Human Resource Management Explained: From Personnel Administration to Organizational Value Creation

Textbooks usually tell the story as a sequence. Welfare work gave way to personnel management, personnel management gave way to human resource management (HRM), and HRM is now becoming a strategic partner that creates value. Each stage appears as an improvement on the one before.

The sequence gets the dates broadly right and the mechanism wrong. Each form of the function appeared in response to a particular managerial problem: the conditions of women and young workers in factories, the cost of workers quitting, the demands of trade unions and employment law, and, from the 1980s, competitive pressure and the wish to connect the management of people with business strategy. When a new problem arrived, the old work did not disappear. Welfare duties, employment records, and grievance handling are still done today, often by a department that now describes itself as strategic. The function grew by adding layers, not by replacing one stage with the next.

Read this way, the history helps with two questions. One is practical: in which layer is a given HR department actually working, whatever it calls itself? The other is critical: when the label changed in the 1980s, did the substance change with it? Scholars still disagree about the second, and both sides have evidence.

Scope note: the strategic HRM frameworks of the 1980s, including the Harvard and Michigan models, are examined in Module 04, and the measurement of HR's contribution in Module 16. This article is concerned with how the function came to exist and how its identity has been contested.

In 1896 Rowntree's, the cocoa and confectionery firm in York, appointed Mary Wood, who had taught at a Quaker school in the city, to look after the women in its factory. Mary Niven's history of the Institute of Personnel Management (1967) describes the post as being "to take charge of the women in the factory and to watch over their health and behaviour," and suggests that Wood "was the first woman in the country to become an industrial welfare worker." Niven records that the biscuit maker W. R. Jacob began specialised social work in the same year.

The phrase "health and behaviour" captures the double character of the work. Welfare workers organized canteens, rest rooms, medical attention, and sick clubs. They also selected and supervised. Niven notes that Wood set out to attract what she called "the more respectable girls." Care and control were parts of one job, and employers' motives were mixed: religious conviction among Quaker owners, the need to keep workers in a tight labour market, and the expectation that healthier and better-behaved workers would produce more.

The occupation organized quickly. In 1913 a meeting in York chaired by Seebohm Rowntree founded the Welfare Workers' Association with 34 members, 29 of them women, attended by representatives from Boots, Cadbury, and Chivers (CIPD, n.d.). The First World War turned a voluntary practice into public policy. In 1915, at Lloyd George's request, Rowntree became director of a new welfare department at the Ministry of Munitions, where, according to the Rowntree Society, he worked both on applying "scientific management" in the munitions factories and on "safeguarding the wellbeing of factory workers." Efficiency and welfare were again joined in one post. Niven reports that there had been some 60 welfare workers in all factories before the war; Sidney Webb estimated 600 in 1917, and by the end of the war the number was thought to be about 1,000.

Two features of this beginning shaped what followed. The function started as a specialist, largely female occupation concerned with the conditions surrounding work, not with how work was organized or paid. And it started with divided loyalties. The welfare worker was paid by the employer to look after the employee, a position later personnel specialists would find just as uncomfortable.

In the United States the pressing problem was different. Before 1915, Sanford Jacoby (1985) shows, the foreman in a typical factory "was given free rein in hiring, paying, and supervising workers," and few companies kept detailed employment records. Discipline relied on what the economist Sumner Slichter called the "drive system," defined as "the policy of obtaining efficiency not by rewarding merit" but through close supervision and the threat of dismissal. The system depended on a steady supply of replacement labour, and it produced extraordinary rates of quitting.

Ford Motor Company is the best-documented case. Daniel Raff and Lawrence Summers (1987), working from company records and contemporary studies, report that in 1913 Ford hired 50,448 men to maintain an average workforce of 13,623, an annual turnover of 370 percent. Even in Detroit, where 200 percent was common, that was high. Ford responded in two steps. In October 1913, reforms led by John R. Lee simplified the pay structure and stopped foremen dismissing workers at will by "centralizing authority over hiring and firing in the Employment Department." In January 1914 came the five-dollar day. Turnover fell to 54 percent in 1914 and 16 percent in 1915.

The case shows the logic of the employment department: turnover had a cost, and moving hiring and firing out of the foreman's hands was a way to control it. It also needs two qualifications. Raff and Summers caution that a downturn hit Detroit in 1913 and 1914 and may account for up to half of the fall in turnover, so neither the reforms nor the higher wage can take all the credit. And the five dollars came with conditions. Ford's Sociological Department sent 150 inspectors to workers' homes, and men whose drinking, housekeeping, or saving fell short could be excluded from the profit-sharing payments that made up much of the five dollars. The welfare impulse and the control impulse appear again in one department.

Employment management spread as a movement. Bruce Kaufman (2008) traces the Employment Managers' Association of Boston to a meeting held in 1911, and a national association followed in 1918. When the Boston association began, Jacoby notes, "only a few firms in the Boston area had employment or personnel managers." The spread is easily exaggerated. Kaufman estimates that in manufacturing in the early 1920s the proportion of large plants with a personnel department was "more like 20-25 percent."

By 1920 the separate specialisms of welfare, employment, training, and safety were being presented as a single discipline. Ordway Tead and Henry Metcalf's Personnel Administration: Its Principles and Practice (1920) offered a definition that still reads as balanced: "Personnel administration is the direction and coordination of the human relations of any organization with a view to getting the maximum necessary production with a minimum of effort and friction, and with proper regard for the genuine well-being of the workers" (p. 2). The authors used "personnel administration," "employment administration," "personnel management," and "administration of industrial relations" interchangeably, a sign of how unsettled the field's identity already was.

In Britain the professional body's names trace the same movement. The Welfare Workers' Association became the Institute of Industrial Welfare Workers in 1924, the Institute of Labour Management in 1931, and the Institute of Personnel Management in 1946 (CIPD, n.d.). Each change moved the occupation further from welfare and closer to management. After the Second World War, much personnel work in both countries centred on collective bargaining with trade unions, employment law, job evaluation, and administration.

The discipline never fully settled its standing. In The Practice of Management (1954), Peter Drucker asked whether personnel management was "bankrupt." He called personnel administration "largely a collection of incidental techniques without much internal cohesion," and described the job as "partly a file clerk's job, partly a housekeeping job, partly a social worker's job, and partly 'fire-fighting' to head off union trouble or to settle it." He did not say these tasks were unnecessary; he called them "necessary chores." His complaint was that personnel departments avoided what mattered most, the organization of work and the management of the people doing it, managers included.

Karen Legge's (1978) study of British personnel managers explained why the weakness persisted. Personnel departments were kept out of business decisions, so they lacked information; without information they could not show a contribution; and because they could not show one, they stayed outside. Legge described "a vicious circle of information denial, lack of support and credibility" (as summarized in Legge, 1995). One way out was the role she called the "conformist innovator," who accepted management's definition of success and showed how personnel work served it. That is close to what HRM would later promise as a matter of course.

Table: this article's synthesis of the sources discussed. Dates are approximate and differ by country and industry; each layer was added to the earlier ones, not substituted for them.

"Human resource management" became the dominant label in the 1980s, first in the United States and then in Britain. Legge (1995) located its appeal among "British and American senior managers shaping up to heightened global competition." Two influential frameworks appeared in 1984, the Harvard model of Michael Beer and colleagues and the Michigan model of Charles Fombrun, Noel Tichy, and Mary Anne Devanna. Module 04 examines both. What matters here is what the new label claimed to add.

The claim was stated most precisely by David Guest (1987). If HRM meant anything distinctive, he argued, it had to be defined against personnel management, and he proposed four policy goals: strategic integration, high employee commitment, flexibility, and quality. His table of stereotypes, in the form in which it is usually reproduced, set personnel management's compliance, external control, collective and pluralist relations, and emphasis on administrative efficiency against HRM's commitment, internal control, individual and unitarist relations, and adaptable workforce. Guest offered these as stereotypes for analysis, not as descriptions of what firms were doing, and Legge (1989) would later object that the contrast was sharper than the evidence allowed.

Three changes of emphasis were at the centre of the reframing. The management of people was to be integrated with business strategy, not run as a specialist service beside it. Responsibility was to move from the specialist department to line managers. And the employment relationship was to rest on individual commitment, cultivated partly by managing culture, more than on collective agreements with unions. The third was the most contentious, because it assumed that the interests of employer and employee could be brought into line, the view sociologists call unitarist.

Within a few years "HRM" was clearly being used for two different things. John Storey named them in 1987 and set them out in his introduction to New Perspectives on Human Resource Management (1989). The hard version "emphasizes the quantitative, calculative and business-strategic aspects of managing the headcounts resource in as 'rational' a way as for any other economic factor." The soft version "traces its roots to the human-relations school; it emphasizes communication, motivation and leadership." In the first, the weight falls on "resource"; in the second, on "human."

The critics' case. The strongest critique came from Karen Legge. Comparing the normative models, the accounts of what personnel management and HRM ought to be, she asked how they differed: "One is tempted to say 'not a lot'" (Legge, 1989). The sharp contrasts of Guest's table, she argued, set an idealized HRM against personnel management as practised, when normative accounts of personnel management had also stressed integration with organizational goals. She did find differences, but "largely of meaning and emphasis rather than substance." HRM paid more attention to developing the management team, where personnel work had been aimed largely at non-managers. It cast line managers "in a far more proactive role." And it gave top management responsibility for managing culture. Taken together, these pointed to HRM being, in theory, "a more central strategic management task than personnel management."

Her later book went further. The significance of HRM, Legge (1995) wrote, "lies just as much and (possibly more so) in its function as a rhetoric about how employees should be managed to achieve competitive advantage than as a coherent new practice." The point was not that the rhetoric was empty. A vocabulary of commitment, flexibility, and quality could justify very different practices, including work intensification and insecure employment, while presenting them as the pursuit of shared goals.

The best-known empirical test is the study by Catherine Truss and colleagues (1997) of eight large British organizations, using questionnaires, interviews, and focus groups. They found no pure case of either hard or soft HRM. Instead, "the rhetoric adopted by the companies frequently embraces the tenets of the soft, commitment model, while the reality experienced by employees is more concerned with strategic control, similar to the hard model." Eight well-known employers cannot stand for all firms, but the pattern they described has been the reference point for later work on the gap between HR rhetoric and practice.

The case that something changed. The critique is strongest against the HR department's claims about itself and weaker as an account of employment more broadly. Some changes were real whatever they were called. As union membership fell in Britain and the United States, a function whose central skill had been negotiating with unions had to find other work, and much of it moved toward individual performance, pay, and development. Legge's own analysis concedes that the differences in emphasis point toward a more strategic role, and a shift in emphasis can change where a function spends its time. Language matters too. Legge herself argued that rhetoric is not separate from the real world: "rhetoric is the real world" (Legge, 1995). A vocabulary that tells managers people are a source of competitive advantage can move budgets and decisions, even when it moves them less than it claims.

The function's standing problem did not disappear with the new name. Forty-two years after Drucker, Thomas Stewart opened a Fortune article (1996) by describing a department "whose employees spend 80% of their time on routine administrative tasks" and whose leaders could not describe their contribution "except in trendy, unquantifiable, and wannabe terms," before proposing: "Why not blow the sucker up?" Stewart's 80 percent was asserted, not measured, but the complaint was Drucker's.

This is the sense in which "organizational value creation," the phrase in this article's title, should be read. It is a claim the function makes, not a settled finding. Whether and how HR practices improve organizational performance is a large literature with real problems of causation, examined in Module 04 and Module 16. The historical point is narrower: from Drucker to Stewart, the function's critics demanded evidence of a contribution, and the HRM vocabulary was in part an answer to that demand.

Both examples below are real and dated, drawn from legal texts and press reports listed in the references. The interpretations are this article's.

The welfare officer in Bangladeshi law. The 1896 role survives in Bangladesh as a legal duty. The Bangladesh Labour (Amendment) Act 2013, gazetted on 22 July 2013, three months after the Rana Plaza collapse, inserted section 89(8) into the Bangladesh Labour Act 2006: an establishment employing 500 or more workers must appoint a welfare officer. Rule 79 of the Bangladesh Labour Rules 2015 sets out the duties, and they read like a compressed history of the function. Some are classic welfare work: checking canteens, childcare rooms, latrines, and drinking water. Some belong to personnel management and industrial relations: encouraging workers' committees, explaining leave rules, seeking quick reconciliation in disputes, and arranging dialogue between owners and workers. Others reach toward development, such as advising on training for new workers and encouraging technical education.

The rule requires an honours degree with expertise in labour law, industrial relations, and the handling of complaints, and an additional officer for each further fraction of employees above 2,000. Quotations are from unofficial English translations of the Bangla texts.

In a Bangladeshi manufacturer with several hundred workers, whether a garment factory or a pharmaceutical plant, one HR department may therefore legally contain every layer traced above: a statutory welfare officer, a personnel and compliance unit, and perhaps a team that calls itself strategic. Whether these work together or merely sit side by side is a useful diagnostic question.

Private banks during the pandemic. The second example tests Legge's distinction between rhetoric and reality in a sector where HR departments are large and professionally staffed. In June 2020, with interest income falling, the Bangladesh Association of Banks, the forum of private banks' directors, wrote to its 36 member banks proposing a 15 percent cut in the salaries of employees earning Tk 40,000 or more a month and a halt to fresh recruitment, among 13 measures for July 2020 to December 2021 (The Business Standard, 15 June 2020). Departures followed. When Bangladesh Bank inspected six private banks, it found that 3,313 employees had resigned or been removed between January 2020 and August 2021, 3,070 of whom had resigned "voluntarily" before retirement age. Most of those the inspectors spoke to said they had been forced, some after "a verbal ultimatum to voluntarily resign within a certain time, otherwise no benefit would be provided"; they also alleged that rules such as serving a show-cause notice had not been followed (The Business Standard, 14 September 2021).

In mid-September 2021 Bangladesh Bank issued a circular under section 45 of the Bank Company Act 1991. Banks were to reinstate officers and employees dismissed or forced to resign between 1 April 2020 and 15 September 2021 without specific and proven allegations, and no one could be dismissed or forced to resign only for failing to meet a target (Business Outlook, 18 September 2021). The fuller picture emerged in January 2022, when The Daily Star reported that 51 private banks had told the central bank that 7,167 employees, nearly 6 percent of the banking workforce, lost their jobs in that period: 1,292 dismissed and 5,875 resigned. A central bank probe report seen by the paper said that "banks had forced them to resign in most of the cases," and that some banks had set difficult deposit targets during the slowdown, then dismissed staff for missing them.

Through Storey's lens this was hard HRM in plain form: employees treated as a cost to be adjusted when income fell. Through Truss and colleagues', it was a gap between the record and the experience, with exits filed as voluntary that most leavers described as forced.

Two cautions apply. The bank managing directors' association maintained that no one had been laid off without reason, and some resignations were presumably genuine, so the share that was forced is unknown. The income pressure of 2020 was also real, although The Daily Star found that all but one of the 22 banks it analysed raised operating profit in 2021.

The most telling point is historical. When internal procedures failed to protect employees, the regulator supplied the protection itself: due process, no dismissal for a missed target, and a warning, as reported, that layoffs were likely to make bankers "lose confidence in the profession." That is the old personnel layer of fair procedure in dismissal. HRM was supposed to move beyond it. The episode suggests it was still needed, and that when it weakened, someone outside the banks had to provide it.

For each practice below, choose the layer of the function where it first became characteristic, then read the commentary. Some practices fit more than one layer, and the commentary explains why. The practices are constructed for teaching; the commentary draws on the sources discussed above.

Rate each statement for the HR function of one organization you know well. Part A measures how far the function works in the strategic layer. Part B checks whether employees would recognize the function's description of itself. Read them together: a high score in Part A with a low score in Part B is the pattern Truss and colleagues called soft rhetoric with hard reality. The statements and bands are this article's teaching tool, not a validated instrument.

Reading the results. A low Part A score is not a failure in itself. Many organizations need excellent administration more than a strategic partner, and Drucker's "necessary chores" still have to be done well. A high Part A score is no proof of good HRM either, because the hard version scores just as highly as the soft one. Part B is the check that the history in this article suggests matters most, and it is better answered by employees than by HR.

What the case is designed to show. Each option can be defended. The choice turns on whether a change of name is treated as the start of a change or as its result, and on whether the older layers are seen as a foundation or a burden.

The evidence supports a more careful version of the standard story. Welfare work, employment management, personnel management, and HRM each answered a real problem, and each left a layer that is still in use. As Legge argued, the 1980s reframing changed the function's vocabulary more than its tasks. It also changed what the function was expected to answer for: business results as well as fair procedure.

What remains unresolved is the question of loyalty that has followed the function since 1896. The welfare worker was paid by the employer to look after the employee. The personnel manager administered agreements between management and unions. HRM in its unitarist form dissolved the dilemma by assuming that well-managed employees and the business want the same things. The Bangladesh bank exits show what happens when they do not. A function that claims to create organizational value still needs the older procedural layer that protects the people the value depends on, and the following articles in Module 03 will keep returning to the question of who in the organization provides it.

Select one organization's HR function. It may be your own employer, which you may disguise, or an organization with enough public documentation (annual reports, regulatory findings, published policies) to support the analysis.

Prepare a report of 2,500 to 3,000 words that:

1. maps the function's current activities onto the four layers in this article, with evidence such as an organization chart, job descriptions, or an estimate of how staff time is divided;
2. compares how the function describes itself (its name, mission statement, policies, or annual-report language) with how line managers and employees experience it, using at least six interviews or comparable data, anonymized;
3. assesses whether the function's practice is closer to Storey's hard or soft version, and whether it differs across groups of employees;
4. evaluates whether, in this organization, "HRM" represents a change of substance or mainly of label, engaging seriously with both Legge's critique and the case that something changed; and
5. recommends changes, with their costs, the resistance they are likely to meet, and the evidence that would show whether they worked.

Use at least five academic sources, including at least three from this article's reference list. Every factual claim about the organization should be traceable to a document or interview you could produce if asked. Obtain consent from interviewees and protect their identities.

Assessment rubric (100 marks)

1. Drucker, P. F. (1954). The practice of management. Harper & Brothers. Quoted wording checked against the pre-publication excerpt of the chapter "Is Personnel Management Bankrupt?" in Dun's Review and Modern Industry, 63(2314), June 1954: https://archive.org/details/sim_business-month_1954-06_63_2314
2. Guest, D. E. (1987). Human resource management and industrial relations. Journal of Management Studies, 24(5), 503-521. https://doi.org/10.1111/j.1467-6486.1987.tb00460.x
3. Jacoby, S. M. (1985). Employing bureaucracy: Managers, unions, and the transformation of work in American industry, 1900-1945. Columbia University Press. https://archive.org/details/employingbureauc0000jaco
4. Kaufman, B. E. (2008). Managing the human factor: The early years of human resource management in American industry. ILR Press, an imprint of Cornell University Press. https://archive.org/details/managinghumanfac0000kauf
5. Legge, K. (1989). Human resource management: A critical analysis. In J. Storey (Ed.), New perspectives on human resource management. Routledge. https://archive.org/details/newperspectiveso0000unse_g0e0
6. Legge, K. (1995). Human resource management: Rhetorics and realities. Macmillan Business. https://archive.org/details/humanresourceman0000legg_l2l8
7. Raff, D. M. G., & Summers, L. H. (1987). Did Henry Ford pay efficiency wages? Journal of Labor Economics, 5(4, Part 2), S57-S86. https://doi.org/10.1086/298165 (figures checked against NBER Working Paper 2101, December 1986: https://www.nber.org/papers/w2101)
8. Storey, J. (1989). Introduction: From personnel management to human resource management. In J. Storey (Ed.), New perspectives on human resource management. Routledge. https://archive.org/details/newperspectiveso0000unse_g0e0
9. Tead, O., & Metcalf, H. C. (1920). Personnel administration: Its principles and practice. McGraw-Hill. https://archive.org/details/personneladminis00teaduoft
10. Truss, C., Gratton, L., Hope-Hailey, V., McGovern, P., & Stiles, P. (1997). Soft and hard models of human resource management: A reappraisal. Journal of Management Studies, 34(1), 53-73. https://doi.org/10.1111/1467-6486.00042

Historical and institutional sources

• Niven, M. M. (1967). Personnel management 1913-63: The growth of personnel management and the development of the Institute. Institute of Personnel Management. https://archive.org/details/personnelmanagem0000nive
• Chartered Institute of Personnel and Development. (n.d.). Our history. https://www.cipd.org/uk/about/our-history/
• The Rowntree Society. (n.d.). First World War, Rowntrees and workers. https://www.rowntreesociety.org.uk/a-to-z/first-world-war-rowntrees-and-workers/
• Stewart, T. A. (1996, January 15). Taking on the last bureaucracy. Fortune. https://money.cnn.com/magazines/fortune/fortune_archive/1996/01/15/207172/

Bangladesh legal texts and press reports

• Bangladesh Labour Act, 2006 (Act No. XLII of 2006), English text as amended to 2018, sections 2(65) and 89(8). https://mccibd.org/wp-content/uploads/2021/09/Bangladesh-Labour-Act-2006_English-Upto-2018.pdf; official Bangla text: http://bdlaws.minlaw.gov.bd/act-952.html
• Bangladesh Labour (Amendment) Act, 2013 (Act No. 30 of 2013), Bangladesh Gazette, 22 July 2013, section 28 (translated from Bangla). https://betterwork.org/wp-content/uploads/wcms_229274.pdf
• Bangladesh Labour Rules, 2015, Bangladesh Gazette, 15 September 2015, rule 79 (English version). http://decentwork.bilsbd.org/wp-content/uploads/2018/11/bangladesh_labor_rules_2015_english_version_15-09-2015-1.pdf
• "Bank directors want to cut employee salaries, all expansions, but not their dividends." The Business Standard, 15 June 2020. https://www.tbsnews.net/economy/banking/bank-directors-want-cut-employee-salaries-all-expansions-not-their-dividends-93286
• "Central bank to take actions if layoffs in banks proved." The Business Standard, 14 September 2021. https://www.tbsnews.net/economy/banking/central-bank-take-actions-if-layoffs-banks-proved-302566
• "Bangladesh Bank instructs banks to reappoint employees laid off during pandemic." Business Outlook, 18 September 2021. https://businessoutlookbd.com/2021/09/18/bangladesh-bank-instructs-banks-to-reappoint-employees-laid-off-during-pandemic/
• Zamir Uddin, A. K. M. "6% of private bankers lost jobs during pandemic." The Daily Star, 31 January 2022. https://www.thedailystar.net/business/economy/banks/news/6pc-private-bankers-lose-jobs-during-pandemic-2951766

Legge (1978), Power, Innovation and Problem-Solving in Personnel Management (McGraw-Hill), is cited as reported in Legge (1995); Storey's 1987 Warwick paper is cited as reported in Storey (1989); Slichter's definition of the drive system is quoted as given in Jacoby (1985). These were not consulted directly. Passages from Niven, Jacoby, Kaufman, Legge, and Storey were checked against the scanned texts on the Internet Archive. The layer table, the sorting exercise, the diagnostic, and the fictional pharmaceutical case are original teaching material for this series, not findings of the sources above.

Next in The Human Capital MBA series: Article 12 continues Module 03, Human Resource Management Foundations.