UNIT 4-HRM Models
The Standard Causal Model of
HRM
The best-known HR model is the Standard Causal Model of HRM. The model is
derived from many similar models published throughout the 90’s and early 2000’s.
The model shows a causal chain that starts with the business strategy and ends,
through the HR processes, with (improved) financial performance.
The model thus shows how HR activities that are aligned with organizational strategy
lead to business performance. According to this model, HR will only be effective if its
strategy is aligned with business strategy (in line with the best-fit theory). HR
strategy is thus derived from the overall strategy.
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The HR practices follow the HR strategy. Examples include hiring, training,
appraisal, and compensation. These HR practices lead to certain outcomes.
Examples include commitment, quality output, and engagement.
These HRM outcomes lead in turn to improved internal performance. Examples
include productivity, innovation, and quality. These outcomes lead to financial
performance (e.g. profits, financial turnover, better margins, and ROI).
Two interesting relationships are the unmediated HRM effect, which shows that
some HR practices can directly lead to improved internal performance. For example,
a good training can directly result in better performance, without necessarily
influencing HR outcomes.
The reversed causality in the model shows that sometimes a stronger financial
performance leads to more investments in HR practices and better HR outcomes.
When performance is strong, employees are often more engaged (an HR outcome).
This shows that the relationships in the model are not always unidirectional. In
general, however, this Human Resources model shows how HR strategy is
formulated and what the impact is of HR on internal processes and financial
outcomes of the business.
2. The 8-box model by Paul
Boselie
A different HR model that’s often used to model what we do in HR, is the 8-box
model by Paul Boselie. The 8-box model shows different external and internal factors
that influence the effectiveness of what we do in HR.
First of all, you see the external general market context, the external population
market context, the external general institutional context, and the external population
institutional context. These are external forces that influence how we do HR.
For example, if there is a shortage of certain skills in the market, this influences how
we do our sourcing, recruiting, and hiring, compared to when there’s an abundance
of qualified workers. The institutional context also changes: legislation impacts the
way we work in HR (e.g. the day-to-day impact of HR) while trade unions and work
councils limit what we can do.
The core process in the middle starts with the configuration. The company’s history,
culture and the technology used are all factors that influence how we communicate
in HR, what we want to achieve, and how effective we are in our HR policies. All
these factors influence our HR strategy.
The HR strategy consists of six parts:
• Intended HR practices:
The intention we have with our recruitment, training, and other practices
matters but this model shows it’s only a starting point.
• Actual HR practices:
We can have great intentions but the execution of HR practices is a
cooperation between HR and the manager. When the manager decides to do
things differently, the intention can be nice but the actual practices can be
very different.
• Perceived HR practices:
This is how the employee perceives what’s going on in the organization. HR
and the manager can do their absolute best but if their activities are perceived
in a different way than they were intended and actually done, the perception
will not mirror the actual HR practices.
• HR outcomes:
The perceived HR practices (hopefully) lead to certain HR outcomes. These
are similar to the ones in the Standard Causal Model of HR, described above.
• HR outcomes lead to critical HR goals (i.e. cost-effectiveness, flexibility,
legitimacy, and so on), which in turn leads to ultimate business goals (i.e.
profit, market share, market capitalization – all related to the viability of the
organization, and other factors that help to build a competitive advantage).
3. The HR value chain
The HR value chain is one of the best-known models in HR. It is based on the work
of Paauwe and Richardson (1997) and creates a nuance on the models above in
regards to how HR operates.
According to the HR value chain, everything we do (and measure) in HR can be
divided into two categories: HRM activities and HRM outcomes.
• HRM activities are day-to-day activities, including recruitment, compensation,
training, and succession planning. These activities are often measured using
HR metrics. These are so-called efficiency metrics. The cheaper we hire and
the faster we train, the better.
• HRM outcomes are the goals we try to achieve with the HRM activities. We
recruit, we train, and we compensate to achieve certain goals/ outcomes.
These outcomes include employee satisfaction, motivation, retention, and
presence.
If we just focus on measuring HRM activities, we will automatically focus on reducing
costs (i.e. maximizing efficiency). However, we should instead focus on HRM
outcomes as this helps to align our processes with our goals.
For example, we would rather spend a few days longer on hiring a new employee
(time to hire, an efficiency metric) if this person will be a better fit in the company
(quality of hire, an outcome metric). The goal should be to get the best person in the
right position, not to cut corners and hire someone as cheaply and quickly as we
can. This shows why we should focus on measuring outcomes instead of activities.
When HRM activities and HRM outcomes hit their marks, they should lead to better
performance. This means that when we recruit the right people, send people to the
right training programs, and retain our key players, the company’s performance
increases.
Literature also shows a different effect: when company performance is higher, HRM
activities increase as well. This is because more profitable companies usually invest
more in HR programs, including HR software and learning & development
opportunities for their people.
The HR Value Chain Advanced
We’ve researched a lot of the literature but we can’t find an original source for this
model. This model is very similar to the HR value chain but with two key differences.
First, the organizational performance is defined in the balance scorecard. The
balanced scorecard contains the key performance indicators from a financial
perspective, a customer perspective, and a process perspective. These are
integrated into the HR value chain. This document helps to align and show the
added value of HR to the business.
Second, the model starts with a number of HR enablers. These enablers are key for
what HR is doing in the business. This includes HR systems, budget, capable
professionals, and other key elements. The thinking is that these enablers need to
be present in order for the value chain to operate effectively.
If HR lacks well-trained professionals, if the budget is low, or if the systems are
outdated and hamper innovation, HR will be less efficient in reaching its HR
outcomes and business outcomes.
