High Performance Work Systems: Exciting Discovery or Passing Fad?

High Performance Work Systems:Exciting Discovery or Passing Fad?Arup Varma, Institute of Human Resources & Industrial Relations, Loyola University, Chicago; Richard W. Beatty, School ofManagement & Labor Relations, Rutgers University; Craig E. Schneier, Craig Eric Schneier Associates; David 0. Ulrich,University of Michigan

Recently, several organizations

reported implementing high

performance work systems,

with remarkable success. These

HPWSs, as they are becoming known

(as defined by Nadler, 1989), are

primarily aimed at improving

the organization's financial

and operational performance.

A survey of 39 organizations

was conducted to examine the

antecedents, the design, and the

overall effectiveness of these

initiatives. Results indicate that

HPWSs that create a change in

the organization's cultural

behavior (e.g., cooperation,

innovation) and people management

practices (e.g., reward and selection

systems) can positively impact the

financial and operational performance

of these organizations.

26 HUMAN RESOURCE PLANNING

IntroductionDuring the last few years, many organizations

have shown an increa.sing interest in designingand implementing high performance work systems(HPWSs) in order to improve organizationalperformance and productivity. While HPWSmay be the latest buzzword or fad, it is not veryclear what defines HPWSs, and how they aredesigned and implemented. This article reportsan empirical study undertaken to investigate howorganizations are defining HPWSs and the extentof implementation success.

The primary role of an HPWS is to help theorganization achieve a "fit" between information,technology, people, and work (Hanna. 1988;Nadler & Tushman, 1988). In thisconnection, Huber and Glick (1993)have argued that organization designis the sum total of the organization'stechnologies, processes, and struc-tures, and the "fit" is between thesecategories and the external environ-ment. This fit is considered essentialto respond to customer requirementsand environmental dictates, thuskeeping the organization competitiveand financially successful (Tushmanand Nadler. 1978; Brown. 1989:Nadler, 1989). In essence, organizations haverealized that the four major pieces of organiza-tional architecture (i.e., information, technology,people, and work) need to be highly integratedfor maximum efficiency and effectiveness.

Nadler and Gerstein (1992) have characterizedan HPWS as a way of thinking about organiza-tions. Thus, instead of trying to fit people (theemployees) into the existing technological struc-ture within the organization, HPWSs aim to findthe best fit among the four components. This fitleads to optimal utilization of all resources, whilethe emphasis shifts from internal efficiency andeffectiveness to external efficiency and effective-ness, with a constant eye on the customer, andother environmental requirements.

HPWSs are getting to be known by manydifferent names (Neal & Tromley, 1995), suchas high-involvement work systems, flexiblework systems, high commitment/involvementwork systems, etc. However, the basic premiseof all these versions remains the same — creat-ing an internal environment that supportscustomer needs and expectations. This internalenvironment is typically comprised of two broad

The primary role

of an HPWS is to

help the organiza-

tion achieve a "fit"

between informa-

tion, technology,

people, and work.

sub-environments — the social and the technical— and it is the optimum fit between the two thatis the primary goal of HPWSs. White (1994), forexample, characterizes an HPWS workplace asone that "has self-managed teams that designtheir own work methods, have high levels oftraining, and share in financial results." Theemphasis is on a horizontal organization with astrong customer orientation. In addition, some-thing common to nearly all HPWS success storiesis the renewed examination of work — the estab-lishment of what needs to be done (if at all), anddoing it better, faster, and with lower costs.

The literature is replete with examples ofsuccess stories (see bibliography HRPS, 1996).^ ^ ^ ^ ^ ^ For example, Ramcharandas (1994)

discusses the example of Xerox,which has recovered from a down-ward spiral in the 1980s — when itwas beginning to lose market shareand seeing earnings steadily decreas-ing — to a situation in which it hasrecaptured markets from the Japaneseand earnings have been on a steadyupward path. This remarkable turn-around was achieved by creatinga continuous learning environmentand moving from a vertical, control-

oriented hierarchy to a horizontal, empoweredorganization. In this connection, it has beenargued that employee involvement is a key ingre-dient of high performance organization design(Cotton, 1993; Lawler, 1994; Ledford, 1994).

One of the keys to successful HPWS imple-mentation seems to be the way an organizationuses its human resources. In a survey of 700organizations (U.S. Dept. of Labor, 1993), itwas found that firms that used innovative humanresource practices show a significantly higherlevel of shareholder and gross return on capital.Further, among Fortune 1000 companies thatempowered their employees by increasingresponsibility, a vast majority reported increasedproductivity and quahty. Thus, it is evident thatthe primaiy emphasis of HPWSs is on modifyinginternal processes (i.e., work, information, people,and technical structures) that are aimed at satisfy-ing customer needs and expectations.

A majority of the organizations that haveimplemented HPWSs reported meeting withremai'kable financial and organizational successin their efforts. Specifically, research has estab-lished that the use of comprehensive systems ofwork practices is highly correlated with higher

HUMAN RESOURCE PLANNING 27

productivity and stronger financial performance(U.S. Dept. of Labor, 1993). Further, Huselid(1995) reports a strong link between high perfor-mance work systems — mostly human resourcesystems in this instance — and decreased turnover,as well as increased productivity. However, in spiteof the significant positive impact of HPWSs, onlyabout 13% of American companies have actuallyimplemented HPWSs (White, 1994), and eventhen, there is little research on the impact ofHPWSs in the service sector.

The SurveyThe present study was thus designed to assess

the effectiveness of initiatives undertaken todevelop what have come to be known as highperformance work systems, specifically in ser-vices. The focus of our study was on organizationsthat produce goods and services, but primarilyupon the service component in the sense of pro-viding support to those who ultimately deliver theproduct or service. For purposes of this study, weadapted the definition provided by Nadler and hiscolleagues (1992). According to this definition,HPWSs are characterized as self-contained workunits that have, over time, met the ultimate com-petitive test of consistently providing significantvalue to the customer due to the unique struc-tures and processes that provide efficiency andeffectiveness.

In order to design and develop a comprehensivequestionnaire, we conducted a pilot study using alimited number of firms in New Jersey. Once thesurvey questionnaire was finalized, we set aboutidentifying organizations that would be contactedwith a request to participate in this study. Over1,500 organizations were contacted. These orga-nizations were identified from several sources,including the annotated bibliography (HRPS.1996), which was based on an exhaustive litera-ture search. In addition, we contacted nearly allthe members of The Human Resource PlanningSociety (n = approx. 1.200). The survey was sentto the over 1,500 organizations thus identified. Theinitial mailings were succeeded by a follow-up callto each company, where the relevant individual(s)were contacted with a request to participate inthe study by experiencing a rather lengthy tele-phone interview and forwarding us firm-specificdata. Thirty-nine fu'ms met our criteria for serviceHPWSs and responded to our survey, and ourfindings are based on the aggregate responsesof these firms.

DemographicsThe respondent firms had an average (mean)

of 18,000 employees, with a range of six (e.g.,a small personal services company) to 300,000(e.g., a telecommunications giant) employees.However, while HPWSs may often be initiatedby large firms, it is clear that firms of any sizemay be involved in such of such initiatives(median = 6,000). In terms of area of business,the firms we surveyed were arrayed in suchdiverse markets as insurance, telecommunications,food processing, consumer goods, power, andagricultural services, though our emphasis wason the service units of these businesses.

Impetus for HPWSOne of the issues we were interested in investi-

gating was the factors that led to the implementa-tion of HPWS in the organizations surveyed. Mostfirms reported that the decision was based on acombination of internal and external stimuli. Inthe case of internal stimuli, HPWS was stalledmostly as a part of an overall corporate plan oftendue to a failure to halt declining levels of opera-tional effectiveness. However, a sizable numberof firms reported that change in leadership, perhapsdue to less than favorable business results, wasoften the major impetus behind implementing anHPWS. In the case of extemal stimuli, customersand new competitors were reported as the majorfactors behind the decision.

In terms of specific expectations from theHPWS initiatives, the organizations surveyed listedimproved efficiency and reduced costs as theprimary financial outcomes. In addition, severaloperational outcomes were listed as necessaryto achieve the financial outcomes, includingcustomer success/satisfaction, improved speed,improved quality, and improved productivity.Finally, in order to achieve the aforementionedoperational outcomes, an increase in the levelsof a number of workforce initiatives was cited asessential. The initiatives listed included empower-ment, job security, risk-taking, innovation, andteamwork. Thus, it is clear that human resourcepractices were expected to have a major impacton the operational outcomes of these organizations.

Earlier Attempts to Implement HPWSsAbout one-third of the firms surveyed had

made earlier attempts to implement HPWSs, andin nearly all these cases, the HPWS hiitiative wastried in the same unit. About thiee-fourths of


those that had made earlier attempts to implementan HPWS reported their earlier attempts assuccessful. These earlier attempts were reportedto have taken an average of about four years. Atthe same time, earlier success did not automati-cally guarantee success in future attempts toimplement HPWSs. For example, TrinovaCorporation reported tremendous success in theHPWS initiatives in their Aeroquip Inoac unit(HRPS. forthcoming). Hou'ever. future attemptsat similar initiatives in other units have reportedmixed results. This may be attributed to differingcircumstances found in the other units, such asthe people management processes, the culture,and/or the design of the new initiative.

In connection with previous initiatives, someof the organizations also reported meeting withresistance. The source of this resistance wasspread across the organization, though it cameprimarily from supervisors and middle-level man-agers. The present initiatives, too, met with someresistance from within the organization. Over halfthe firms responding to our survey admitted thatthey had faced some resistance in their currentefforts. Overall, the level of resistance to the pre-sent effort was slightly higher than the earlierattempts. This resistance was typically manifestedthrough work slowdowns, reluctance to acceptproposed changes, and information filtering. Interms of the source of resistance, the earlier patternwas repeated. While the resistance came from allsources, the bulk of it was concentrated in thesupervisory and middle management cadres. Assuch, it is clear that a previous attempt at imple-menting HPWSs does not make the second effortany easier.

Design of an HPWSThe design of ihe present HPWS initiatives

had several components. Nearly two-thirds of thefirms sui-veyed used some form of external assis-tance in the design of their HPWSs, mainly in theform of consultants. However, in most cases, theexternal consultants had littie or no role in theimplementation of the HPWS, with their primaryrole concentrating on diagnosing the problem,helping with work design, and conducting training.

In nearly 70% of organizations surveyed, indi-viduals played specific role(s) of the champion orsponsor of this initiative. Of these firms, nearly90% reported that the champion/sponsor was amember of top management, who took on the roleas part of his or her regular work role, and spent

between 25% and 50% of his or her time on thisinitiative.

Twenty-seven of the 39 firms surveyed reportedcreating teams as part of the HPWS initiative.Several teams were created, with nearly half theorganizations surveyed reporting the creationof more than five teams for this purpose. On theaverage, the teams had nine members, and werecomprised of members from various departmentsand nearly all levels within the organization,including top management, staff professionals,shop-floor employees, middle management,clerical/support staff, and union members. Eighty-five percent of the firms provided some form oftraining for the HPWS initiative, with the majorityconcentrating on training in work design, groupproblem solving, meeting management, andteamwork. The training was typically an ongo-ing process, with organizations reporting havingprovided training at the diagnosis, design,implementation, and evaluation stages.

A detailed project plan typically preceded theinitiative, prepared for the most pail by a combi-nation of top management, middle management,staff professionals, and consultants. In addition,organizations reported using a variety of tools andtechniques in the implementation of the HPWSinitiative, such as process redesign, total qualitymanagement, communication, team building,group process, and self-managing teams.

Overall, all 39 organizations reported theirefforts to be successful, with varying degrees ofsuccess. The following sections provide specificfindings of the survey, in terms of the culturecreated by the HPWS, the impact on humanresource practices, and the overall impact ofthe HPWS initiative on the organization's perfor-mance. This is followed by a discussion of theimplications of these fmdings for organizationsthat may be considering designing and/or imple-menting HPWSs.

Culture Created by the HPWSExhibit 1 presents correlations for the individ-

ual culture items with two statements measuringthe overall impact of HPWS on financial andoperational performance of the companies. Fromthis table, it can be seen that a large number ofcorrelations are significant at the conventionallevel (significance level less than .05). In addition,we can see the magnitude of correlation for eachculture item with both financial and operationalperformance. The magnitude of correlation and


Culture Created by the HPWSFinancialPerformance

Practice

Focus on business strategy

Used systems design

Encouraged innovation

MeasureJ internal customer service

Measured external customer service

Promo led cooperation

Changed value system ot'unil

Resulted in liigh trust levels

Innovation made part ofemployee behavior

Focu.sed leader behavior on employeeand business needs

Resulied in increased delegation

Resulled in higher workplace safety

Mean S.D.

3.89

4.08

3.17

3.59

4.32

3.97

3,78

3.39

3.86

3,38

3.09

0.77

!.O8

0.76

1.23

1.28

0.71

0.94

0.87

0.96

0.82

0.89

1.34

.47

.30

,30

,!2

,08

.60

.56

.46

,37

.46

.23

,30

S I '

.00

.09

.09

,52

.64

.00

.00

.01

.03

.01

,19

,09

OperationalPerformanceR2'*

,11

,41

.29

.51

.39

.42

.60

.63

,61

.58

.46

-37

,51

,02

.09

.00

.02

,01

,00

,00

,00

,00

.01

.03

1 Mean ruling and standard deviation by survey respondents to euch ululetnenl with a scale ranging from I = complete disagreement to5 = complete agreement

2 Correlation of agreement rating with a statement measuring overall impact of HPWS on the financial performance of ihe organization3 Statistical Significance4 Correlation of agreemenl rating with a statement measuring overall iinpact of HPWS on the operational performance of the organization5 Statisrical Significance

EXHIBIT 2

the way the item correlates with financial andoperational performance provides useful informa-tion from a practical perspective. It tells us therelative importance of each of these items to bothtypes of performance.

Based on this criterion, we can see that a num-ber of organizational culture practices are criticalfor both financial and operational performance(e.g.., cooperation and trust), while some practicesare significantly related to financial (e.g., businessstrategy) or operational performance(e.g., increased delegation) but notto both types of performance. Acloser look at each of these prac-tices can help explain their potentialrole in organizational performancelevels.

Exhibit 2 presents the list oforganizational culture practices thatare deemed critical for achievingoperational and/or financial success.Overall, it is clear that the datapresented here suggest that changingthe culture of the organization can bean effective way to improve financial

and operational performance. Specifically, afocus on business strategy seems to have astrong relationship with financial performance ofthe organization, but not with operational per-formance. This finding confirms the notion thatorganizational business plans are typicallygeared toward improving the bottom line, butoften fail to be concerned with operationaldetails: "We need to get from here to there, butwe don't care how."

Effective Organizational Culture Practices*'' = significant positive reliitionship

i FinancialPractice

business strategyUsed systems designMeasured internal customer serviceMeasured external customer serviceResuSted in increased delegationResulted in higher workplace safetyPromoted cooperationChanged value system of unitResulled in high trusl levelsInnovation made part

of employee behaviorFocused leader behavior on

employee and busine,ss needs

Performance

•

•••

•

•

OperationalPerformance

••••••

•

•

•


On the other hand, using a system design in"the way the work is done" has a strong relation-ship with the operational performance of theorganization. Given that operational performanceis defined, in part, by the quality and speed atwhich work is done, this is an important finding.Next, emphasis on customer service (both internaland external) again has a positive effect on theoperational performance of the organization.Thus, emphasizing the company's commitmentto customer orientation can lead to significantimprovements in the quality of service provided.

Not surprisingly, increased delegation has asignificant positive relationship with operationaloutcomes. Once again, this confirms the notionthat employees feel empowered by increased del-egation, and this empowerment can lead to signif-icant improvements in the operational outcomesof the organization. This is an important findingworthy of attention. The data .suggest that organi-zations that make a conscious effort to increasedelegation of work are likely to benefit byimproving their operational outcomes. As anexample. Trinova Corporation (HRPS, forth-coming) allowed employees, in the final assemblyarea of their Aeroquip Inoac unit, to make changesin their work area layout and processes, resultingin significant improvements in productivity andquality. Buoyed by the initial success, manage-ment allowed employees to continue exploringways to improve the processes and layout in theirwork area. This resulted in several iterations in-volving significant changes, resulting in improvedquality and increased productivity each time.

Thus, it is clear that when employees are givenmore responsibility (through increased delegation),they feel empowered. This feeling of empovv'er-ment leads them to identify and suggest changesin the work place (e.g., modifying processes) thatcould lead to improved operational performance(e.g., speed, quality of work, etc.). Exhibit 3

presents a model of the impact of delegation onoperational performance.

The final cultural practice that has a significantrelationship with operational performance (butnot financial performance) is workplace safety,and our data suggest that improvement in safetylevels can result in improved operations.

The third set of cultural practices have signifi-cantly strong relationships with both fmancialand operational outcomes. This means that thesepractices may help organizations improve bothfinancial and operational performance. The firstpractice listed in this category is the notion ofcooperation. Clearly, an improvement in thelevels of cooperation between all employees willlead to improvements in the way that work isdone (operational outcomes), but, more important,this also has a strong impact on financial outcomes.While the impact of cooperation on fmancial out-comes may not seem obvious, it should be notedthat these two are highly correlated — thus, animprovement in one is accompanied by animprovement in the other. A positive change inthe value system of the business unit and highertrust levels are also associated with positivechanges in both types of organizational perfor-mance. Similarly, making innovation a normalpart of employee behavior can lead to improve-ments in financial and operational performance.Finally, focusing the supervisor's behavior onbusiness and employee needs can help the organi-zation grow tremendously. Too often, supervisorsconcern themselves too deeply with businessneeds, ignoring employee needs. This can havea negative impact on their performance, whichcould negatively impact organizational perfor-mance. Our fmdings suggest that supervisorsshould pay close attention to both business andemployee needs to achieve improved performancefor the organization.

A Model of the Impact of Delegation on Operational Performance

reelings ofEnnpowerment

HUMAN RESOURCE PLANNING 3 \

EXHIBIT 4

People Management Processes (PMP) Created by the HPWS

PMP Practice

Rewarded internal customer service

Rewarded external customer service

Used team-based rewards

Used individually based rewards

Used financia! rewards

• Used non-fijiancial rewards

Compensated competency growth

Helped inienial/exienial recruitment

Used rigorous seiectioit proce.ss

; Used multiple selection mechanisms

• Trained selectors

Supervisors held responsible foremployee development

Rewarded empEoyee learning

Tracked competency growth of employees

Set perfonnance improvement targeisi.;:for employees

.Agreement'

Mean S.D.

3,31 1.13

3.62 1.16

3.29 1.19

2.91 1.24

3.06 1.32

3,29 1.14

2.70 1.36

2.59 1,35

3,12 i,24

3,06 1.34

2.85 !,42

3,09 ! ,25

3.27 1.15

2.19 1,19

3,34 !.O8

FinancialPerformanceRP

.31

.24

,37

.14

.25

,42

.52

.10

.30

.30

.29

.16

,46

.26

.18

SV

.08

.19

.03

,43

.17

,02

.00

,59

.10

.10

,11

,37

.01

,14

.32

OperationalPerformanceR2^

.54

.45

.49

.19

.28

.51

.63

,33

.52

.51

.42

,00

.59

.37

.27

S25

.00

.01

.00

.28

.11

.00

.00

.06

.00

.00

,02

.99

.00

.03

.12

by survu) icniN In each statement wiili a si;:ili; ranging IVum 1 = conipleie1 Mean rating ami sl;indLird ik5 = completf ugrecnicni

2 Correlation of agreemenl rating wilh a staienienl measuring overall impact of HPWS on the financial perfonnance of [he organization3 Stafi.stical Significance4 Correlation til" ugreernent rating wiih a statement measuring overall impact of HPWS on the operational performance of the organizalion5 Statistical Significance

Human Resource PracticesSince one of the keys to a successful HPWS

is the optimal and proper utilization of humanresources, we were very interested in investigatingthe impact of the HPWS initiative on the peoplemanagement processes (HR practices) of thefirms surveyed. Exhibit 4 presents means andstandard deviations for items relating to the peoplemanagement processes created by the HPWS. Inaddition, like Exhibit I, Exhibit 4 presents corre-lations for the people management processes cre-ated by the HPWS with the two items measuringfinancial and operational performance.

Survey results in Exhibit 4 indicate that usingteam-based and non-financial rewards is closelyrelated to improved financial and operationalperformance. Similarly, compensating employeesfor improving their competencies and rewardingthem for learning also leads to improved perfor-mance on both counts.

On the other hand, rewarding internal andexternal customer service can lead to improved

operational performance, though not financialperformance. This mirrors the results found inconnection with organizational culture practices.

Increased attention paid to the selectionprocess (e.g., multiple selectors, training selectors,etc.) revealed a similar pattern of results. In thisconnection, Trinova Corporation (HRPS, forth-coming) reports adopting a very unique selection.system whereby prospective employees are hiredthrough a temporary employment agency for a60-day trial period in order to better acquaintthemselves with the job requirements. At the endof this trial period, current employees are alloweda chance to provide peer reviews to the prospectiveemployee, and problems faced by the employeeor the organization during this period are dis-cussed openly. The prospective employee is thenallowed another trial period of 30 days, at the endof which discussions on regular employment areconducted. Employees who pass the trial periodare offered regular employment, while those whodo not are referred back to the temporary agency.


It may be a result of this unique system thatabsenteeism in this unit is about 1.5% and turn-over is about 3%, both well below the industryaverage.

Finally, tracking the competency growthof employees has a strong relationship withoperational performance but not with financialperfomiance. This finding merits some discussion.As organizations track employee competencygrowth, the increased attention paid to theemployees could lead to conscious efforts on thepart of employees to "grow their competencies."It seems obvious that this improvement inemployee competency would then result inimproved operational performance (Beatty,Dimitroff- & O'Neill, 1995).

EXHIBIT 5

Effective OrganizationalCulture Practices

= significant positive relaiionship

Practice

Rewarded inicmaicustomer service

Rewarded externalcustomer service

Used rigorousselection process

Used multipleselection mechanisms

Trained selectors

Tracked competencygrowth of employees

Used team-basedrewards

Used non-financialrewards

Compensatedcompetency growth

Rewarded employeelearning

FinancialPerformance

•

•

•

OperationalPerformance

•

•

•

•

••

•

•

•

•

The data presented here suggest that organiza-tions can improve both financial and operationalperformance by revisiting their human resourcepractices. Thus, managers and organizationswould do well to pay close attention to HRpractices and the impact they may have onoperational and financial performance. In Exhibit5, we present a list of HR practices that seem togo hand in hand with operational and/or financialperformance.

Overall Impact of HPWSsAn important finding in this survey was the

significant improvement in the competitive advan-tage position of the organization/unit subsequentto the implementation of the HPWS. In most casesthe organization was fairly competitive prior tothe HPWS {m = 2.8L s.d. = 0.93): however, thisposition improved significantly (m = 4.07, s.d. =0.70} after the HPWS. Thus, it seems that HPWSsare primarily initiated by strong firms that areseeking to become stronger. While it was clearthat organizations participating in our surveyreported that the HPWSs in their organizationsmade them stronger and more competitive, wewere interested in identifying specific areas ofthe business where the HPWS had a significantimpact. Accordingly, the final section of our sur-vey (titled "Impact of HPWS") contained ques-tions on several key areas of business, includingfinancial and operational performance, job satisfac-tion, communication processes, and work design.

Exhibit 6 presents the means and standarddeviations for all of these items. In addition, wealso present the intercorrelations among all theseitems; this helps to understand the degree towhich these areas go hand in hand. The datapresented report several key fmdings. First andforemost, firms reported that HPWS had a signifi-cant impact on the financial performance of theorganization. Thus, as expected, HPWSs didsuccessfully impact the bottom line in a positivedirection. In addition, the operational performanceof these organizations was also significantlyinfiuenced by the HPWS, in a positive direction.As such, the quality of work, the speed at whichwork is done, productivity, and customer satisfac-tion also improved significantly.

Next, the HPWS effort caused a positiveculture change in the organization. Employeesalso reported significantly higher levels of jobsatisfaction and that communication processeswithin the organizations improved markedly.Finally, the HPWS positively infiuenced the waywork is designed within the organization/unit,often reflected in the move from a hierarchicalstructure to a flatter, more horizontal, organization.

Further analysis of the data presented inExhibit 6 reveals several additional importantfmdings. Job satisfaction, for example, is signifi-cantly related to both financial and operationalperformance and all other processes infiuenced


Overall Impact of HPWS -Table of IntercorrelationsMean

II

n

13

14

15

17

18

s.u.0.97

0.83

1.57

1.42

0.78

0.75

1.20

0.87

1.09

n--

.39(.02)

.28(.10)

-.10(.56)

.68(.00)

.53(.00)

,53(.00)

.63(.00)

(.04)

12

.09(.60)

-,04(.84)

.67(-00)

.50(.001

.68(.00)

.56(.00)

.54(,00)

13

-

-.46(.01)

.34(-05)

.46(-01)

.26(.14)

,07(,71)

.26(.!5)

14

-.11(.54)

-.09(.61)

.08(.65)

-.06(.72)

-.05(,78l

15

.63(.00)

.63(.00)

.68(.00)

,70(.001

16

.57(,00)

.42(.01)

,48

(,(K)I

17

--

.45(-01)

,.̂ 4(.00)

--

,58(.00)

19

3.66

3.94

2.06

2.60

3.67

3.89

3,67

3.86

3.91

j f = Infiiienced financial perfonnance; 12 = Caused culture change: IH = Ixil lo increfLse in loliil number of employees

14 = Led 10 decrease iii loial number of employees: 15 == Influenceii operaiidnal perfomianL-e: 16= inlluenced job saiisdiciioii

17 = Influenced hierurchy/Mnicmn;: 18 = Influenced comjiiunicalion proc:esse,s; 19 = tntluenccd work design

Note: Slaiistica! nigniSeance levels aie in parentheses

EXHIBIT 7

The Impact of Employee JobSatisfaction on Financial and

. Operational Performance

PerformanceLevels

Job Satisfaction

Note: Financial PerformanceOperational Performance

by the HPWS.. except decrease in total number ofemployees in the organizations. Regression analy-ses (conducted to estimate the causal impact ofsatisfaction on performance) revealed that jobsatisfaction had a significant positive impact onboth financial performance (F = 8.98, p < .01)and operational performance (F = 8.23, p < .01)of the organizations. Thus, managers would dowell to identify cultural and HR practices thatmight help improve employee job satisfaction,since higher levels of job satisfaction could leadto improved financial and operational performancefor the company (see Exhibit 7).

We noted earlier that a reduction in workforcesize has a negative (or insignificant) correlationwith all other organizational processes (see Exhibit6). Thus, any decrease in the number of employeeswith a view to improving organizational perfor-mance could lead to the opposite effect — that is,a decline in financial and operational performance.The good news here is that a significant increaseor decrease in the number of employees was notreported by organizations participating in our sur-vey (m = 2.06 and 2.60, respectively). This is animportant finding given that employees are oftenconcerned that initiatives such as HPWSs are reallyaimed at a reduction in workforce.

34 HUMAN RE5OURCE PLANNING

ConclusionsThis survey was conducted with a view to

studying the effectiveness of HPWSs withinorganizations. It was designed to answer someimportant questions: What kinds of organizationsare implementing HPWSs? What changes inorganizational culture and human resource prac-tices occur as a part of the HPWS process? Whatis the impact of HPWSs on the financial andoperational performance of these organizations?

It is clear from the above fmdings that HPWSsare an effective mechanism to change the waywork is done within organizations. Specificallyfor the service sector, the emphasis on customersatisfaction and financial/operational success canbe fulfilled by implementing properly designedinitiatives with involvement and commitmentfrom all corners of the organization and/or theunit in which the effort is implemented. Thesedata can be used by organizations as u guide tothe nuts and bolts of designing and implementinga successful HPWS.

However, some caution is required beforeorganizations rush to design and implementHPWSs. For example, one of the key questionsoften asked is. What human resource practicesare essential for a high performance workplace?As Gephart {1995) notes, research has not clearlyidentified any single set of such practices.Organizations have tried a number of approachesto create a high performance workplace, withvarying degrees of success. However, as shepoints out, "effectively managing people is a keyto all the mechanisms" that organizations mayemploy to achieve high performance.

On this issue, the data presented here providesome suggestions. For example, team-basedrewards need to be implemented to go hand inhand with the need for teams. It is also clear from

The Impact of Teams onOrganizational Performance

m^Outcomes

GroupTeams

Group IINo Teoms


OperationalPerforroance

Mean S.D,

"3772^ ^ 6 ^

.99

Mean

"3750"'

S.D.

3.63 .74

our results that a majority of the organizationsbelieve that teams do work and are most often anintegral part of the HPWS process. As an exam-ple, MetP&C (HRPS, forthcoming) attributed itssuccessful implementation of an HP^VS to the factthat a team was established for this purpose, andthat this team included members frora all over theorganization in terms of function and level. Thecompany suggested that the cross-functionalnature of the team allowed for easier flow of rele-vant information, while also resulting in a betterunderstanding of the nature of work done in eachfunction/unit, thus creating cohesiveness andmutual cooperation.

However, Jiirther analyses of our data revealedthat there were no significant diffeninces (seeExhibit 8) in terms of financial and operationalsuccess between organizations that bad formedteams for the purpo.se of an HPWS, iind those thathad not. This is an interesting finding, and worthsome discussion. If having teams take on theresponsibility of implementing the HPWS initiativedoes not significantly add to the possibility ofsuccess, are teams really needed for this purpose?Where teams are formed, members are oftenrequired to devote a majority of their lime towardthe team goal, which in effect takes them awayfrom their regular assignments. In addition, forteams to be successful, team-based lewards needto be developed and implemented. However, if thesame level of outcomes can be achieved withoutthe formation of teams (as our results suggest),maybe organizations would do well lo criticallyexamine whether the formation of teams is necessary.

The data further suggest that custcimer service(both external and internal) needs to be rewarded,and other similar desirable behaviors reinforcedthrough appropriate measures. As an example, thesecretary in the Executive Vice President's officeat Continental General Tire saved ths companyjust under $100 by ordering donuts lor one oftheir meetings from an outside vendor instead ofthe office cafeteria (HRPS, forthcoming). Clearly,this is a small amount for a company with NorthAmerican sales of over $1 billion. Eiut this actof cost savings on the part of the secretary didnol go unnoticed; she was cited for a rewardand honored appropriately. Company executivesbelieve rewarding customer service leads toa sense of ownership, which in turn re.sults inbetter performance overall.

Note: i-iesis Inr comparison of means revealed chat these means arenot significanllv differeiii from each olher.


Finally, attention needs to be paid to the areaof performance management, as this seems toplay an important role in the success of theHPWS initiative. For example. Popular Products(HRPS, forthcoming) has established a cascadingthree-step performance management system. Thefirst stage involves establishing the long-termobjectives of the company based on the strategicplan. The next step involves devising the currentyear's business plan in order to meet the long-term objectives. Finally, a performance plan isdeveloped for each employee, so it is clear whathe or she needs to do during the year to meet thecompany's objectives. According to executives atPopular, it is this link between the company'sstrategic goals and individual performance goalsthat enables employees to understand the impactof their performance on the success or failure ofthe company.

In essence, it is clear that the better the fitbetween people and work, information, and tech-nology, the higher the likelihood of a successfulHPWS. Clearly, HPWSs do focus on "the waythe work is done'" through creating flexible workorganizations that adapt the people and the techni-cal systems to each other, rather than trying to fitthe people to the technical system. As Harrington(1991) points out, attention in the process is oneof the key ingredients to a successful HPWS.

EXHIBIT 9

The Impact of Extemal Assistanceon Organizational Performance

Outcomes


OperationalPetfonnance

Group IExternal

Assistance(N = 24)

Mean S.D.

Group IINo ExternalAssistance_(N_= IS)

Mean S.D.

3.75 .85 3.73 .78

3.53 1.13.

Note: l-iesLs for comparison of means revealed ihai ihese meansare not significanily different from eauh other.

Further, HPWSs need to be very focused andclearly linked to the business strategy, and theproposed steps need to be clearly laid out.Lifecycle and other strategic choices need tobe made prior to the initiation of the effort.Benchmarking may not be very essential to theeffort, as most successful organizations reportedsuccessfully "inventing the process." Further,extemal assistance does not seem to be a major

requirement for the success of this initiative.While many of tbe firms surveyed reported usingexternal assistance, there were no significantdifferences in the outcomes between firms thatutilized external assistance and those that didnot (see Exhibit 9).

Training, however, is a key ingredient in thisprocess, and all the individuals involved with theHPWS initiative need to be provided with ongoingtraining. While some of the training mightneed to be provided prior to initiating the effort,the most successful organizations report ongoingtraining in areas such as problem solving,time/ meeting management, communication,and process redesign.

Overall, it is clear that token changes will notresult in creation of the desired high performanceworkplace. Thus, for example, implementinga team structure without explicitly establishingteam-based rewards will not result in a high per-forming workplace. As such, organizations needto completely overhaul "the way work is done" inorder to create a high performance workplace, sothat the results are real and tangible. Further, asHuselid (1995) argues, organizations using a com-bination of high performance work practices willperform better than those that deal with it on apiecemeal basis.

If organizations design and implement HPWSswith our findings and recommendations in mind,the likelihood of creating a high performanceworkplace would seem to be very high. The bene-fits of HPWSs are many. Organizational cultureand value systems can be changed for the better,and higher levels of cooperation and improvedcommunication are direct results. In addition,substantial positive improvements in fmancial andoperational outcomes can be achieved. However,since the whole process is dependent on the com-mitment and involvement of the people in theorganization, the key is to successfully managethe people within the organization through opencommunication and participation.

Finally, a note of caution: organizations needto be aware that HPWS initiatives are likely tomeet with resistance and that this resistance couldcome from any level within the organization.But, as our survey shows, this resistance is notdetrimental to tbe effort, since all organizationsreported high levels of success in their efforts.Based on our fmdings, it is suggested that clearcommunication and high employee involvementmay reduce the resistance substantially and leadto a successful HPWS.


Biographical SketchesArup Varma, Ph.D., (Rutgers University - 1996)is Associate Professor at the Institute of HumanResources and Industrial Relations at LoyolaUniversity-Chicago. His research interests includethe examination of cognitive processes in perfor-mance appraisals, leader-member exchange, thetreatment of individuals with disabilities in theworkplace, and high perfommnce work systems.His research has been published in leading journalsincluding Personnel Psychology, Journal of AppliedPsychology, Human Resource ManagementReview, and Human Resource Planning. Hehas also consulted with several organizationson strategic and organization development issues.Prior to returning to graduate school for hisdoctorate, he worked for two of India's leadingcorporations in the human resource field.

Richard W. Beatty, Ph.D^ is a Core Facultymember at the University of Michigan's ExecutiveEducation Center. He serves as faculty memberand course developer for the certification programof the American Compensation Association. Asanuuiagement consultant, he has worked with wellover half of the Fortune 100 firms. His specialtyis working with organizations to design and imple-ment strategic change initiatives. Dr. Beatty hasauthored (or coauthored) more than 120 articlesand papers and written and edited several books.He is an Associate Editor o/" Human ResourceManagement and has served on the editorialboards of the Academy of Management Journal,Human Resource Planning, and The Journal ofHigh Technology Management.

Craig E. Schneier, Ph.D., heads his own manage-ment consulting firm in Princeton, NJ. The firmspecializes in assisting organizations execute .strat-egy and change culture, as well as enhance theeffectiveness of the HR systems. Dr. Schneier hasheld consulting positions with Ernst and Young,Booz'Allen, ODI, and Sibson. He has been on thefaculty of the University of Maryland, University ofColorado, and Columbia University. Dr. Schneierhas been co-author or co-editor of over 100articles and several books, including ManagingStrategic and Cultural Change. He has consultedwith over half of the Fortune 100 companies.

David O. Ulrich, Ph.D., is Professor of BusinessAdministration and Co-Director of HumanResource Programs at the University of Michigan.He is also editor of the Human ResourceManagement Journal, and has published morethan 50 publications on strategy implementation.

organizational theory, competitiveness!, leader-ship, and human resources. He is coauthor ofOrganizational Capability: Competing From theInside Out, The Boundaryless Organizafion.and his most recent book is Human FLesourceChampions. He has continued interest in Inte-grating academic research and organizationalpractice, and has done research for and consultedwith over half of the Fortune 200.

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Husehd, M.A. 1995. "The Impact of Human Resourc; ManagementPractices on Turnover. Productivity, and Corporate FinancialPerfbrmanee." Academy of Mamigement Jimniut, 38: 635-672.

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HUMAN RESOURCE PLANNING J 7

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High Performance Work Systems: Exciting Discovery or Passing Fad?