous variables, the study was
conducted in a single industry. The sample consisted of financial
services sector companies listed on the Johannesburg Stock
Exchange to ensure access to financial information. This limited
the study to small sample of companies in the banking and
insurance sector. The small sample size thus made the
determination of the statistical significant relationship between
people management and business strategy impossible. The
questionnaires were also completed by representatives of the
organisations, i.e. human resource directors and managers, and
may not necessarily reflect the opinion of the whole organisation.
The organisational performance data was incomplete and
therefore incomparable. As a result of these limitations, caution
needs to taken in making generalisations about the findings with
reference to the financial services industry.
Although the magnitude and the direction of the relationships
are still unclear, an opportunity exists for further longitudinal
research to determine the effect of the alignment between
effective people management, business strategy and
organisational performance.
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