C hapter
Human Resource
03
Management and
Performance: Adding
Value through People
L ear ni ng Ob j ecti ves
After studying this chapter, you should v Outline the ultimate business goals of
be able to do the following: an organization
v Identify the potential impact of human v Discuss human resource (HR)
resource management (HRM) on practices, HR outcomes and
performance performance (the HR value chain)
v Review the concept of competitive v Understand the different stages of the
advantage and sustained competitive HR value chain, including intended,
advantage of an organization actual and perceived HR practices
CASE STUDY: NOKIA
N okia is a leading company in the mobile phone and telecommunications industry. The
firm as we know it today is the result of a merger in 1967 between three businesses:
Nokia Ab (paper industry and electricity generation), Finnish Rubber Works and Finnish Cable
Works. A major crisis in the 1970s and 1980s forced the company to revise their business activi-
ties (a so called strategic reorientation). In the late 1990s major challenges and new business
opportunities were identified mainly related to the emerging attention for mobile phones and
the network industry (Merriden, 2001; Haiko, 2002). A national Finnish economic crisis (linked
to a transition from a highly regulated economy to deregulation, liberalization and privatiza-
tion) and an internal company crisis created a momentum for organizational change. General
support from top management, government, social partners (trade unions) and employees
enabled Nokia’s transition in the 1990s to become a global player in telecommunications. Nokia
today is a global market leader in mobile phones and telecommunications, ranked in Business
Week’s Best Global Brands list of 2007 reflecting its global brand value. The firm is ranked 20th
in Fortune’s World’s Most Admired Companies list of 2007 and ranked 8th in Business Week’s
top 100 Most Innovative Companies in 2006.
The success is also reflected in excellent financial performance and their market share
worldwide. The organization is technology driven and its culture appears to be fully assimi-
lated with networks and information technology. Nokia’s corporate philosophy is focused
47
MG22046.indb 47 12/03/2010 11:06
, 48 Chapter 3 Human resource management and performance: adding value through people
on ‘The Nokia Way’ reflecting equality amongst employees, openness to people and sharing
new ideas. Selective recruitment and selection, training and development, employee involve-
ment and compensation are the key HR practices applied to achieve the organizational goals.
Applicants are selected on the basis of their skills and knowledge in relationship to the job’s
technical requirements (person–job fit) and on the basis of the fit between a candidate and
Nokia’s culture (person–organization fit). Diversity management and the inclusion of minori-
ties are key issues in the recruitment and selection process, because it is a corporate belief that
a diverse workforce (different nationalities, men and women, different ethnic minorities) con-
tributes to creativity, innovation and success. Training and development is mainly facilitated
through intranet with eLearning opportunities and personal coaching by more experienced
Nokia employees. Promotion opportunities are available online and called internal job market
intranet. Employee involvement is reflected in job autonomy, self responsibility for personal
development, regular feedback sessions, coaching new employees, regular employee surveys
(called ‘listening to you survey’) and general participation in decision-making. The HR depart-
ment operates a forum for all personnel management questions raised by employees (called
‘ask HR’ feedback channel). Every answer from the HR department on these questions is openly
published on the intranet. Compensation within Nokia is mainly focused on two aspects:
financial compensation in terms of high salaries, bonuses and stock options and compensation
in terms of a variety of possibilities to create a personal work–life balance reflecting special
attention to flexible working arrangement in line with employees’ interests and preferences.
Teleworking, mobile working, flexible working hours, study leaves and sabbaticals are illustra-
tions of the latter HR practices applied to motivate Nokia’s employees.
Overall, the firm can be characterized by a flat organizational structure and a culture that
is highly affected by the technological nature of the business. The HR practices appear to be
aligned with the technological environment and the company’s culture. The downside of
Nokia’s success are the regular reorganizations and layoffs (e.g. in the Spring of 2003 down-
sizing 1800 jobs worldwide) in order to remain efficient and effective, at that time resulted
in a 10 per cent job loss and several court cases, negatively affecting the corporate image, in
particular at the home market in Finland.
Kloeg (2007)
Discussion questions
Nokia applies specific HRM practices that focus on attracting and retaining good employees.
These HR practices include selective recruitment and selection, extensive employee devel-
opment, internal promotion opportunities and career development, employee involvement
in decision making and pay for performance. Empirical research shows that these practices
enhance employee satisfaction, organizational commitment, employee retention, employee
presence (obverse of absenteeism) and loyalty (Boselie et al., 2005). In other words, part of
Nokia’s success might be caused by good people management. However, how do reorganiza-
tions and massive layoffs, for example in the spring of 2003, affect Nokia’s employees in terms
of their attitude and behaviour? And how do these critical incidents affect the employees’
perception of Nokia’s HR practices listed above? Finally, discuss how certain HR practices can
overcome problems caused by reorganizations and massive layoffs. In other words, how can
HRM contribute to firm performance and general employee well-being in times of organiza-
tional change (reorganization, downsizing)?
MG22046.indb 48 12/03/2010 11:06
, Introduction 49
Introduction
According to Christian mythology, the Holy Grail was the cup used by Jesus at the Last Supper.
It is said that this cup possesses special powers and those who drink from it will gain everlasting
life and/or knowledge. Over time, the Grail myth has been an inspiration for numerous legends,
including that of King Arthur, and more recently best-selling books such as J.R.R. Tolkien’s Lord of
the Rings, J.K. Rowling’s Harry Potter and The Philosopher’s Stone and Dan Brown’s The Da Vinci
Code. The Holy Grail was lost and the everlasting search for it has made the myth even stronger.
The added value of HRM, also known as the HRM and performance debate, is often linked to
‘the search for the Holy Grail’, in a symbolic way of course, representing potential unique ways
of managing people to gain organizational success. Some companies might have found their grail
for success in people management and perhaps the Finnish Nokia is one of them. The unique
organizational culture, the specific technological environment and the Finnish model of indus-
trial relations (IR) in which multiple stakeholders (including trade unions and government) have
a significant impact on the organization have contributed to Nokia’s success. But how did they
do it? What are their secrets of success, in particular with respect to people management? More
than 15 years of worldwide empirical research on the added value of HRM and performance in
different sectors shows that HRM matters. This chapter focuses on the contribution of HRM to the
success of an organization using illustrations from practice and literature.
The majority of articles and books on HRM and performance start off with discussing HRM
first and then link HRM to performance (Boselie et al., 2005). This book applies a reversed
technique that is much more in line with goal-setting and strategic decision making. Firm
performance is the starting point, reflected in organizations’ search for competitive advantage
and sustained competitive advantage. Determining (sustained) competitive advantage for an
organization enables us to reveal the critical success factors that lead to success. These critical
success factors – later on specified in critical HR goals and critical non-HR goals – are thought
to be affected by employee attitudes (e.g. employee commitment and motivation) and employee
behaviours (e.g. low employee absence rates). Finally, these employee attitudes and behaviours
can be influenced by HRM. The reversed approach of what I will call ‘the human resource value
chain’ can be summarized as follows (see also Figure 3.1):
1 Determine the competitive advantage and sustained competitive advantage of an organization.
2 Determine the critical factors that create (sustained) competitive advantage (e.g. high
service quality, productivity, innovation, flexibility and social legitimacy).
3 Determine the employee attitudes, behaviours and cognitive factors that positively affect
the critical success factors (e.g. high organizational commitment, motivation and overall
job satisfaction).
4 Determine the HR practices that positively affect employee attitudes and behaviours (e.g.
selective recruitment and selection, extensive training and development, performance-
related pay (PRP), performance management (PM) and evaluation, employee participation
and teamwork).
(Sustained) Critical Employee Human
competitive success attitudes and resource
advantage? factors? behaviours? practices?
Figure 3.1 A reversed approach to creating an HR value chain
MG22046.indb 49 12/03/2010 11:06
Human Resource
03
Management and
Performance: Adding
Value through People
L ear ni ng Ob j ecti ves
After studying this chapter, you should v Outline the ultimate business goals of
be able to do the following: an organization
v Identify the potential impact of human v Discuss human resource (HR)
resource management (HRM) on practices, HR outcomes and
performance performance (the HR value chain)
v Review the concept of competitive v Understand the different stages of the
advantage and sustained competitive HR value chain, including intended,
advantage of an organization actual and perceived HR practices
CASE STUDY: NOKIA
N okia is a leading company in the mobile phone and telecommunications industry. The
firm as we know it today is the result of a merger in 1967 between three businesses:
Nokia Ab (paper industry and electricity generation), Finnish Rubber Works and Finnish Cable
Works. A major crisis in the 1970s and 1980s forced the company to revise their business activi-
ties (a so called strategic reorientation). In the late 1990s major challenges and new business
opportunities were identified mainly related to the emerging attention for mobile phones and
the network industry (Merriden, 2001; Haiko, 2002). A national Finnish economic crisis (linked
to a transition from a highly regulated economy to deregulation, liberalization and privatiza-
tion) and an internal company crisis created a momentum for organizational change. General
support from top management, government, social partners (trade unions) and employees
enabled Nokia’s transition in the 1990s to become a global player in telecommunications. Nokia
today is a global market leader in mobile phones and telecommunications, ranked in Business
Week’s Best Global Brands list of 2007 reflecting its global brand value. The firm is ranked 20th
in Fortune’s World’s Most Admired Companies list of 2007 and ranked 8th in Business Week’s
top 100 Most Innovative Companies in 2006.
The success is also reflected in excellent financial performance and their market share
worldwide. The organization is technology driven and its culture appears to be fully assimi-
lated with networks and information technology. Nokia’s corporate philosophy is focused
47
MG22046.indb 47 12/03/2010 11:06
, 48 Chapter 3 Human resource management and performance: adding value through people
on ‘The Nokia Way’ reflecting equality amongst employees, openness to people and sharing
new ideas. Selective recruitment and selection, training and development, employee involve-
ment and compensation are the key HR practices applied to achieve the organizational goals.
Applicants are selected on the basis of their skills and knowledge in relationship to the job’s
technical requirements (person–job fit) and on the basis of the fit between a candidate and
Nokia’s culture (person–organization fit). Diversity management and the inclusion of minori-
ties are key issues in the recruitment and selection process, because it is a corporate belief that
a diverse workforce (different nationalities, men and women, different ethnic minorities) con-
tributes to creativity, innovation and success. Training and development is mainly facilitated
through intranet with eLearning opportunities and personal coaching by more experienced
Nokia employees. Promotion opportunities are available online and called internal job market
intranet. Employee involvement is reflected in job autonomy, self responsibility for personal
development, regular feedback sessions, coaching new employees, regular employee surveys
(called ‘listening to you survey’) and general participation in decision-making. The HR depart-
ment operates a forum for all personnel management questions raised by employees (called
‘ask HR’ feedback channel). Every answer from the HR department on these questions is openly
published on the intranet. Compensation within Nokia is mainly focused on two aspects:
financial compensation in terms of high salaries, bonuses and stock options and compensation
in terms of a variety of possibilities to create a personal work–life balance reflecting special
attention to flexible working arrangement in line with employees’ interests and preferences.
Teleworking, mobile working, flexible working hours, study leaves and sabbaticals are illustra-
tions of the latter HR practices applied to motivate Nokia’s employees.
Overall, the firm can be characterized by a flat organizational structure and a culture that
is highly affected by the technological nature of the business. The HR practices appear to be
aligned with the technological environment and the company’s culture. The downside of
Nokia’s success are the regular reorganizations and layoffs (e.g. in the Spring of 2003 down-
sizing 1800 jobs worldwide) in order to remain efficient and effective, at that time resulted
in a 10 per cent job loss and several court cases, negatively affecting the corporate image, in
particular at the home market in Finland.
Kloeg (2007)
Discussion questions
Nokia applies specific HRM practices that focus on attracting and retaining good employees.
These HR practices include selective recruitment and selection, extensive employee devel-
opment, internal promotion opportunities and career development, employee involvement
in decision making and pay for performance. Empirical research shows that these practices
enhance employee satisfaction, organizational commitment, employee retention, employee
presence (obverse of absenteeism) and loyalty (Boselie et al., 2005). In other words, part of
Nokia’s success might be caused by good people management. However, how do reorganiza-
tions and massive layoffs, for example in the spring of 2003, affect Nokia’s employees in terms
of their attitude and behaviour? And how do these critical incidents affect the employees’
perception of Nokia’s HR practices listed above? Finally, discuss how certain HR practices can
overcome problems caused by reorganizations and massive layoffs. In other words, how can
HRM contribute to firm performance and general employee well-being in times of organiza-
tional change (reorganization, downsizing)?
MG22046.indb 48 12/03/2010 11:06
, Introduction 49
Introduction
According to Christian mythology, the Holy Grail was the cup used by Jesus at the Last Supper.
It is said that this cup possesses special powers and those who drink from it will gain everlasting
life and/or knowledge. Over time, the Grail myth has been an inspiration for numerous legends,
including that of King Arthur, and more recently best-selling books such as J.R.R. Tolkien’s Lord of
the Rings, J.K. Rowling’s Harry Potter and The Philosopher’s Stone and Dan Brown’s The Da Vinci
Code. The Holy Grail was lost and the everlasting search for it has made the myth even stronger.
The added value of HRM, also known as the HRM and performance debate, is often linked to
‘the search for the Holy Grail’, in a symbolic way of course, representing potential unique ways
of managing people to gain organizational success. Some companies might have found their grail
for success in people management and perhaps the Finnish Nokia is one of them. The unique
organizational culture, the specific technological environment and the Finnish model of indus-
trial relations (IR) in which multiple stakeholders (including trade unions and government) have
a significant impact on the organization have contributed to Nokia’s success. But how did they
do it? What are their secrets of success, in particular with respect to people management? More
than 15 years of worldwide empirical research on the added value of HRM and performance in
different sectors shows that HRM matters. This chapter focuses on the contribution of HRM to the
success of an organization using illustrations from practice and literature.
The majority of articles and books on HRM and performance start off with discussing HRM
first and then link HRM to performance (Boselie et al., 2005). This book applies a reversed
technique that is much more in line with goal-setting and strategic decision making. Firm
performance is the starting point, reflected in organizations’ search for competitive advantage
and sustained competitive advantage. Determining (sustained) competitive advantage for an
organization enables us to reveal the critical success factors that lead to success. These critical
success factors – later on specified in critical HR goals and critical non-HR goals – are thought
to be affected by employee attitudes (e.g. employee commitment and motivation) and employee
behaviours (e.g. low employee absence rates). Finally, these employee attitudes and behaviours
can be influenced by HRM. The reversed approach of what I will call ‘the human resource value
chain’ can be summarized as follows (see also Figure 3.1):
1 Determine the competitive advantage and sustained competitive advantage of an organization.
2 Determine the critical factors that create (sustained) competitive advantage (e.g. high
service quality, productivity, innovation, flexibility and social legitimacy).
3 Determine the employee attitudes, behaviours and cognitive factors that positively affect
the critical success factors (e.g. high organizational commitment, motivation and overall
job satisfaction).
4 Determine the HR practices that positively affect employee attitudes and behaviours (e.g.
selective recruitment and selection, extensive training and development, performance-
related pay (PRP), performance management (PM) and evaluation, employee participation
and teamwork).
(Sustained) Critical Employee Human
competitive success attitudes and resource
advantage? factors? behaviours? practices?
Figure 3.1 A reversed approach to creating an HR value chain
MG22046.indb 49 12/03/2010 11:06
