Here’s To You!

Two steps forward, one step back — and a half-step sideways. Like a young colt learning to stand, the progress of human resources in Corporate America is a story of advances and setbacks, triumph and despair, celebration and frustration. For every two progressive steps taken over the years, HR professionals were forced by shortsighted managers, demanding union leaders, Capitol Hill bureaucrats and general business circumstances to retreat, just a little bit. Frustrating? That isn’t the half of it.

The year was around 1915 — a year after the outbreak of World War I. Disgruntled workers were fed up with shabby working conditions, paltry paychecks and shop foremen who hired, fired and paid workers based on criteria no more substantial than how they felt when they got out of bed that morning. Promising to relieve their misery, unions stepped in, workers went on strike and nervous executives finally got the message that better employment practices were needed. Subsequently, the personnel function was born.

Staffed by social workers, educators, early business school graduates and ministers, the personnel department was seen as a way to quell labor unrest by developing systematic ways of hiring, managing and compensating workers. Because of the war, personnel was handed yet another challenge: Keep companies staffed and productive during the lean war years.

“Personnel came about because of a crisis,” says Nelson Lichtenstein, professor of labor and business history at the University of Virginia in Charlottesville. “Because of this, from its earliest days, personnel was the door management knocked on when there was a problem to solve.”

Crisis or not, personnel managers were obviously up to the challenges they were given. By 1920, personnel departments had been created in one out of every four manufacturing firms employing more than 250 workers. In recognition of such companies’ successes, popular and academic publications started printing articles on “the new profession of handling men.” And in 1922, the first business magazine devoted solely to research on this new profession was established. It’s name? The Journal of Personnel Research (now Workforce).

Companies with personnel staff do better. Immediately after WWI, the unemployment rate soared, reaching more than 20 percent in 1921. With so few jobs to go around, workers became less demanding. Strikes declined, turnover was eliminated and there was a sharp increase in labor productivity. Thinking things were “back to normal,” most firms cut back or eliminated their personnel departments. This misguided view would prove to be a huge blunder.

In companies that retained personnel managers, their main responsibility was wresting power away from the plant foremen. This was an era of blue-collar factory work; automobile, steel and consumer goods companies dominated the scene. In the large, mass-production industries, foremen still called the shots. They hired whom they liked and fired whomever they didn’t. Punishment was frequent and pay raises arbitrary. According to Walter Licht, professor of history at the University of Pennsylvania in Philadelphia, the business practices of foremen were so unethical, “It wasn’t at all uncommon for a worker to give the foreman his first paycheck in exchange for a job and special favors at work.”

Like their predecessors a decade earlier, managers of progressive companies saw the development of personnel practices as a way to eliminate the foreman’s power and institute a sense of fairness into the system. In such companies, personnel staff worked hard to develop better recruitment procedures and hiring practices. They assessed skill needs, wrote job descriptions, catalogued jobs and standardized pay scales. They created grievance procedures and sensible rules for dismissal. Believing happy workers were the key to profitable companies, these early personnel professionals also created pension benefits, employee softball leagues, company cafeterias, stock-option plans and employee life insurance.

Companies such as Rochester, New York-based Eastman Kodak and Cincinnati-based Procter & Gamble Co. were leaders in the use of personnel practices. Thus, they tended to be more successful than firms that insisted on running their plants the “old way.” Companies with personnel departments were better at keeping employees during seasonal downturns that forced layoffs at other companies. They also were better at recruiting highly skilled workers and retaining them once they were hired.

Thanks to the efforts of the personnel department there was, for the first time, a reliable-and seemingly profitable-employment system in place in many companies. As Robert Drago, professor of economics at the University of Wisconsin in Milwaukee, explains, “The creation of personnel was a huge step forward for business.”

That is, it was a huge step forward in companies that kept personnel staff on the payroll. In companies that didn’t, which were the majority, foremen continued to prey on workers. As the country prospered, the labor shortage grew, productivity sank and workers quit in increasing numbers. Union activity soared once again. Although personnel practices promised to alleviate these problems by improving worker morale, there simply weren’t enough personnel departments to go around. (In 1927, the Journal of Personnel Research changed its name to The Personnel Journal.)

Unions hit the ground running. Although the Great Depression temporarily stopped union activity, once the economy was moving again, collective bargaining picked up steam. Unions spread like wildfire, and the number of unionized companies grew fivefold between 1933 and 1945.

Seeking to stem the spread of unionization, more and more firms started to see the advantages of having a business function charged with developing and maintaining fair employment practices. After all, what unions were asking for — good working conditions, fair wages, and hiring, firing and grievance procedures — were the kinds of things personnel departments already were successfully doing at nonunion companies. This realization, albeit a bit late, helped elevate the status and authority of the personnel department. Looking back, one has to wonder how far unions would have gone if more companies had jumped on the personnel bandwagon sooner.

Nevertheless, between 1933 and 1935, the growth of the personnel profession and the improvement of its status in the corporate hierarchy were nothing short of phenomenal. By 1935, 64 percent of large companies had personnel practices in place, twice as many as had them just five years earlier. Many personnel departments expanded in size and were placed on equal footing with other management divisions.

Thanks to the function’s growing prestige and importance, personnel professionals in the ’30s started to look beyond basic employment practices and toward more innovative ways of improving productivity. If good working conditions and reliable paychecks boosted job satisfaction, imagine what might happen if workers were asked for their opinions or given more say in business decisions.

Elton Mayo, a Harvard Business School professor, was among the first to research this link between supervision and morale. His work, which became widely known as the “Hawthorne Studies,” revealed that when employees have a say in the work being performed, they’re more likely to enjoy their jobs, work better with others and be more productive. Personnel professionals took to his findings with gusto, and the first discussions about employee empowerment, teamwork and psychological motivation followed. Unfortunately, as any HR person today knows, it took decades for these ideas to catch on. Meanwhile, HR continued to be the function looked upon to solve staffing crises. (In 1935, The Personnel Journal changed its name to Personnel Journal.)

1940s
STATS OF THE DECADE

World War II generates new marching orders. With unions now firmly part of the industrial scene, the personnel department began to divide into two functions — industrial relations and personnel. Industrial relations, which managed union contracts and worked to meet union demands, and personnel people concentrated on what they did best: keeping the workforce productive.

This challenge was never greater than it was during World War II. With scores of American men drafted into military service, the goal of personnel was to find enough bodies to keep the plants running. Fortunately, in its 25-year history, personnel had never faced a crisis it couldn’t handle. This time was no exception. Personnel professionals successfully recruited and trained thousands of women for work previously reserved for their husbands. Although some of the war-time recruitment ads seem silly by today’s standards (a drill press is not just like an egg beater) the efforts were successful.

Impressed by its ability to keep plants operating at or near full capacity, management elevated the status of personnel to an all-time high. In fact, a 1945 survey found that in seven out of eight large manufacturing firms, the personnel department was an independent unit whose head reported directly to the company’s president just like any other division.

During the war, personnel departments grew in size as well as stature, and the ratio of staff personnel to the number of employees increased as new positions were created to meet the special needs of the war-time labor force. “The department’s expansion was proof of top management’s increasing regard for personnel activities,” explains Sanford Jacoby, professor of history, management and policy studies at University of California, Los Angeles.

According to Jacoby, another interesting thing happened during the war: The human relations movement caught on. Thanks to a government-funded training program developed by a colleague of Mayo’s, foremen were being taught how to “work with people,” and “treat people as individuals.” If you think you have a hard time now with touchy-feely programs, imagine what industrial psychologists of the 1940s faced. Still, despite some initial managerial reluctance, program organizers claimed the focus on individual needs decreased employees’ dissatisfaction and boosted war-time production.

Buoyed by such successes, newly enlarged personnel departments began to focus even more on worker productivity when the war ended. For the first time, companies truly seemed to care what their employees thought. One psychologist, writing in 1948, said that managers had become “psychologically minded, ready to embrace the notion that the whole question of efficiency boils down to one thing: understanding the motivations of your employees and taking steps to satisfy them.” This insight was due largely to the work being done in the personnel profession.

1950s
STATS OF THE DECADE

The postwar economy booms. Like the music created in that decade, business in the 1950s was rock ‘n rollin’. The postwar economy was booming and veterans, armed with college degrees paid for by the GI bill, were eager to put their new educations to work. Not only did employment in the manufacturing sector grow by leaps and bounds, but so did employment in the new and growing service economy.

Everywhere, it seemed, jobs were plentiful. Companies were growing and so were the levels of management and the number of white-collar workers. In addition to recruitment, hiring and the writing of endless job descriptions, personnel took on the job of creating elaborate career ladders. Why? Because in growing companies, promotion was a relatively easy way to motivate and reward good employees.

All those promotions created yet another task for personnel: training. Whereas in the 1920s, the white-collar workforce consisted of young women who typed correspondence and bills, and filed mounds of paperwork — skills that were easily learned and replaced — the new breed of office worker was a manager who required leadership ability and managerial skills. As the champion of workforce productivity, personnel stepped up to this challenge, and training and development became a new subspecialty.

More employees and more managers naturally led to the existence of more corporate departments. In fact, the 1950s were the heyday of large multidivisional companies in the United States, and the personnel function began to mirror the hierarchies of the companies themselves. A growing discipline, personnel was even seen as one of the “hot” fields for returning GIs to enter for their next profession. With more people in personnel-and in the workforce-the procedures for recruitment, hiring, discharge, training, compensation and benefits became even more systematized. Although this bureaucracy would eventually become a burden for companies, at the time it made sense.

The growing number of people in the personnel field was accompanied by a dawning of professional conscientiousness. New professional associations were formed, other trade publications were established, and personnel managers started to talk about such things as career development, professional ethics and certification.

1960s
STATES OF THE DECADE

Facing new legislative demands. As company coffers continued to grow in the 1960s, personnel departments had the money and the staff to expand their reach. They began to look even harder at employee motivation. The human relations movement, which got off to a slow start in the 1940s, started to pick up steam. Bonus plans, employee-suggestion systems and performance-management programs were created.

“Look at personnel textbooks of the 1940s, and you’ll see chapters on wage determination, grievance systems, promotions and the relationship of a person to a job,” says Jacoby. “By the 1960s, you’ll see chapters on motivation, leadership and group dynamics. Personnel was beginning to approach management from a psychological point of view, rather than an economical one.”

Yet, as time would tell, this psychological orientation would prove to have economic benefits. Roger Putnam, a retired HR executive who entered the profession in 1958, recalls a time in the mid-1960s when the personnel department at Minneapolis-based Dayton Hudson Corp. in Minneapolis, where he worked first, proposed a performance-management system.

“Until the mid-1960s, there was no such thing as merit-based pay. Employees were given raises based solely on seniority,” he says. “We had quite a time convincing managers who had grown up under the old system that employees would be more productive if we rewarded their performance as opposed to their longevity.” It took awhile, Putnam says, but within approximately five years, Dayton-Hudson’s retail stores started showing more profit, it was easier for the company to attract and retain better employees, and talented workers were being promoted to management positions sooner.

But just as these forward-thinking ideas were gaining a toe-hold, personnel was called once again to put out fires. The fire this time? Women’s liberation. In an effort to make the workplace and career ladders more accessible to women, companies revised job qualifications and hiring procedures. They began to offer more in-house training and development programs. They also started to provide tuition reimbursement to help female employees achieve their goals.

But women weren’t the only concern. The passage of the Civil Rights Act of 1964 was making companies extremely sensitive to their treatment of all minority workers. “Personnel managers became concerned with diffusing racial and cultural tensions,” says University of Virginia’s Lichtenstein. “They began to focus more on compliance issues.” Specialists (read: lawyers) were needed not only to decipher the new legislation, but also to help create new workplace policies.

Diverted once again from discussions about productivity and motivation, personnel managers began to question their overall mission. Should the department now be staffed by lawyers?

1970s
STATS OF THE DECADE

Workers revolt. Concerns over the legalities of the employment relationship continued to grow in the 1970s, thanks to the passage of the Occupational Safety and Health Act of 1970 (OSHA) and the Employee Retirement Income Security Act of 1974 (ERISA) in the early part of the decade. As government increasingly tied the hands of business with legislation, more legal specialists were needed in personnel than ever before.

But at the same time personnel was grappling with its own problems, a deep-seated worker unrest was brewing in American companies. Personnel managers got a wake-up call in 1974 when a study that year revealed 75 percent of workers didn’t like their jobs. Why? Because the great bureaucracies created during the 1950s to manage workers were now starting to stifle them. Armed with more education than any preceding generation, employees in the ’70s weren’t content to work in restrictive job categories any longer. They wanted to see results from their work, and they wanted more challenge and opportunity than their narrow job descriptions allowed.

In hindsight, this sentiment isn’t surprising. During the 1930s, employees were clamoring for jobs that provided dignity, security and stability. The whole workplace over the next 30 years was designed to accommodate those needs. But once the economy expanded and the level of worker education grew, security was no longer a key issue. Employees now wanted jobs that were interesting and used their talents.

The problem couldn’t have come at a worse time for American industry. During the 1970s, the rest of the world had caught up to America in terms of its goods-producing abilities. U.S. companies were now facing competition from overseas, and they needed workers to be more productive than ever. Instead, what they got were more strikes, absenteeism, apathy and increasing drug use on the job. Employees started job hopping. The entire labor market became more mobile.

“Organizations that had reputations for having good management practices were being raided by other companies looking for quality employees,” says Putnam. “Those companies soon discovered, however, that they couldn’t keep good employees without better employment practices of their own.”

Desperate for a solution to continual turnover and low productivity, executives started to pay attention to the personnel managers who had claimed for years that employees were people with individual needs and wants, and that the quality of people in an organization can have a direct impact on the bottom line. Ironically, the Civil Rights Movement, which initially took personnel’s attention

away from such human relations issues, also is what sensitized managers to them.

“The Civil Rights Movement, which really took hold in the ’70s, forced companies to deal with attitudes and behaviors,” says Jack Loza, a semi-retired HR executive who entered the profession in 1963. “Suddenly, personnel wasn’t just about hiring, compensation and training. It was also about learning to value the contributions of individuals, regardless of their race or gender.”

Thanks to this shift in thinking, executives began to realize that productivity and employee issues shouldn’t take a back seat to crisis management; that perhaps job design, employee satisfaction and morale were just as important as hiring, benefits, compliance and all the other fire-fighting activities conducted by personnel over the years. Personnel had proven its ability to react to crises. Now it was time for the profession to become more proactive.

In the late 1970s, in an effort to put worker needs in the forefront-and hopefully boost corporate productivity-the term personnel was discarded, and in many companies the function became known as human resources. Finally, the folks in HR were being given the green light to institute the kind of programs and policies they had been experimenting with for years.

Downsizing becomes all too common. As they entered the 1980s, HR professionals were optimistic about the function’s changing role. Findings from the Hawthorne Studies of the 1930s were taken out, dusted off and fashioned into programs designed to boost job satisfaction. Companies began implementing quality circles, task forces, team-building and other employee-involvement programs. Although some of the new workplace models were patterned after the Japanese style of management, many of them had their roots in the United States years earlier.

Encouraged by early successes, American executives started to agree not only with HR’s notion that workers had ideas about how to improve work, but that asking employees for those ideas could actually improve on-the-job fulfillment and productivity. Employee attitude surveys, once an anomaly, started to become commonplace.

Technology also entered HR’s domain in the ’80s, allowing HR professionals to focus less on administrative work (that had become a burden as a result of all the legislation that had come before and continued to come) and more on strategic issues. Thanks to increasingly sophisticated human resources information and communications systems, HR was getting a better handle on its resources, and thus, the effectiveness of its programs. With more attention being focused on the human resources in an organization, the link between HR and the bottom line was becoming clearer.

Unfortunately, old patterns die hard. Just as worker empowerment and technology were becoming commonplace,

HR was forced once again to turn its attention to what seemed to be more pressing matters. The issue this time? Downsizing. Companies had become bloated beyond effectiveness and the only way to compete in the expanding global marketplace was to cut costs and boost productivity. Because labor costs form the largest part of corporate overhead, many companies found the only way to cut costs would be to cut bodies.

This created a thorny dilemma for HR professionals. How could they possibly increase productivity and encourage greater commitment from employees, while at the same time eliminating jobs? Initially, HR people got busy helping employees who were leaving companies and searching for other work. But soon, it became apparent that the employee-involvement programs they shelved at the start of the downsizing crisis actually held the solution to their dilemma.

With the ranks of middle managers virtually eliminated from the workplace, who better to ask for solutions to vexing business problems than employees themselves? Excited, HR started to see the light. If employees were given a say in how work was performed, jobs would become more interesting and employee satisfaction would rise. If employees were put into teams, better decisions would be made overall and workers would feel a stronger sense of community, commitment and responsibility. Although employment involvement and work redesign efforts would require changes in the way companies recruited, hired, trained, compensated and rewarded workers, HR was up to the challenge. The profession was coming into its own.

Sure, there were other HR issues to deal with during the ’80s, some of which included AIDS, sexual harassment, work/family issues and diversity. But with the focus now firmly on employees, getting support for these programs was much easier.

By the late 1980s, human resources was getting more attention from top management than ever before-and for good reason. Corporate America now was firmly entrenched in the technology age and many other sources of competitive advantage had been eliminated. With the same access to capital, raw materials, technology and markets, the only thing that distinguished the

competitive capabilities of one company from another was the quality-and performance-of its workforce. The relationship between the human resources function and profitability could no longer be ignored.

“In the late 1980s, the HR function as a part of progressive management had arrived,” says Professor Drago. Vice presidents of HR were not only sitting in on business strategy sessions, but being listened to and heard. The good ideas of HR were being encouraged, not only because the external climate was right for it, but because HR was ready. The function had diligently been preparing for this role for years.

1990s
STATS OF THE DECADE

• Primary concern: Workforce changes and shortages
• Perception of employees: Employees need more flexibility in all work areas
• HR activities: HR planning, employee rights, training, flexible benefits, computerization, etc.

On the eve of the 21st Century. It’s been more than a decade now since companies first started to grapple with the issues of downsizing, productivity and global competition. Companies that have survived this unstable era are those that have concentrated on developing cutting-edge HR practices. Take a look at winners of the Malcolm Baldrige National Quality Award — such as Motorola, Federal Express, and The Ritz-Carlton Hotel Co. — and you’ll see the impact high-caliber HR policies can have on quality and the bottom line. These companies, and their HR professionals, are successfully changing the priorities of business from the inside out.

Although the importance of the personnel function has alternately increased and decreased over the past 75 years, it’s clear there has been an overall trend toward recognizing and encouraging the contributions employees make to the bottom line.

HR may have been born out of crisis, but its persistence and long-range thinking is what has allowed the function to thrive. Like a long-distance runner going for Olympic gold, HR has had to prepare patiently for years — often unsupported and often all alone. But today, everyone celebrates and shares in HR’s victory. American business is transforming itself because of the simple change in thinking that was driven by HR: People matter. As a result, HR has truly become the most important business function in Corporate America. Congratulations!

Workforce, January 1997, Vol. 76. No. 1, pp. 72-81