| Several years ago my spouse and I built our second | | | | intended to enhance employees' knowledge, skills, |
| new home. It is a process that we greatly enjoy in | | | | abilities, and to provide mechanisms through which |
| spite of the fact that it can be more than a little | | | | employees can use those attributes in performing their |
| stressful. When building a new home there are a lot of | | | | roles. The second scale measured employee |
| decisions to be made. These decisions include | | | | motivation and was comprised of practices designed |
| selecting a builder, a floor plan, the type of exterior you | | | | to recognize and reinforce desired employee |
| want (brick, siding, stucco, for example), selecting your | | | | behaviors. These practices included using formal |
| flooring, fixtures, and lighting, and on and on it goes. | | | | performance appraisals, linking those appraisals tightly |
| Some people prefer to buy an existing home because | | | | with employee compensation, and focusing on merit in |
| they find this plethora of decisions overwhelming. | | | | promotion decisions. The study assessed the effects |
| However, my spouse and I prefer making these | | | | of management practices on turnover, sales per |
| decisions ourselves so that we can get exactly what | | | | employee (a measure of productivity), and the firm's |
| we want and so we can watch our empty lot be | | | | ratio of stock market to book value. Huselid also |
| transformed into a home. | | | | included in his analysis a large number of potential |
| One of the advantages to building your own home is | | | | alternative explanations for the results, such as size, |
| that you can directly and easily observe the quality | | | | capital intensity, concentration ratio of the firm's |
| going into it. Our first area of concern is the foundation. | | | | industry, research and development expenditures as a |
| After our foundation is poured we look at it to assess | | | | proportion of sales, among others. He used statistical |
| whether it looks level and is free of any defects. We | | | | techniques in order to better assess the direction of |
| all know that a good foundation is critical. Without it, the | | | | causality in order to determine whether performance |
| quality of the rest of the construction can be irrelevant. | | | | was driving management practices or management |
| Once we have a good foundation in place, we | | | | practices were affecting performance. In addition, |
| continue to monitor the construction. We take note of | | | | Huselid employed statistical procedures to overcome |
| the quality of the materials being used as well as | | | | sample selection bias. |
| quality of the framing job, plumbing, drywall, etc. Once | | | | The results were both statistically significant and |
| the construction is completed and the buyers move | | | | substantively important for both scales assessing |
| into the house, the builder's job is finished but the | | | | management practices. The magnitude of the returns |
| homeowner's job is really just beginning because the | | | | for investment in high performance work practices |
| house has to be maintained. | | | | was substantial. A one standard deviation increase in |
| Building a business is similar to building a house. You | | | | such practices was associated with a 7.05 percent |
| need a good foundation. We've probably all known of | | | | decrease in turnover and, on a per employee basis, |
| businesses that were lacking in this crucial factor. The | | | | $27,044 more in sales and $18,641 more in market |
| first heavy storm that comes along wipes them out. | | | | value and $3,814 more in profits. A subsequent study |
| Although a good foundation is vital, alone it is insufficient | | | | of 702 firms, using a conception of the human |
| for business growth. The quality of our products and | | | | resource management system that was even more |
| or services is also important. However, we can have a | | | | comprehensive, found even larger economic benefits |
| great foundation, a great product or service, and still fail | | | | with a one standard deviation improvement in the HR |
| to thrive. Why? Because there is another essential | | | | system index being associated with an increase in |
| element. What is it? | | | | shareholder wealth of $41,000 per employee. Similar |
| People. | | | | results have also been found in firms operating outside |
| In an article titled "Putting people first for organizational | | | | the United States. |
| success," published in the Academy of Management | | | | So, we know that investing in people is an effective |
| Executive, Jeffrey Pfeffer and John Veiga discuss the | | | | way of building our business and increasing profits, but |
| imperative role that people play in business success. | | | | exactly how is this done? In his book, Pfeffer identifies |
| Over a decade's worth of studies within and across | | | | seven dimensions that characterize most of the |
| disciplines has shown that enormous economic returns | | | | systems producing profits through people. They include: |
| are obtained through the implementation of practices | | | | 1. Employment security. |
| that put people first. Their review of these studies has | | | | 2. Selective hiring of new personnel. |
| led Pfeffer and Veiga to conclude that an irrefutable | | | | 3. Self-managed teams and decentralization of |
| business case can be made that the culture and | | | | decision making as the basic principles of organizational |
| capabilities of an organization, derived from the way it | | | | design. 4. Comparatively high compensation contingent |
| manages its people, are the real and enduring sources | | | | on organizational performance. |
| of competitive advantage. They recommend that | | | | 5. Extensive training. |
| managers take seriously the often heard adage that | | | | 6. Reduced status distinctions and barriers, including |
| "people are our most important asset." | | | | dress, language, office arrangements, and wage |
| According to Pfeffer and Veiga, some organizations in | | | | differences across levels. |
| today's competitive market, rather than putting their | | | | 7. Extensive sharing of financial and performance |
| people first, have sought solutions to competitive | | | | information throughout the organization. |
| challenges in places and means that have not been | | | | Although some of these may seem contradictory to |
| very productive, treating their businesses as portfolios | | | | conventional wisdom, research and experience have |
| of assets to be bought and sold in an effort to find the | | | | found they can be very effective in increasing profits. |
| right competitive niche, downsizing and outsourcing in a | | | | However, as with any type of effort to improve |
| futile attempt to shrink or transact their way to profit, | | | | organizational effectiveness, these have to be |
| and doing a myriad of other things that weaken or | | | | implemented in the right way. Take for example, |
| destroy their organizational culture in efforts to | | | | employment security. No matter what the perceptions |
| minimize labor costs. However, there is a substantial | | | | are of upper management, if for some reason |
| and rapidly expanding body of evidence that | | | | employees do not perceive their jobs as secure, any |
| demonstrates the strong connection between how | | | | measures in place to provide security are ineffective. |
| firms manage their people and the economic results | | | | Providing extensive training is another potential problem |
| they achieve. Pfeffer and Veiga report that this | | | | area. Numerous training opportunities may be available, |
| evidence is drawn from studies of the five year | | | | but are they the right opportunities? Is the company |
| survival rates of initial public offerings; studies of | | | | offering the type of training employees need to be |
| profitability and stock prices in large samples of | | | | more effective at their jobs? How can upper |
| companies from a multitude of industries. They report | | | | management know the answers to these questions? |
| that substantial additional profitability and stock price | | | | Research. |
| gains, on the order of 40 percent, can be obtained by | | | | Let's return to our home-building analogy. Once |
| implementing high performance management practices. | | | | construction is finished and the homebuyers moves in, |
| In his book, The Human Equation, Jeffrey Pfeffer | | | | it is up to them to maintain the home and property. |
| answers the question of how substantial benefits in | | | | Think of research as part of a maintenance process. |
| profits, quality, and productivity can occur simply by | | | | Whenever organizations make changes in order to |
| implementing high-commitment management practices. | | | | increase effectiveness, it takes some time to see |
| He identifies three reasons for the connection | | | | results. Let's say we are looking to changes in profit |
| between how people are managed and profitable | | | | margins to determine whether our measures are |
| results: | | | | effective. By the time we are able to obtain this |
| 1. People work harder, because of the increased | | | | information, we may have been proceeding with |
| involvement and commitment that comes from having | | | | ineffective strategies for quite some time. Conducting |
| more control over and say in their work. | | | | employee research can help us to much more quickly |
| 2. People work smarter; high performance | | | | determine whether we are on the right track. Getting |
| management practices encourage the building of skills | | | | regular feedback (I recommend once a year) from |
| and competence and facilitate the efforts of people in | | | | employees can enlighten you as to their perceptions |
| actually applying their wisdom and energy to enhancing | | | | regarding whether they feel secure in their jobs, |
| organizational performance. | | | | believe they have access to the training they need to |
| 3. High commitment management practices, by placing | | | | do their jobs well, and many other variables. This |
| more responsibility in the hands of people farther down | | | | information can be used to tweak processes put in |
| in the organization, save on administrative overhead as | | | | place or may reveal the need to develop new |
| well as other costs associated with having an | | | | programs if results indicate some are ineffective. |
| alienated work force in an adversarial relationship with | | | | In addition, it is important to keep in mind that |
| management. | | | | employees are not the only "people asset" of our |
| High performance management practices do not work | | | | businesses, our customers are also key. It is essential |
| because of some mystical process, rather they work | | | | to keep current on the perceptions of your customers |
| because the set of practices is grounded in sound | | | | to ensure that their views of your products and |
| social science principles that have been shown to be | | | | services are favorable. Once again, I recommend |
| effective by a great deal of evidence. | | | | surveying at least once a year, but the top producing |
| This fact was demonstrated in an award-winning | | | | companies I work with typically survey their customers |
| study conducted by Mark Huselid. The study included | | | | quarterly. By staying aware of the current perceptions |
| almost a thousand senior human resources | | | | and attitudes of employees and customers, you can |
| professionals from all major industries. Two scales | | | | become aware of potential problem areas before |
| were constructed from the survey responses. The | | | | they have a negative effect on your profits and make |
| first was called "employee skills and organizational | | | | a preemptive strike to correct your course. |
| structures," and included a broad range of practices | | | | |