Managing People for Competitive Advantage – Defining a New Role for HR    

Forty years ago the management guru, Peter Drucker, summed up the status of the human resource function in his classic book, The Practice of Management (1954).  Drucker concluded,

“Yet everything we know today about Personnel Administration was known by the early twenties, everything we practice was practiced then.  There have been refinements but little else.  Everything to be found in one of the big textbooks of today can be found in articles and papers published in the early twenties. 

He went on to argue that “the constant worry of all personnel administrators is their inability to prove that they are making a contribution to their enterprise.  For personnel administration is largely a collection of incidental techniques without much internal cohesion.  It is partly a file clerk’s job, partly a social worker’s job and partly ‘firefighting’ to head off union trouble or to settle it.”

Aside from the comment about unions, and the ever growing use of technology, it would be difficult to demonstrate in many organizations that the HR function and its role have changed all that much in the 50 years since Drucker published his book.  That quickly explains why HR is not invited to join the management team. 

At the same time, there are a growing number of companies that have redefined the role of HR to take advantage of what we know about managing people.  There is also a growing body of research-based evidence that HR policies, practices and systems can lead to a significant improvement in organization performance.  The breakthroughs in performance are often dramatic.  For a time in the 1990s the business press highlighted companies that realized significant gains but then the stories became more common and less newsworthy.  There is a potential to reach higher levels of performance in virtually every organization.  And the people management considerations are central to that strategy. 

The Traditional Personnel Model

Personnel administration, as the function was known until the 1970s or later, got its start in the 1920’s and 1930’s in recognition that there was a need to offset the harsh working conditions common in the era before protective labor laws were enacted.  Assembly line jobs in the new factories were a radical departure from the older craft work.  Workers coming off the farms had little education and no experience working under supervisors.  Hiring was often handled by purchasing agents.  Supervisors were expected to meet production quotas through any means including the threat of firing.  Workers turned to unions for self- protection and frequently clashed with management over working conditions. 

Through the first half of the century, Frederick Taylor’s principles of scientific management dictated the way jobs and work were defined and managed.  Workers in this context were given explicit orders and expected to comply.  Efficiency experts and industrial engineers conducted detailed analyses of jobs and established production quotas and work standards.  Workers were seen as extensions of their machines - “cogs in the wheel.”  Scientific management thinking dominated the way work was organized and managed. 

This approach to work management is sometimes referred to as the “machine model”.  Raw materials come in one side and go out as finished products.  The common focus of performance improvement efforts is on cost culling and improved efficiency through increased work effort.  Any improvements were typically small, a few percentage points at best. 

This was also an era when the political philosophy of Karl Marx and his book, Das Capital, influenced the way both managers and employees interacted.  Communism was an issue in the global labor movement until after World War II and influenced government policies in many countries.  He argued that there is an inherent clash between labor and owners (and managers) which contributed to a climate of distrust and animosity.  He also argued that work as it existed in the factories of the era was demeaning and deleterious; the less people work the better.  The unions in the US never bought into his argument but in the old-line companies there are still locations where labor-management relations are antagonistic. 

In the traditional environment, the role of the Personnel manager was defined to support the way workers were managed.  Personnel managers took over the hiring and firing.  They started conducting job orientation sessions as well as exit interviews.  They assumed responsibility for processing personnel actions, such as wage increases, and for compliance with policy.  They also became the administrator for benefit plans.  They are often the first step for grievances and complaints.  They are also the counselors for employees and managers.  They have a lot to do but it’s all tangential to running the business and much of it can be done without professional training. 

A turning point was when employers came to believe in the years before the Depression that a concern for employee welfare would translate into increased worker efficiency.  Personnel departments proliferated and worker welfare schemes were developed with the hope that workers would reciprocate with increased productivity.  Out of this comes a growing concern with human relations.  In an attempt to avoid unionization, many companies adopted paternalistic policies with company stores, company homes, and recreational facilities.  It was during this period that the idea was spawned that the most important qualification to be a Personnel manager is “liking people.”  As late as the 1950s, psychologists were studying the premise that “a happy worker is a productive worker” — with little success. 

In the blue collar world, there was little change in the way work is organized and managed until Dr.  W.  Edwards Deming started focusing on the importance of front-line workers and their role in quality and customer service.  The quality management movement was followed in the early 1990s by reengineering which opened the door to a broader role for workers at all levels in problem solving and developing improved practices.  The decade saw a virtual revolution in the thinking that governs work.  The changes in combination are often referred to as a new “work paradigm”¹.

Impact of the New Work Paradigm

What started as a narrowly focused strategy in the mid-i 980s to improve quality broadened in the economic downturn a few years later to corporate initiatives to reduce costs and payroll.  Downsizing and delayering — doing more with less — was a common strategy.  To become more competitive in the global economy, companies also worked to be more responsive and to eliminate bureaucratic practices. 

Those changes coincided with the reengineering initiatives.  The thrust of reengineering is to invite teams of lower level people to develop new policies, practices or systems that will improve performance.  Industry found that those teams often developed answers that resulted in significant improvements.

In the background through this period were experiments in the management of people.  For several decades a few HR experts contended that industry needed to shift to a “participative management” philosophy but when the idea first surfaced, any interest was limited to academics and the HR community.  It is consistent with the Human Relations thinking from years ago.  Deming made the idea of worker involvement acceptable and the new jargon word, “empowerment”, came into use. 

Deming also focused on the importance of team performance and that is now a common issue in organizing work.  Teams of course have always existed but the difference is the idea that they can function without a leader or close supervision.  Experiments with what were then known as “autonomous work teams” started in Sweden in the 1970s but the idea was not widely adopted.  Deming and the experience with reengineenng gave new emphasis to the value of teamwork.  The autonomous teams are now “self- managed” and the idea is central to the new work paradigm. 

Another idea that generated support about the same time is the notion of incentives to reward workers for their performance as a group.  Again this is not a new idea.  Profit sharing plans have been in use for over a century.  In the 1 930s a union leader developed the idea of a “gain sharing plan” with payouts based on savings in labor costs.  Gain sharing was rarely used, however, until the new emphasis on improved performance in the in the early 1990s.  Since then group and team incentives have proliferated. 

Job enlargement is another idea studied by academics during this period.  They recognized very clearly that workers are often capable of doing more than their assigned tasks.  They argued for broadening job responsibilities and also for job rotation so workers could broaden their skills and develop greater satisfaction.  All of this research, however, never affected management thinking until Deming convinced people that change would contribute to business success. 

Data systems are not a workforce issue but they now make it possible to monitor performance from a distance.  There is little need for close supervision.  Moreover, data systems also mean one manager can keep track of a large number of people.  There are many organizations where one individual “manages” 50 people or more in multiple locations.  That is in sharp contrast to the old “span of control” rule of five or six people for each supervisor.  The technology makes it possible to eliminate one or more levels of supervision and to flatten the organization.  That trend has been widely reported. 
These and other changes constitute the new paradigm.  The ideas were developed at different times and introduced piecemeal but in combination they have revolutionized the thinking that governs work planning and management.  The changes in the past decade are greater than in the first 90 years of the century. 

Academics have been studying organizational performance and employee productivity for decades.  In the early 1 990s a professor at Texas Tech, Barry Macy, gathered reports of over 300 productivity studies done over the prior 30 years.  He threw out over half of the studies for technical reasons but used the balance, roughly 120 studies, to complete a meta-analysis — which is academic for digging out the common themes and results.  His findings confirm that employers can expect dramatic increases in productivity — at least 30 to 40%.  That is far different than the incremental 2 or 3% gains many companies hoped to achieve. 

He also compiled a list of what he refers to as “action levers” - the changes that affect employee or organization performance - that is over 50 items long.  Some can be categorized as technology (e.g., local area networks were still new then), some as organization changes (e.g., self-managed teams) and some as HR practices (e.g., gain sharing).  Several of the levers are now dated but others like cell phones have been introduced.

Macy did not refer to a work paradigm — the idea gained prominence a couple of years later — although that is clearly the focus of his research.  However, he did conclude that industry was making a mistake in its work planning.  There has been a pattern of fixating on one new idea — the “flavor of the month” — and working to get it adopted.  He found that the big gains in performance come from an integrated strategy that involves several of the levers.  However, his was an empirical study of the past.  His writing did not capture the breadth of the revolution in the thinking that governs work planning and management. 

Through the early 1 990s the business press carried stories of companies that changed their organization or management practices in some way and realized dramatic performance improvement.  In contrast to the past when productivity was associated with new equipment or processes, the stories attributed the gains to organizational changes.  The stories gave new prominence to performance measures such as customer satisfaction or quality.  Those measures reflected a change in business thinking and the role of workers.  For the first time, the media discussed employees below the executive level in stories of business success.  Toward the end of the decade, the number of stories slowed and came to an end, perhaps because the gains were no longer newsworthy. 

The introduction of the new paradigm also triggered a new stream of academic research looking at the relationship between company performance and management practices.  That research has had three overlapping themes.  One is the growing importance of intellectual capital — knowledge — and the growing importance on corporate balance sheets of so-called intangibles.  For those who are not accountants, assets are divided between tangible assets — the “bricks and mortar” along with equipment — and intangibles including intellectual capital.  In the traditional paradigm, before companies like Microsoft, intangible assets were almost ignored but when a company’s value rides on the knowledge of its people these assets are the future.  The second is the impact of new work management practices.  The third is the impact of the policies and practices traditionally in the domain of the Human Resource function.  The balance of this paper looks at this research. 

The Key — Tapping Worker Capabilities

The key to understanding the source of the performance gains is simple — employees are being asked or perhaps more accurately expected to more fully utilize their capabilities.  In the traditional work paradigm workers were put into narrowly defined jobs with constraints on what they were expected or allowed to do.  Job descriptions made very specific each task and in some cases ran on for pages that circumscribed their movements and their interactions with co-workers.  The level of detail was consistent with the scientific management principles and top down control. 

In the traditional environment, workers were often not expected to tackle problems or think about anything not directly related to their assigned tasks.  In some respects the job of the supervisor was to make certain workers focused only on the assigned job duties.  Management did the thinking. 

Actually, business texts through at least the 1970s ignored issues like this.  In the era when the threat of unionization was a high priority, the workforce was treated as an anonymous, almost adversarial group.  The concern with job satisfaction that has had recent attention was largely an academic concern.  And there was seldom any discussion of people moving from a blue-collar job to a new professional career.  Management and the workers lived on different sides of the tracks. 
It’s obvious in hindsight but very few employees in the traditional work setting ever had an opportunity to use all of their capabilities.  Jobs tended to be boring and repetitive.  That was effectively taken for granted as a fact of industrial life.  Social scientists long ago adopted words like disaffected and alienated to refer to the mindset that was common among workers. 

Another interesting aspect of the media attention to the changes in the 1 990s was the reporting on people in mundane, low level jobs who accomplished great things in their private lives.  They were leaders in their communities at night but drones during the day.  There were also entrepreneurial stories of people who started in mundane jobs but decided to quit and start their own companies.  Somehow these individuals were able to take advantage of capabilities that were ignored in their day to day jobs. 

A story from one of the early experiments with autonomous work groups is telling.  In the early 1 970s the company, Scott Paper, opened a new plant in Dover, Delaware where there were no immediate supervisors.  The work teams did everything including hiring and discipline.  Consultants planned the selection process as well as the compensation system, which included a group incentive plan.  As a step to validate the selection process, a number of people hired into the plant were interviewed.  One worker literally thanked God for the chance to work in the plant.  Another said, “There is no way we’ll let a union in here to screw this up.” (Other plants in the area were unionized.)  A woman stated that this was the first time in her life that she felt important.  She reportedly became a leader in her community.  Unfortunately technical problems with new equipment forced Scott to bring in ‘experts’ from their corporate office and that took a degree of control away from the work teams. 

The emphasis is no longer on working harder.  The phrase “working smarter’ certainly applies but it’s more than that.  The real issue now is the challenge and the expectations — both are substantially higher.  The surprising part to people who continue to have the old mindset is that people enjoy working hard.  They like the challenge and the satisfaction — under the right circumstances.  They may go home exhausted but they look forward to coming back the next day.  Many managers and professionals have always felt this way.  The change in the new paradigm is the recognition that employees at all levels can benefit from the challenge of their work in the right environment. 

But in a recent survey — after a decade with the new paradigm - workers were asked how much of their capabilities were actually used at the job.  Their responses were surprisingly consistent with Macy’s conclusions.  On average, they reported that only 60% of their capabilities were used, which translates into a huge potential for improved performance.  It also reaffirms the need to focus on the work paradigm. 

It is impossible to measure or estimate how much human potential was wasted in the old work paradigm.  However, everyone has had jobs that at some point bored them or where they found themselves frequently thinking about non-work issues.  The result is commonly that people feel disengaged and in some cases angry about their fate.  That is all too obviously not benefiting the organization.  No one benefits.

The Increasing Importance of Intellectual Capital

Significantly the interest in intellectual capital started in the financial function and the investment community.  When companies like US Steel and Westinghouse were dominant employers in cities across the country, accounting statements were straightforward — the assets on the left side of a balance sheet included cash, receivables, investments, and the depreciated value of property, plant and equipment plus a line for intangibles.  The intangible assets were always small and reflected the claimed value of things like — purchased good will, trade names, patents, etc. 

But over the last decade or so it became obvious that the basis for determining a company’s value was changing dramatically.  There is an old saying in professional firms: “The company’s assets walk out the door every night.” They typically rent office space and have few tangible assets.  Their value depends on the knowledge and experience of the people working for the firm.  Companies like Microsoft are basically the same.  There is intangible value in copyrights and patents but their future depends on their people. 

The leading thinkers in this new field started worrying about how to measure and document in financial statements the value of intellectual capital.  There have been conferences and books focusing on the subject but there are still no solid answers.  It is a problem that has to be solved if financial statements are to again accurately represent a company’s value.  It may be difficult to measure but there is an emerging consensus that intellectual capital is the foundation of a company’s future success.

Over time intellectual capital became somewhat blurred with a closely related phrase, ‘human capital’.  The knowledge and experience of course originates with people and until it is captured and documented it resides in their minds. 

A couple of other phases are also relevant and intertwined, ‘knowledge management’ — which brings in technology specialists — and ‘learning organizations’ — which has been in the domain of social scientists.  These ideas have spawned new areas of research, training, and professional services.  Each of these areas has become a separate cottage industry with its own specialized community. 

The common thread of course is the central importance of the people who generate and find ways to use the knowledge.  Another common thread is the recognition that knowledge is the key to the future and needs to be nurtured and valued.  There are the several communities now focusing on the importance of knowledge — finance, technology and social scientists.  They have different perspectives but all agree that organizations stand to benefit if they invest in systems and policies to make better use of the knowledge of their people.  Reinforcing that message is the obvious intent in championing these emerging fields. 

But there is also an interesting side issue reflected in a comment by one of the early pioneers in the intellectual capital field, Larry Prusak, who is a prominent IBM consultant and author.  When he was invited to speak at a conference sponsored by the Wharton School for human resource executives a few years ago, he stated, “This is the first time I’ve spoken to an HR group.” The human resource community was until very recently largely excluded from this emerging field that is based squarely on people. 

HR and Organization Performance

Some would look at that side heading skeptically.  The Human Resource function has no direct involvement or accountability for organization or for that matter individual performance.  There are some including a columnist for Fortune magazine who have wondered if organizations would be better off if the HR function was abolished.  HR can be an impediment to change.  It can be bureaucratic.  It is obviously a cost center. 

The traditional HR function is no doubt guilty of all those failings.  Its poor status and image is no doubt justified.  Change in the way the function operates has been exceedingly slow.  Too many HR executives have not made the transition away from the past.  They have been waiting for an invitation to join the executive team but few actually sit at that table.  Yes, all of that is true but the research evidence shows very clearly that HR policy, practices, and systems can lead to significant performance improvement.  The findings are solid.

In addition, we now know how to organize and manage work to raise performance levels dramatically.  That knowledge comes out of the human resource field.  The day-to-day management of people is and will continue to be the responsibility of line managers but it is very clear that they do not always have a good understanding of how to manage people and their performance.  Increasingly the planning of jobs and work systems reflects what we have learned about people at work.  If the HR staff is not directly involved, this expertise is brought in from the outside.  The body of knowledge is also the subject of many, many books and conferences planned for line managers.

The balance of this section looks at the policies and practices managed by the HR function.  The next section summarizes the issues relevant to the broader concern with managing people. 

Research in the academic world starting with Rutger’s Mark Huselid in the mid-1990s as well as similar studies by consulting firms like Watson Wyatt show clearly that certain HR practices are highly correlated with company success.  All the studies reached similar conclusions. 

The Watson Wyatt studies are the most compelling, having been repeated twice in several countries with similar conclusions.  In their initial study in 1999 they surveyed 400 publicly traded US and Canadian companies, asking questions about their human resource practices and their financial results.  They used the response data to develop what they refer to as a Human Capital Index (HCI) and then compared the total return to shareholders (dividends plus capital appreciation) over the prior five-year period.  Companies with human resource practices that scored high on the HCI index had a compounded return of 64% while those that scored low had a return of only 21%.  The studies also identified the HR practices that had the biggest impact on shareholder returns.²

The HR functions in high performing companies tend to focus on the following issues:

• Make the executive team a top priority — It all starts with top management.  Leaders are a key to employee satisfaction and commitment.  Employees look to the leaders of their organization for direction and a sense of what the future holds.  They are far more important than immediate supervisors in defining an employee’s view of the organization.  The Watson Wyatt study found that companies where employees had a high level of trust and confidence in their leaders had a return of 108%; those with low trust had a 66% return to shareholders. 

Employees want their leaders to face the need for change or to address problems with confidence.  They prefer leaders who explain their decisions and aggressively promote their plans.  When problems arise, they want to be confident the leaders will be fair and honest. 

A key to being an effective leader is the ability to motivate others to action and excellence.  They “walk the talk” of mission, principles and values.  A common theme across high performing companies is the importance of the workforce.  In their behavior they inspire others to adopt high performance standards. 

High performing companies make the selection and development of the leadership bench a priority.  They have systems and programs that focus high potential employees, nurture their careers, provide planned development opportunities, and make certain they gain appropriate experience.  The executive compensation program rewards the company’s leaders handsomely for business success. 

• Treat recruiting and staffing as a strategic priority — A key is having the right people with the right skills in the right roles.  High performing companies take the selection of people very seriously.  They recognize that top talent is in short supply.  Several years ago, before the recession, consultants from McKinsey & Company studied the recruiting practices in selected high performance companies and developed a book, The War for Talent (2001), that discussed the importance of attracting and retaining high caliber people.  The best companies work to craft a winning value proposition to attract talent.

High performance companies use the business plan to track the need for critical skills.  They avoid hiring ‘good employees’ who will need training and time to develop.  They recruit for specific skills and attributes known to contribute to success in their organization and try to hire people who can “hit the ground running”.  They take the hiring process seriously because they see it as a long-term commitment to the individual. 

It is common in these companies to see employees and managers involved in the hiring process.  They know the jobs and the work environment better than anyone, and know what it takes to succeed.  They also have to “live with” a new hire.  When they are involved, it creates a sense of commitment to the individual’s success. 

They are also ready to pay an above market salary for high caliber individuals.  The hiring package commonly includes a sign-on bonus and stock options to lure the individual away from a current job.

They also provide candidates with detailed job information and a company orientation session to help the individual understand the culture, career opportunities, and the job expectations to reduce the odds that there is a bad fit and possible early resignation.  They understand the costs of turnover and work to avoid possible problems. 

• Develop a reputation as a “great place to work” — It’s not enough to be a great place to work.  That helps to enhance employee commitment and reduce turnover.  Perhaps more important is the value of creating a reputation in the marketplace for talent as a great employer.  Since employers compete in multiple labor markets, from the local clerical and unskilled markets to national markets for professionals, this should be a well-planned strategic initiative.  The ability to attract the right talent is a critical step in becoming a high performance organization.  
• Invest in individual development — People perform better when they have the requisite capabilities to do their jobs.  They also are attracted to organizations that promise opportunities to grow and progress to higher level positions.  The willingness to invest in individual development sends an important message.  That philosophy should be reflected in policies as well as communications from senior leaders.  Studies show a correlation between the number of hours invested in training and performance.  Employee knowledge and skills can be a competitive advantage. 

One of the more important trends is the reliance on technology and distance learning to facilitate training.  There is also an important trend to focus on individual development needs and learning experiences needed for near-term job success.  Companies have found they can no longer afford to run large groups of people through formal, classroom sessions.  High performance organizations find ways to help support employee development because the investment pays off. 
Individual development is of course not limited to formal training.  Effective learning can take place in many forums and circumstances — special assignments, task forces, job rotation, etc.  Moreover, the importance of individual development needs to be reflected in appraisal systems and in reward practices.  –People need to understand that their development is important to their career progress. 

Learning can also occur on the job when people are comfortable trying new approaches.  It can also occur when people working together are willing to share their know-how.  These behaviors are supported by the culture in high performance organizations. 

Not surprisingly, however, a company’s willingness to invest in development depends on how long employees are expected to stay with the organization.  When turnover is high, the training may only help the employee qualify for his or her next employer.  But the catch is that turnover is lower in companies that encourage and value individual development. 

• Link pay and other rewards to performance — People want to have their contribution recognized.  They want to benefit from their hard work.  They want to share in the success of their organization.  They also need confirmation that good performance is a key to career success. 

Annual salary increases tend to be the focus but there are any number of other tangible and intangible rewards.  Employees need to see the high performers are selected for promotion or special recognition like selection for a high profile task force.  They need to see poor performance is not tolerated.  Poor performers need the support to improve, move to jobs better suited to their abilities, or dismissed. 

High performance organizations tend to have plans that enable employees to share in the success.  Profit sharing or gain sharing plans are prevalent.  Broad-based stock options are also prevalent (although recent changes in accounting rules may change that.).  The tradition in the US is that hard work and business success pay off, and those opportunities enhance employee commitment. 

• Use Performance System to Align Employee and Organization Goals — Outstanding companies take performance management very seriously.  Employees want to know what’s expected and like to know their efforts are contributing to the organization’s success.  They perform at their best when they have a goal — that’s human nature — and they want to see the linkage to the goals of the organization.  If specific goals cannot be defined, the criteria for evaluating employee performance still need to be discussed and agreed upon at the beginning of the fiscal year.  Where it is appropriate, the goals or expectations should focus on team performance as well.  The linkage should start with senior leaders and cascade down level by level.

Employees will accept feedback on their strengths and their developmental needs.  People want to grow and improve and the feedback is essential to their growth.  However, it is important that managers have adequate training in handling these sessions.  It is also important to start when they are first hired so it becomes an accepted part of their work life. 

One still unfolding trend is to assess employees on job-specific competencies — the knowledge, skills, and abilities associated with high performance.  When competencies are used, it is advantageous to define the behaviors associated with ‘star’ performance.  People need to know what they can do to be rated as outstanding.  When competency ratings are linked to pay increases, it’s often referred to as “competency-based pay”. 

An overriding issue — which i far more important than the format for the assessments — is the involvement of managers and employees in its design.  It has to be a management system and serve their purpose, and focus on issues that they see as important.  They need to “live with it” and feel comfortable using it.  If and when problems arise, managers should be asked to develop solutions.  They should “own” the system. 

To avoid concerns about fairness and reinforce the importance of the ratings, some companies have created “calibration committees” and require the group(s) to review and approve all ratings.  The practice minimizes the possible problems that often undermine the credibility of the assessments. 

High performance organizations identify their stars — and celebrate their accomplishments — as well as the few people whose performance is sub-par.  A few companies have adopted forced distribution policies that mandate the percentage of people at each level but to date there is no evidence that this practice contributes in the long run to high performance.  The stars are best identified with a three-level rating scale.  The bottom-line is that employers need to be very clear on who deserves to be recognized and who needs additional help. 

The ratings then have to be linked to the reward system.  That may be automatic but there are many companies where it is not managed effectively.  Ratings can drive salary increases, bonus awards, and promotions.  The best performers have to earn more over time. 

• Confirm the commitment to employment security — No organization can grant an absolute guarantee that jobs will not be abolished.  Employees understand that.  However, the research confirms that they are very unlikely to commit their energies to the success of their employer if they fear losing their jobs. 

The sense of security encourages people to take a longer-term perspective of their jobs and to be more willing to share their knowledge and innovative ideas.  Companies are also more willing to invest in the capabilities of their people when they expect them to stay with the company.  The commitment needs to be translated into policies that employees believe will provide greater security, such as the practice of relying on normal attrition to reduce the payroll or training people in multiple skills to enable them to move to new jobs if necessary.  A commitment to job security also leads to more careful and leaner hiring since managers know they cannot let people go easily or quickly.  The idea of employment security may seem anachronistic in periods of recession but the evidence shows clearly that it pays off in better performance. 

• Minimize status distinctions — Every employee understands that their organization has a hierarchy.  Some people are more important and everyone knows it.  However, when the focus is on job titles, office size and furnishings, special privileges and perquisites, the distinctions make it more difficult for people to interact and exchange ideas.  It contributes to rigid reporting protocols and impedes the flow of information.  At its worst, it results in an “us-versus-them” culture that can be a severe problem.  The experience of high tech firms confirms that organizations can eliminate or minimize the distinctions and that the change in culture benefits the organization.  Executives and managers are often the most resistant — they of course enjoy their status - but that should prove to be a minor impediment
• Make schedules and work arrangements flexible — Surveys show that the majority of larger companies have adopted one or more policies to permit flexible work arrangements — flextime or flexible schedules, telecommuting, job sharing, partial retirement, and compressed workweeks.  There was a time not too many years ago when companies insisted on rigid schedules and time clocks to insure compliance.  That era has largely ended but the distrust that was behind the clocks is still evident in many organizations. 

There are to be sure practical concerns — e.g., customers expect someone to answer phones — but those companies that have studied the options almost always find viable solutions. 

The nuance that differentiates high performance organizations is the recognition that employees need to satisfy their goals and needs.  They understand that it is possible to pursue both the company’s need for success and the employee’s personal needs simultaneously.  There is really no reason to allow traditional thinking about work scheduling to limit the options. 

The old assumption was that people do not like to work so management has to make certain they arrive on time and do not leave early.  Experience shows, however, that when time clocks are thrown out, they tend to come early and leave late.  Experience also shows that when workers are disengaged or angry the fact that they are present and accounted for does not guarantee adequate work efforts.  If it were not for the overtime requirements, the old paradigm could be abandoned. 

The new focus on results and a willingness to empower workers opens the door to allowing employees to develop their own flexible arrangements.  When they understand what needs to be accomplished and the constraints (like telephone coverage), they are fully capable of developing satisfactory answers.  When they ‘own’ the policy, they will work hard to make it successful.  That philosophy will enhance the company’s reputation in the labor market and contribute to better retention

The role of the Human Resource function is not limited to the policies, practices and systems under its control.  That role is important and certainly can contribute to an organization’s success but HR is in a position to influence the way people are managed across an organization. 

Realistically the traditional HR role is disappearing rapidly.  HR is infamous for its focus on paper work and processing personnel transactions - the classic work of Personnel.  That role is rapidly being automated, handled in call centers, or eliminated.  HR specialists have also spent a lot of time monitoring compliance with rules and legislation.  The value of that work is questionable especially if an organization wants to move away from centralized control.  One HR expert, David Ulrich, argues that HR work can be categorized as either focused on transactions or what he refers to as transformation — working to help leaders improve results and deliver value through HR activities.  This new role is still emerging but is clearly the future of HR. 

HR’s Role in Workforce Management

One of the books that stands out from the early 1 990s was Head to Head³ by a prominent economist and former business school dean at MIT, Lester Thurow.  He argued that the long-term success of a company depends on its people.  Every company with a decent business plan can acquire necessary financial resources.  They can also acquire the raw resources.  And it does not take many years for companies to clone or acquire new technology.  “People are the only sustainable source of competitive advantage.”

The research shows clearly that the way people are managed is directly related to the success of an organization.  One study of the survival rates of 136 companies that had an initial public offering (IPO) found that the value the firms placed on human resources was highly correlated with their survival five years after they went public.  The researchers devised two scales - one showing a company’s commitment to sound HR practices and a second focusing on the sharing of reward opportunities across the workforce (e.g., profit sharing or stock ownership plans).  These firms did not have elaborate HR systems so the researchers looked for things like references to employees as a competitive advantage in mission statements or comments on its employee relations climate.  The study findings are compelling - firms that scored high on the HR scale were almost 30% more likely to survive after five years.  The survival rates for those that shared the rewards were more than 40% higher. 

The HR policies and practices, however, are decidedly less important than the management philosophy and the commitment to sound people management.  The philosophy is reflected in the way people are treated and in internal communications.  Much of this has to emanate from an organization’s leaders but over time the HR executive will have to champion the continued commitment and work with members of the executive team to treat their people consistent with corporate values.  Organizations that are known for their leading edge people management strategies typically have highly effective HR executives. 

HR executives may not be accountable for organizational performance but they should be viewed as a business partner and resource for developing the strategies and practices that influence performance.  The performance gains highlighted in the research studies did not happen by accident.  The following general practices are often associated with a high performance organization. 

• Redefine the ‘psychological contract’.  Studies of the people management practices in high performing organizations have found that it emanates from the management philosophy and belief system of top management.  It is useful to declare that philosophy and the beliefs as they relate to the workforce and post it for everyone to read.  Behavioral scientists have coined the phrase “psychological contract” to refer to the informal agreement governing how an employer and its employees behave or are expected to behave toward each other.  The new paradigm redefines the contract and it will be extremely valuable if management is able to articulate the terms of the new contract.  Corporate statements outlining the organization’s commitment to employees and what it in turn expects from them are increasingly common.  HR should take the lead in drafting the document. 
• Treat employee commitment as a business goal — Employee surveys confirmed the linkage between employee satisfaction and customer satisfaction years ago.  High levels of satisfaction contribute to low turnover and absenteeism.  Studies by Gallup and other survey organizations have also found that business units with high levels of satisfaction have higher levels of productivity and profitability. 

Employee attitudes can and should be monitored regularly in the same way that customer attitudes are studied.  Trends are important and if satisfaction levels turn down, early corrective action can avoid problems.  The simple fact is that if employees know top management is concerned with their views, it will contribute to a more positive environment. 

Recent research has shifted the focus to employee engagement or commitment.  Both words are used by consultants to refer to an employee’s emotional feelings about his or her job and employer.  Ulrich offers one definition — employee commitment is “engagement plus dedication.” Using his definition, workers who identify with the goals of the organization and are proud to be there are intentionally engaged.  A dedicated employee is willing to put discretionary energy behind something without being monitored or supervised.  It’s about working hard because the individual believes in the goals of the organization.  Regardless of the semantics, those two actions — intentional engagement and discretionary energy — are evident whenever someone works hard to accomplish something, from a Pete Rose in baseball to the police and firemen who worked to save people on 9/11.

Employee commitment can be a powerful motivator, especially when they work in teams and with people who they know and feel connected to.  When employees are committed to the success of the organization, and know they are trusted to tackle problems, they are willing to do almost anything necessary for continued success.  Of course they experience job satisfaction but that is after-the-fact and not what drives their efforts. 

The research shows that some employees are engaged or committed while others are not.  The mix should be a focal concern for an employer since there is a strong linkage to their work efforts and their performance.  No employer can succeed if too many workers are disengaged.  Increasing the number of engaged or committed workers and developing strategies to retain those people should be a priority. 

• Open communications between management and employees.  The communication of financial or operating facts sends the message that employees are trusted.  When employees know what the company is trying to achieve and have the information to track progress, they are more likely to identify with the goals and to feel they are seen as contributors.  Research shows that companies with more open communications perform at higher levels. 

People perform better when they know the goals and what they are expected to accomplish.  When they have access to performance data and are able to track progress, it gives them a basis for adjusting their efforts and taking corrective action.  That flows from the years of experience with management-by-objectives.  It also is consistent with all the performance charts tacked on walls in quality management initiatives.  People perform better when they know how well they’re doing. 

The flip side is that employees often find out the facts — or some version of the facts — regardless of management’s intent.  Every organization has a grapevine or rumor mill that disseminates job-related information — there are few secrets.  If the rumors relate to pending problems, it can undermine employees’ trust of management.  It’s always better to be candid and to keep employees informed.  In high performance organizations, sharing information contributes to the sense that “we are all this together.”

• Employee work groups should have more autonomy and self-direction.  The concept of self-managed or self-directed teams may not fit every culture but studies of high performance organizations almost always make the style of supervision a critical consideration.  For high achievers, autonomy and control of the work situation lead to greater satisfaction and a sense of accomplishment.  For those individuals, the traditional close, over-the-shoulder supervision would be seen as smothering.  Teams with delegated discretion to act regularly out perform a traditionally organized and managed work group.  And of course the savings when management levels are eliminated fall directly to the bottom line.

The shift to greater autonomy can be successful only in an environment where it is consistent with the level of trust between workers and management.  That can be an insurmountable impediment.  Where they are trusted, most employees enjoy the new freedom to act.  They also like the sense of responsibility and the satisfaction that comes from working together to achieve goals. 

A true team brings together a mix of knowledge and skills that make it possible for the team’s work results to exceed what they may have accomplished working individually. 

No one with the possible exception of a CEO is truly autonomous or self-directed.  But in an organization that has eliminated a level or two of management, flattened the hierarchy, and thereby broadened the span of control of its supervisors, it triggers greater autonomy.  When they can no longer exert the same level of control, managers are forced to change the relationship with their people.  Everyone is likely to be uncomfortable at first but with achievement-oriented people that quickly passes.  It is not uncommon to find that managers have more trouble with the change than their people.  Managers have to understand their new role and develop effective coaching skills.  Once the change is accepted, it is rare that anyone wants to revert back to the old style of supervision. 

• Learn How to Manage Change — The Watson Wyatt study seems to be the only one to look at how well organizations manage change.  A high percentage of employers experience annual changes that can be considered as traumatic, including merger, acquisition, downsizing, and restructuring.  For many, change is ongoing.  The study found that those employers that implement change smoothly and rapidly showed a compound return to shareholders of 75% while those who experienced problems returned only 20%. 

Organizational change that is handled well “boils down to a focus on three things: 1) establish trust in the leadership and where it is taking the company, 2) communicate effectively, and 3) respond to employees’ emotional needs surrounding change.” Management needs to be honest in explaining the reasons why change is needed.  Employees want to know what’s involved and what they can expect. 

If the change is triggered by an economic crisis, companies that manage change effectively try to maintain job security unless it proves to be impossible. 

Change that requires new behaviors is the most difficult.  Then the organization needs to reconsider the supportive HR policies and practices — orientation, training to help employees develop new behaviors, appraisal process that highlights the behaviors, and rewards to reinforce their importance.  If the need for change is frequent, the ability to handle it should be reflected in recruiting strategies.  All HR policies and practices should be reviewed and aligned to support the desired changes. 

A thread that runs through the stories of high performance is the importance of trust.  Leaders first have to trust their people before they will be willing to delegate responsibility for decision making.  In the old paradigm, there was an expectation that workers would somehow take advantage of lax supervision.  More important, however, is the workers’ view of management.  They are unlikely to follow someone they do not trust.  They need to have confidence in their leaders.  Employees want to understand the reasons behind major changes and to know future plans for the organization.  They also want to be able to express their views without the fear of retribution. Trust is essential for an “we’re all in this together’ culture.

Where Do We Stand?

The prospects for improved performance are real.  Some organizations can look for dramatic breakthroughs.  The problem involves several dimensions that are suited to an audit or assessment that identifies priorities and leads to a change strategy.  The strategy will be multi-faceted but each dimension can be tackled as a separate problem.  The work is best handled by internal teams.  They should be empowered to work with management to develop time lines and action plans.  The HR staff should be represented on the teams. 

Redefining the HR Role

The future is not about maintenance or perpetuating old ideas.  It’s also not about downsizing or administrative efficiencies.  Those are no longer winning strategies.  The future is about change and transformation, and HR should have those tools in its bag.  Certainly, no other management function has better credentials.  Line managers are often uncomfortable when people are empowered to think outside of the box.  Many would prefer to focus on their normal job responsibilities. 

However, the role for HR in performance improvement initiatives is not well established.  There is more of a track record in some companies than in others.  GE’s Workout process is undoubtedly the most frequently referenced of the efforts to restructure and improve operations and HR specialists have been regular members of those teams.  But if the experience with reengineering is repeated, HR may not have a role. 

Part of the problem is the way the function is viewed.  HR has too often been off to the side and focused on the traditional administrative, compliance, and service delivery roles.  The offices handling that work are correctly seen as cost centers and the implications obvious.  Fortunately, many of the activities are at some stage of being automated or outsourced.  As necessary as that work is, it ‘stamps’ the individuals involved as administrators.  In a value-added assessment, those do not score high. 

Another part of the problem is the knowledge and skill set required to be good administrators.  The skills to be an effective change agent are very different.  Those individuals who are good at one role are unlikely to be good at the other. 

The HR specialists who become deeply involved in change initiatives will need to be capable in several roles.  At times they will have to be the champions for change.  In other situations they will need to be the facilitator working to make the organization ready for change, to gain the cooperation and buy-in of employees affected by the change, and to help leaders in the development of their game plan.  They will also have to be ready with a broad understanding of how to leverage HR practices to drive performance. 

In the short term, the best strategy to carve out a role for HR in performance improvement initiatives is to set up a separate office focused on those issues.  That should make it possible for the office to develop its own reputation with little of the historical baggage.  It also means the group can concentrate on developing the requisite competencies and working relationships with line managers.  The office can include some of the activities that have been categorized as reengineering but the focus should be people management.  It can be defined as a box under HR although it has to be positioned so that its principals can interact easily with senior management. 

As a more basic reorganization, the HR staff involved in routine administration and compliance work should be set up as a separate office and managed as a service center.  The remaining HR activities can then be refocused on their roles as advisors to management.  The people working in each activity need to understand how their work contributes to the performance of the organization.  It would be advantageous to develop performance goals and metrics to track their contribution and reinforce the new direction.

The list of HR policies and practices that are associated with high performance is a long one.  Realistically there is a need for both generalists who can jump in and contribute the best of HR thinking in any situation and specialists who can develop specific practices to fit a situation.  Each needs to understand how to align the interests of employees and the organization. 

There is also a new role to champion the contribution of employees and assume a shared responsibility for realizing that contribution.  Employee commitment is important and the evidence is clear — HR should be working to enhance that commitment.  HR needs keep the importance of commitment in the forefront of management’s thinking.  They need to understand how its policies and practices affect employee commitment, to monitor employee commitment over time, and to serve as consultants to managers when there are signs of trouble. 

Leadership and effective management are also important to employee commitment.  The ‘troops’ are not going to charge up the hill without effective leadership.  Several prominent companies such as Southwest Airlines were started by charismatic leaders who instinctively relied on high performance practices.  That is not the case with many companies, however, Moving to a high performance culture is very difficult and it would seem to be impossible without effective leadership.  But it’s more than the few leaders at the top.  Change is normally tackled at the local level and those initiatives will not be successful unless someone is able to step up and provide needed leadership.  HR needs to broaden its traditional role in the development of corporate leaders to encourage and support the creation of a culture of leadership at all levels. 

Many companies have adopted policies intended to tap the capabilities of high potential job candidates.  As effective as those policies may be, it sends an unfortunate message — those few individuals and their contribution are highly valued but the performance of the balance of the workforce is not nearly as important.  Needless to say, high performance companies did not realize their success because of a handful of employees, regardless of how talented they may be.  Those companies expect the best from everyone and that is reflected in their workforce management practices.
 
People as the Source of Competitive Advantage

People can be the source when they are managed effectively.  New products or new technologies can win in the short run but other companies can be expected eventually to regain the advantage.  In the long run all other competitive strategies tend to lose their impact.  The companies that remain industry leaders do it because they have superior talent, manage their resources more efficiently, respond to opportunities faster, are more resourceful in tackling problems, are more creative in developing new approaches, or are great at satisfying customers.  Those are all attributable to people and their commitment to their employer’s success.  Any organization that fails to recognize the importance of committed people at all levels will fall to take advantage of its opportunities. 

Organizations are not machines.  The cogs are not interchangeable.  Management cannot be expected to develop all the answers.  The old focus on efficiency is still important but when that is the goal, the drive to get better can make it very difficult to accept change, move in a new direction, or respond to unanticipated problems.  The old work management paradigm should be discarded in every organization.

We need to appreciate how many of our current buzzwords - intellectual capital, human capital, capabilities, talent, knowledge management, and learning organization as examples — refer in some way to people and the knowledge, skills and abilities they bring to the job.  The problem or question is how to leverage their potential to gain and sustain a competitive advantage. 

One of the most striking characteristics that differentiate organizations is the level of energy or vitality that is evident in plant tours or walks through an office building.  In some cases the energy is almost palpable.  Others are moribund and quiet enough to hear the proverbial pin drop.  Energy by itself is not enough; every college football team has energy but the game plan and the talent of the players are also important.  Energy, however, is normally evidence of engagement and that is a key. 

Organizations are made up of people who are working to have successful careers and lives.  They bring all of their abilities to the job every day.  Line managers, HR professionals and staff functions are increasingly interested in how to gain an advantage through their people.  Working harder is still an issue but that will not prove to be a competitive advantage.  The institutional mechanisms for winning are now the policies, practices and systems governing the management of people, for tapping and fully utilizing their capabilities. 

There no doubt will be skeptics for years to come.  Many will be doubtful that workers will be willing to elevate their performance or that HR practices are the key.  They should read a recent book by Jon Katzenbach, Peak Performance: Aligning the Hearts and Minds of Your Employees (2000).  One of his themes is the way the Marine Corps is able to transform typically poorly educated recruits into the dedicated soldiers that are the finest in the world.  The strategies that contribute to peak performance, to use his phrase, are not dependent on education, prior work experience, or chosen career. 

The management of people is certainly not a science nor are the theories and assumptions well proven or universally valid.  But there has been enough experience to develop a game plan.  The creation of a high performance culture is not a simple problem but we know its possible and we know that under the right circumstances people will respond.  Fortunately virtually everyone wants to be associated with a ‘winner’.  They will tolerate miscues.  They certainly do not expect utopia.  They do want respect and honesty - things we all want — and they do want opportunities.  Despite the track record, the expertise to pull this off is the domain of the human resource community. 

Notes

¹ The word ‘paradigm’ is defined as “a set containing all forms of an element” which does not help us understand its usage.  In some respects a work paradigm is like the weather, which encompasses a number of phenomena — temperature, wind speed, relative humidity, etc.  A work paradigm would similarly encompass all elements related to the work environment. 

² The Watson Wyatt studies are reported in the book by Bruce Pfau and Ira Kay, The Human Capital Edge (2002).  Other recent books on leading edge human resource pracbces or the results of research studies include: Jeffrey Pfeffer, The Human Equation (1998), David Ulrich, Human Resource Champions (1997) and L.  Sartain and M.  Finney, HR from the Heart (2003). 

³ Head to Head: The Coming Economic Battle Among Japan, Europe, and America (New York: William Morrow & Co.,. 1992).   

About the author

Howard Risher, Ph.D.  - This e-mail address is being protected from spam bots, you need JavaScript enabled to view it