Published by the Department of Trade and Industry. www.dti.gov.uk

© Crown Copyright. URN 05/665; 02/05

ACHIEVING BEST PRACTICE

IN YOUR BUSINESS

High Performance WorkPractices: linking strategyand skills to performanceoutcomes

IN ASSOCIATION WITH

The DTI drives our ambition of‘prosperity for all’ by working tocreate the best environment forbusiness success in the UK.We help people and companiesbecome more productive bypromoting enterprise, innovation and creativity.

We champion UK business at homeand abroad. We invest heavily inworld-class science and technology.We protect the rights of workingpeople and consumers. And westand up for fair and open markets in the UK, Europe and the world.

Achieving best practice in your business is a key

theme within DTI’s approach to business support

solutions, providing ideas and insights into how

you can improve performance across your

business. By showing what works in other

businesses, we can help you see what can help

you, and then support you in implementation.

This brochure focuses on these solutions.

Acknowledgements

High Performance Work Practices:linking strategy and skills toperformance outcomesWritten by Johnny Sung and David Ashton

We would like to thank the many people whohave contributed to the research effort thathas gone into this report. Special thanks goto the companies who were involved in thesurvey and case studies, without whom theresearch would not have been possible.

We are also grateful for the support of theCIPD, especially Victoria Gill and JessicaJavis, who facilitated the survey for us.Jonathon Austin and Aman Grewal of BestCompanies were invaluable in ensuring thesuccess of the case studies. We would alsolike to thank Martin Quinn at the Centre forLabour Market Studies for coordinating thelogistics of the survey.

Thanks also to Nigel Crouch and Sam Hannaof the DTI for their support and BarrieOxtoby, Susan Anderson, Peter Robinsonand Anthony Ridding for commenting on thebusiness relevance of the case studies.

Johnny Sung is currently Senior ResearchFellow at the Centre for Labour MarketStudies at the University of Leicester. He haspublished extensively on national educationand training systems, workforcedevelopment and workplace learning.

David Ashton is Emeritus Professor at theCentre for Labour Market Studies of theUniversity of Leicester. He has publishedextensively in the field of internationalhuman resource development and hasadvised national governments andinternational bodies on human resourcedevelopment policy.

The CIPD explores leading-edge peoplemanagement and development which aimsat sharing knowledge to increase learningand understanding among human resourceprofessionals. Our purpose is to makepeople more effective in their jobs andenhance their contribution to the business.

We produce many resources on peoplemanagement and development includingguides, books, practical tools, surveys andresearch reports. We also organise a numberof conferences, events and training courses.To find out more please visit www.cipd.co.uk.

Best Companies Ltd. researches workplacepractices and compiles the national andregional “Best Companies to Work for” lists.We use this research and in-depthexperience to help companies look after theirpeople and deliver better organisationalperformance.

To find out about participating in the lists, orabout our work with companies, please visitour website www.bestcompanies.co.uk or callus on 01978 856222.

01

0302

03 Executive summary

05 The background to the study

10 The 2004 HPWPs survey

18 The case studies– What can we learn from the

case studies? – How different are HPWPs? – How many HPWPs are needed? – Different HPWPs are likely to be used

in different sectors and to achievedifferent business outcomes

– The importance of people and people policies in HPWPs

– The importance of leadership in HPWOs

– What is the business case foradopting HPWPs?

– Does high pay necessarily guaranteethe creation of a HPWO?

– The nature of skills in a HPWO – Implementing HPWOs and

managing change

22 The ten case studies 24 Aspect Capital 29 Bacardi & Martini UK 34 Data Connection 38 Flight Centre 43 i-level 48 Pannone & Partners 53 Quest Diagnostics 57 St. Luke’s 62 Timpson 66 W L Gore

70 Conclusion

72 References

include appraisals, flexible working andother practices that deliver business results.

A widely accepted definition of HPWPs isthat they are a set of complementary workpractices covering three broad areas. Thesebroad areas are sometimes referred to as‘bundles’ of practices and cover 35 workpractices in this research:1. High employee involvement practices –

e.g. self-directed teams, quality circlesand sharing/access to companyinformation.

2. Human resource practices – e.g.sophisticated recruitment processes,performance appraisals, work redesignand mentoring.

3. Reward and commitment practices – e.g. various financial rewards, familyfriendly policies, job rotation and flexi hours.

Some practices can impact on more thanone area, for example, having flexibleworking arrangements may enhance bothemployee involvement as well as employeecommitment to the organisation. Jobrotation is often used as a means to increasethe employees’ knowledge and long-termcommitment to the organisation. But it isalso by default a practice that will increasework involvement and at the same timeincrease their level of skills.

WHAT DID WE LEARN?

The survey of the CIPD companies confirmsthat many of the HPW practices have alreadybeen adopted by UK organisations, e.g.appraisals are used in 95% of the sample,whereas other practices, such as share

The case studies have been drawn from asample of companies included in TheSunday Times 100 Best Companies to WorkFor 2004. The aim of the case studies is todemonstrate the following:• Good practice in a range of high

performance workplace practices;• Change management issues related to

the implementation of high performancework practices;

• The business benefits of implementation;• The effects of implementation of high

performance work practices on skills policies.

The purpose of the wider survey of CIPDmembers was to establish how far theHPWPs identified in the ten case studieswere adopted by other UK organisations andthe relationship between the level ofadoption of high performance work practicesand a range of organisational outcomes.

WHAT ARE HIGH PERFORMANCE

WORK PRACTICES?

High performance work practices are notradical ‘new practices’, they are simply workpractices that can be deliberately introducedin order to improve organisationalperformance. Those organisations that adoptHPWPs are referred to as ‘High performancework organisations’ (HPWOs). The conceptsof HPWOs and HPWPs may be unfamiliar tosome businesses. However, the practicesassociated with HPWOs are unlikely to benew. Many of the staff that use andimplement HPWPs would not necessarily seethemselves as in the vanguard of modernmanagement practices, but merely asimplementing what they see as ‘commonsense good practices’. These practices

Executive summaryContents

This report, funded by the Department of Trade and Industry(DTI) brings together the results of ten case studies of ‘highperformance work practices’ (HPWPs) facilitated by BestCompanies©, and a survey of 294 companies facilitated by theChartered Institute of Personnel and Development (CIPD).

04 050404

options for all employees, are only adoptedby 16% of organisations.

The report provides evidence that the levelof HPWP adoption as measured by thenumber of practices adopted, is linked toorganisational performance. Those adoptingmore of the 35 HPWPs have greateremployee involvement, are more effective indelivering adequate training provision,motivating staff, managing change andproviding career opportunities. Similarlythose adopting more of the 35 HPWPs havemore people earning over £35,000 and fewerpeople earning less than £12,000.

The case studies illustrate a relationshipbetween the range of HPWPs used and theperformance goals of the organisation, thetype of sector a business operates in andhow the relevant product strategy in aparticular organisation is employed toachieve results. For example, Timpson, inretail services, makes extensive use ofperformance/turnover information for a widerange of purposes on a weekly basis – e.g.creating a sense of competition, cross-learning and immediate feedback. As aresult, Timpson, unlike all other case studiesin the report does not have any formalperformance appraisal. W L Gore hasimplemented a high degree of flexibility tocreate innovative teamwork, leading to highlevels of innovation, and Flight Centredesigns its system to maximise the benefitsof a standardised approach to an expandingbusiness – known as the “One Best Way”.

There is evidence that some of the ‘bundles’of HPWPs work better than others ingenerating specific outcomes. For example,in order to achieve better support for staffand enhance organisational competitiveness,the use of the human resource and reward &commitment practices appear to be superiortools to employee involvement practices.The case studies also suggested thatdifferent HPWPs or ‘bundles’ of practices, arelikely to be used in different sectors toachieve different business outcomes. Forexample, the companies in the financialservices sector made intensive use offinancial incentives, whereas inmanufacturing and business services moreuse was made of high involvement practices.But to all of these companies, HPWPs aresimply common sense practices that have

brought results and the case studiesdemonstrate the context in which thesepractices are used.

Key lessons in the case studies are also thatleadership is crucial in creating, shaping anddriving these high performing organisations.In none of the cases are high performancework organisations (HPWO) developing skillsfor the sake of skills. Skills development isvery focused and designed to achievespecific business outcomes and levels ofperformance. The case studies show that allemployers expect more than technical skillsfrom their employees. For example, in W LGore, all recruits enter an inductionprogramme and are required to follow acourse in communication and listening skillsas these are regarded as critical skills for thesuccess of the organisation. St. Luke’s, theadvertising agency, recognises that learningand personal development are essential tosustain the creativity and high skill levels onwhich the business depends. To this endappraisals are taken very seriously, as is theidea of lifelong learning. Every employee isallocated £150 every year “to makethemselves more interesting” and this canbe spent on almost any relevant activity they choose.

In most of the case studies, training andcontinuous development was also regardedas a ‘given’, and so it is not a matter of‘HPWOs training more’. In a HPWO, it ismore important to focus on training that islinked to performance requirements ratherthan on quantity. Furthermore, tacit skillsand institutional knowledge are relativelymore important than technical skills in manyof the HPWOs studied. So in a HPWO, skillspolicy is about creating a work environmentin which employees can learn all the time aspart of their normal work and where theycan take advantage of the system to effectperformance and innovation.

High performing organisations tend to beleaders in their industries, creating bestpractice rather than following it. In most ofour case studies HPWPs have been used tocreate business success from the very birthof these companies. However, to ensure theircontinued success these practices are usuallysubject to constant modification in line withthe requirements of business objectives.

The case studies have been drawn from asample of companies included in TheSunday Times 100 Best Companies to WorkFor 2004. The aim of the case studies is todemonstrate the following:• Good practice in a range of high

performance workplace practices;• Change management issues related to

the implementation of high performancework practices;

• The business benefits of implementation;• The effects of implementation of high

performance work practices on skillspolicies.

The purpose of the wider survey of CIPDmembers was to establish how far theHPWPs identified in the ten case studieswere adopted by other UK organisations. In particular, the survey sought to ascertainwhether there was correlation between theadoption of HPWPs and other organisationaloutcomes and business benefits. Both thesurvey and the case studies were conductedbetween June and October of 2004.

HPWPs have recently been brought to theattention of a much wider audience as aresult of evidence about the impact of thesepractices on business performance. Inaddition, they are also associated with theimpact of globalisation and the emergenceof the new ‘knowledge‘ economy. Thesechanges have all encouraged organisationsto examine how they implement theirworkplace practices.

Those organisations that adopt HPWPs arereferred to as ’High performance workorganisations’ (HPWOs). The concepts ofHPWOs and HPWPs may be unfamiliar tosome businesses, however, the practicesassociated with HPWOs are not new. Highperformance working practices, in a nutshell,refer to the careful design of workorganisation and practices so that they aresystematically linked to the achievement oforganisational objectives and performance.They are work practices that are deliberatelyintroduced in order to improveorganisational performance.

WHAT ARE HIGH PERFORMANCE

WORK PRACTICES?

The precise definition of HPWPs is subject to continuous debate. However, the generaldefinition that is widely accepted is that theyare a set of complementary work practicescovering three broad categories: highemployee involvement practices, humanresource practices, and reward andcommitment practices1. These broad areasare sometimes referred to as ‘bundles’ ofpractices and cover 35 work practices in this research.

The background to the study

This report, funded by the Department of Trade and Industry (DTI)brings together the results of ten case studies of ‘highperformance work practices’ (HPWPs) facilitated by BestCompanies©, and a survey of 294 Companies facilitated by theChartered Institute of Personnel and Development (CIPD).

1 These categories are consistent with two recent UKreports – Ashton and Sung (2002) and Thompson (2002).

070706

HIGH INVOLVEMENT

High employee involvement practices encourage a much greater level of trust andcommunication between employers and employees through involving them more in theorganisation. High involvement is in turn accompanied by a high degree of empowerment and the exercise of discretion among the workforce. These practices are shown in our casestudies and the survey results, to be linked to higher levels of staff motivation, leadership,communication and teamwork.

Common involvement practices are:

• Circulating information on organisational performance and strategy

• Providing all employees with a copy of the business plan and targets

• Staff Association

• Internal staff surveys

• Staff suggestion schemes

• Quality circles/total quality management

• Self-managed or self-directed teams

• Cross-function teams

• ‘Kaizen’ – specific efforts on continuous improvement in work systems

HRP – HUMAN RESOURCE PRACTICES

Many of these practices are specifically targeted to create a greater depth of human capitalinvestment and hence skill formation within the organisation. The higher levels of skill in turnare linked to improvements in the quality of work and the services delivered to the customer.The evidence is that these will in turn lead to higher organisational performance – e.g. higherlevels of productivity and innovation.

Common human resource practices are:

• Annual appraisal

• Formal feedback on job performance from superiors/employers

• Formal feedback on job performance from customers/clients

• Reviewing vacancies in relation to business strategy

• Formal assessment tools for recruitment (e.g. competencies etc.)

• Annual review of employees’ training needs

• Training to perform multiple jobs

• Continuous skills development programmes

• ‘Structured’ induction training

• ‘Work-(re)design’ for improved performance

• Workforce diversity for competitive edge

• Mentoring

• QA assurance (e.g. ISO9000 or other similar schemes)

• The Business Excellence Model or equivalent

REWARD AND COMMITMENT

Reward and commitment practices facilitate a greater sense of belonging and commitment tothe organisation. Financial rewards such as profit-sharing, share options and performance-related pay are powerful tools to establish a sense of stake-holding within the organisation.Where it is effectively implemented, performance-related pay gives explicit recognition to thecontribution individuals and teams make towards organisational performance. However,financial rewards are not the only tools that are used to create greater commitment amongemployees. Egalitarian terms and conditions, free employee facilities and benefits (someextended to family members) and family-friendly policies also have significant effects increating a sense of identification with the organisation and, in some cases, a greater sense ofcommon purpose. In this way, rewards and commitment practices are used to create long-term positive impact on employees and the achievement of organisational outcomes.

Common reward practices are:

• Performance pay for some employees

• Performance pay for all employees

• Profit-sharing for some employees

• Profit-sharing for all employees

• Share options for some employees

• Share options for all employees

• Flexible job descriptions

• Flexible working (e.g. hours, locations, job-share etc.)

• Job rotation

• ‘Family-friendly’ policies

• Non-pay benefits (e.g. free meals, gifts or health packages)

• Benefits covering spouse or family members

It is also important to point out that somepractices can impact on more than one ofthese three broad areas. For example, havingflexible working arrangements may enhanceboth employee involvement as well asemployee commitment to the organisation.Job rotation is often used as a means toincrease the knowledge and long-termcommitment of employees to theorganisation. But it is also by default apractice that will increase work involvementand at the same time increase their level of skills.

Central to the effective implementation ofHPWPs is organisational leadership and theculture this creates. This is illustrated inDiagram 1 that also shows how thisleadership works through the threecategories of HPWPs – namely, highinvolvement practices, human resource

practices and reward and commitmentpractices – to achieve organisationalobjectives. These objectives are depicted inthe outer ring and may include financialperformance, innovation or otherorganisational objectives. The crucial pointwe seek to make through diagram 1 is thatan organisation does not necessarily requireall of the HPWPs in order to move to theouter ring. However, it is important torecognise that some practices may formsynergetic ’bundles‘ that then produce agreater impact on the organisational resultsidentified in the outer ring.

As we have already mentioned, HPWPs arenot new. Ironically, the lack of publicawareness about the link between thesepractices and higher levels of performancemeans that even some of those companieswhich have introduced what we term high

09

performance working practices would nothave thought of their practices in theseterms. The practices listed for the threecategories (high involvement, humanresources and reward practices) are eitherunderstood or used by most organisations.

There are also problems in the way in whichthese practices have been used which mayhave led to confusion. First, instead of anagreed list of practices, research on HPWPshas been characterised by the use of various’lists‘, in some cases containing differentpractices. Take for example, Becker andHuselid (1998) who use more than thirtypractices in their US study, while Guest(2000) uses eighteen practices in his UKstudy. These lists overlap with each other,and while they are essentially studying thesame organisational phenomenon, the use ofdifferent lists by researchers can createconfusion.

The lesson here is that it is not necessarilythe number or specific type of practices thatmatter, but the way they are linked toperformance. This means that fornewcomers to the subject of HPWPs, itwould be wrong to seek one ‘magic list’.After all, it is quite possible to replace onepractice with another practice, or withcombinations of other practices that deliverthe same results. Indeed, the results of thesurvey and the case studies show that thereare a variety of ways to deliver

08

improvements in performance through theuse of HPWPs.

Second, the use of different terminology byresearchers has caused confusion. In somecases HPWPs are called ‘high-commitmentmanagement’ (Walton, 1985) or ‘high-involvement management’ (Lawler, 1986).More recently they have been termed ‘highperformance organisations’ (Lawler et al,1998; Ashton and Sung, 2002) or ‘highinvolvement work practices’ (Wood, 2001).Whilst these studies are referring to thesame general phenomena the use ofdifferent ‘labels’ has undoubtedly added tothe confusion. Without a single and well-defined term, researchers have missed manyopportunities to sell the ideas to the policyand business communities.

The approach in this study is to circumventthese debates and focus on the outcomes ofthe practices. The emphasis, both in thepresentation of the survey and case studies,is therefore on the relationship betweenthese management and work practices andorganisational performance.

Although many of these individual HPWPsare not new, what is new is the systematicway in which they are used (sometimesthrough combinations of practices known as‘bundles’) to bring about a higher andsustainable level of organisationalperformance (Purcell et. al., 2003). HPWPs

DIAGRAM 1: HPWPS AND ORGANISATIONAL OBJECTIVES

Reward &com

mitm

ent

practices

Hig

hin

volv

emen

tpr

actic

es

Humanresource

practices

Managingchange

Performance

Inn

ova

tion

are therefore the ‘leveraging links’ betweenwork activities and the intended businessoutcomes2.

For example, there are many organisationsthat claim to practise teamwork and to valueinnovation. However, not all of theseorganisations have created a suitableenvironment by, for example, giving a higherlevel of task discretion to employees, whichwould enable them to transform the benefitof team-working into higher levels ofinnovation. A further example is the use offinancial incentives. Performance payschemes may reward the employee fordoing their existing job well. However, theydo not necessarily reward employees forthinking of improvements beyond theconfines of their present job. The question iswhether a one-off payment to reward goodideas is good enough to sustain aninnovative culture. Furthermore, theimplementation of new ideas often meansintroducing new working arrangements andnew skills to operate them. This in turnrequires a positive attitude towardcontinuous learning on the part of allemployees. It is therefore worth finding outwhether employees treat ‘learning’ as apositive and integral part of their work. It isthis form of ‘holistic’ thinking, alwaysknowing the links between work practicesand performance outcomes that is central tothe effective implementation of HPWPs.

WHY ARE HPWPs IMPORTANT?

Research from different parts of the worldhas consistently shown two main benefits ofHPWPs, both of which reinforce each other.Firstly, HPWPs may create sustainedperformance improvements in organisations.Secondly, HPWPs may create a betterworkplace in terms of employee satisfactionand a sense of personal achievement. Whenthese two benefits work together, thistranslates into higher levels of financialperformance, strong employee commitment,sustained competitiveness and innovation.

These have been extensively documented inAshton and Sung (2002) and a summary ofthese research findings and businessbenefits is as follows:

• Quantitative research has shown a stronglink between HPWPs and enhancedperformance using indicators such asproductivity and profitability.

• The links between HPWPs and businessperformance can be identified inorganisations located in many countriesor territories, e.g. US, UK, Japan, Europe,Australia, Korea, Mexico, Brazil, Taiwanand New Zealand.

• The links have also been identified in avariety of industrial contexts, e.g. papermills, steel plants, apparel, service sector,auto assembly, aerospace, financialservices, personal services and evenpublic sector administration.

• The benefits have been identified usingdifferent study methods e.g. examiningsingle-site companies, multiple-sitecompanies, long term studies and haveproduced similar results in linking HPWPsand enhanced performance.

• The practices may be more effective whengrouped together in ‘bundles’. A goodexample here is that the isolated use ofquality circles is not as effective inproducing results as when the practice issupported by wider employeeinvolvement/ empowerment practices.

• Other ‘quantifiable’ benefits that havebeen identified include increased salesand increased market value forshareholders.

• Significant employee benefits have beenidentified. These include greater levels ofemployee satisfaction, commitment anddevelopment of trust in work relations.These benefits are often accompanied bylower levels of turnover of employees.

• Workers in HPWOs may earn more andare likely to benefit from higher levels of skill.

The remainder of this report is divided intotwo parts in order to demonstrate some ofthe benefits in the UK context. The first part,using the survey of CIPD members, studiesthe extent and use of HPWPs in the UK. Thesecond part shows how these HPWPs areused in ten UK companies to generateperformance improvements.

2 For an academic discussion about the nature of thecausality involved in establishing these links toperformance see Guest, et. al. (2003) and de Menezesand Wood (2005).

Leadership

culture etc.

THE SPREAD OF HPWPs

We used this survey to:

1. Establish how HPWPs have been utilisedin the UK

2. Identify how respondents rated variousorganisational outcomes and

3. Record the financial performance of theorganisation.

10

THE SAMPLE

This joint DTI and CIPD survey was conducted in the latter part of 2004. Six thousandquestionnaires were sent out to a random sample of CIPD member organisations. 294 replieswere received. Table 1 shows the industrial sectors from which the sample is derived.

01111

The 2004 HPWPs survey

TABLE 1: THE INDUSTRY SECTOR OF THE SAMPLE (SIC 92)

No. %

Manufacturing 84 28.3

Electricity, gas and water supply 5 1.7

Construction 9 3.0

Wholesales and retail 31 10.4

Hotels and restaurants 8 2.7

Transport, storage and communication 15 5.1

Financial services 26 8.8

Real estate, renting and business services 92 31.0

Public admin, defence and social security 2 0.7

Education 3 1.0

Health and social work 3 1.0

Other community, social and personal services 16 5.4

Total = 294

However, despite our best efforts, fewrespondents provided information on thefinancial performance of their organisations.Consequently, the analysis of the survey isbased on the first two sets of information.

Table 2 shows the level of HPWP adoption within the sample. A number of interesting patternsare revealed.

TABLE 2: THE PERCENTAGE OF RESPONDENTS WHO HAVE ADOPTED THE PRACTICES

%

Annual appraisal 94.9

‘Structured’ induction training 92.5

Annual review of employees’ training needs 89.8

Circulating information on organisational performance and strategy 82.0

Formal feedback on job performance from superiors/employers 79.3

‘Family-friendly’ policies 78.6

Reviewing vacancies in relation to business strategy 74.6

Formal assessment tools for recruitment (e.g. competencies etc.) 73.6

Continuous skills development programmes 70.9

Internal staff surveys 68.5

Benefits covering spouse or family members 68.1

Flexible working (e.g. hours, locations, job-share etc.) 65.8

Training to perform multiple jobs 62.4

Non-pay benefits (e.g. free meals, gifts or health packages) 60.7

Cross-function teams 59.3

QA assurance (e.g. ISO9000 or other similar schemes) 56.3

Mentoring 54.6

Performance pay for some employees 51.9

Staff suggestion schemes 51.9

Flexible job descriptions 45.4

Formal feedback on job performance from customers/clients 44.1

‘Work-(re)design’ for improved performance 42.7

Providing all employees a copy of the business plan and targets 42.4

Workforce diversity for competitive edge 40.7

Quality circles/total quality management 35.3

Performance pay for all employees 35.5

Staff Association 31.5

Share options for some employees 30.9

Self-managed or self-directed teams 25.8

Job rotation 24.1

The Business Excellence Model or equivalent 23.7

‘Kaizen’ – continuous improvement in work systems 23.7

Profit-sharing for some employees 22.0

Profit-sharing for all employees 19.7

Share options for all employees 15.9

The first point illustrated by Table 2 is theenormous difference in the level of adoptionof HPWPs in the UK. There is an almostuniversal adoption of annual appraisals andinduction training, but many financialrewards, such as profit-sharing and shareoptions, are only offered by a minority oforganisations.

The second point is that many of the ’softer’HPWPs, such as family-friendly policies andnon-pay benefits, have been more widelyadopted than previously thought. There areactually more organisations which havethese types of practices than use self-managed teams, staff surveys, quality circlesor job rotation. Previously, these ’softer’, butequally important practices, have largelybeen ignored by researchers.

Thirdly a number of important HPWPsincluding business excellence models, totalquality management, job rotation and self-managed teams, are only adopted by aminority of organisations. One explanationcould be that these practices are too costlyfor some firms to implement; another couldbe lack of information about such practices.Another issue raised by these findings is thelow take-up of financial rewards in additionto basic salary and leads one to questionhow important are they in enhancingperformance. These are some of the issueswe explore through the case studies.

THE LINKS BETWEEN HPWPs AND

ORGANISATIONAL OUTCOMES

One of the distinctive features of this surveywas our attempt to explore the link betweenHPWPs and a range of organisationaloutcomes, over and above that of financialperformance. To establish these we used

questions on how well the respondentthought the organisation had achieved arange of outcomes. These included howeffective they had been in creatingorganisational flexibility, how well theymanaged change, how well they had createdemployee involvement, how well they hadmet organisational goals and so on. Ingeneral we used a five point self-rated scale,ranging from ‘unsatisfactory’ to ‘excellent’ tomeasure these outcomes. Those items notmeasured by the scale: staff turnover rate, %of staff earning less than £12,000 p.a. and %of staff earning more than £35,000 p.a., arereported as percentages.

The level of HPWPs adopted is measuredthrough simply counting how many of the 35 practices were reported by eachorganisation. The 35 practices are thoselisted under the three broad categoriesearlier in the report. Within the sample, thisranged from a minimum of one HPWP at thebottom of the scale to 33 at the top. Onaverage (the mean) organisations adopted 18 practices. Table 3 provides a generalprofile of HPWP adoption within the sample.Around 60 percent of the sample has fewerthan 20 practices.

12 13

TABLE 3: THE DISTRIBUTION OF

HPWP ADOPTION

Number of practices % of sample

<10 5.1

10 or <20 54.2

20 or <30 39.3

30 or more 1.4

Table 4 shows a range of organisational outcomes associated with adopting more HPWPs3.

• The more HPWPs an organisation usesthe more effective it is in deliveringadequate training provision, motivatingstaff, managing change and providingcareer opportunities;

• The more HPWPs an organisation usesthe lower the staff turnover.4

TABLE 4: CORRELATION BETWEEN THE LEVEL OF HPWP ADOPTION AND

ORGANISATIONAL OUTCOMES

Creating employee involvement .391**

Delivery adequate training and development provision .371**

Motivating staff .364**

Managing change .357**

Providing career opportunities .348**

Ensuring effective teamwork .331**

Ensuring job satisfaction among staff .323**

Ensuring effective communication .314**

Providing quality leadership .310**

Maintaining good industrial relations .282**

Staff commitment .266**

Creating innovation/new ideas .257**

Creating organisational flexibility .248**

Creating support for staff .243**

Meeting business/organisational goals .192**

Competitiveness .170**

% earning more than £35,000 .170**

Minimising employee stress .153**

Ensuring workforce diversity .145*

Ensuring work-life balance .139*

Providing job security .129*

Staff Turnover Rate (%) -.103

% earning less than £12,000 -.108*

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

Of particular interest are the facts that in general:• Those adopting more of the 35 HPW

practices score more highly on creatingemployee involvement;

• Those adopting more of the 35 HPWPshave more people earning over £35,000and fewer people earning less than£12,000;

3 For those who are unfamiliar with the correlationmeasures, 0.1 – .29 represent a small correlation; 0.3 – .49 represent a medium correlation.

4 % of Staff Turnover and % of staff earning less than£12,000 show negative correlations but these are positiveoutcomes as it means that the adoption of HPWPsreduces the staff turnover and the % of people earningless than £12,000.

15

THE LINKS BETWEEN HPWPs BUNDLES

AND ORGANISATIONAL OUTCOMES

Earlier we suggested that HPWPs could beusefully grouped into three distinct areas orbundles, namely: high employee involvementpractices, human resource management

practices and reward and commitmentpractices. Table 5 shows a range oforganisational outcomes associated withadopting more HPWPs by HPWP category.

14

TABLE 5: CORRELATION BETWEEN THE LEVEL OF HPWP ADOPTION AND

ORGANISATIONAL OUTCOMES BY HPWP CATEGORY.

HPWP Bundles

High HR Reward &

involvement commitment

Meeting business/organisational goals .084 .153** .224**

Ensuring job satisfaction among staff .217** .293** .260**

Motivating staff .236** .357** .262**

Staff commitment .211** .256** .163**

Providing job security .130* .123* .056

Ensuring work life balance .078 .141* .105

Providing quality leadership .179** .292** .260**

Providing career opportunities .188** .324** .310**

Ensuring effective communication .211** .295** .239**

Ensuring effective teamwork .237** .333** .207**

Creating support for staff .109 .281** .162**

Creating employee involvement .305** .361** .266**

Minimising employee stress .106 .171** .076

Creating innovation/new ideas .178** .205** .238**

Competitiveness .077 .162** .161**

Creating organisational flexibility .118* .235** .229**

Ensuring workforce diversity -.002 .244** .055

Delivery adequate training and development provision .274** .396** .194**

Maintaining good industrial relations .204** .237** .232**

Managing change .208** .352** .278**

Staff Turnover Rate (%) -.129* -.093 -.029

% earning less than £12,000 -.121 -.071 -.076

% earning more than £35,000 .065 .107 .245**

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

Where you see statistically significantcorrelations (marked with * or **) for allthree HPWP categories, the results indicatethat all types of HPWP are collectivelyworking together to improve organisationalperformance. For example, all 3 categories ofHPWP have a positive impact on motivatingstaff. However, for competitiveness, onlyHPWPs categorised as human resourcemanagement or rewards and commitmentwould appear to be correlated with higherperformance.

Several main findings stand out here:• Firstly, that some outcomes are positively

associated with all three bundles. Thethree bundles appear to beinterchangeable and all appear to beequally effective in creating outcomessuch as staff satisfaction, motivation andcommitment, in providing leadershipquality, career opportunities, effectivecommunication and effective teamwork,in creating employee involvement andinnovation, and in delivering adequatetraining, good industrial relations andmanaging change.

• Other outcomes were linked with the useof only one or two bundles. For example,human resource and reward andcommitment practices appear to be themain driving forces behind the ability ofan organisation to meet its goals. Herethe effect of high employee involvementpractices, in contrast, appears to be weak.Yet, if the outcome is to create a bettersense of job security, then here thegreater adoption of employeeinvolvement as well as human resourcemanagement practices are important.

• In general the relationship between theuse of HPWPs and ensuring work-lifebalance is weak. However, whateverpositive effect HPWPs in general mayhave on work-life balance is mainlychannelled through the use of a higherlevel of human resource managementpractices. Similarly, human resourcemanagement practices are the onlyeffective HPWPs that generate a greaterlevel of workforce diversity.

• Lower staff turnover is associated with theuse of all three bundles, but the employeeinvolvement bundle is the only one with astatistically significant link. This may be asa result of the high levels of trust between

employees and managers associated withthe use of this bundle.

• Higher levels of earnings are associatedwith the adoption of reward andcommitment practices. This finding isprobably ’expected’ in the sense that thegreater use of such a reward strategy in anorganisation is likely to result in a higherproportion of employees earning more,other things being equal. However, it isnot significant in reducing the proportionsof lower paid employees (those that earnless than £12,000 per year). To achieve thisobjective it may be that, as Table 4suggested, you have simply to use asmany HPWPs as possible.

ARE SOME BUNDLES MORE EFFECTIVE

IN SOME INDUSTRIAL SECTORS

THAN OTHERS?

What our findings suggest here is that thechoice of which bundle or bundles ofpractices to use in order to achieve a givenorganisational outcome or objectives isinfluenced by the type of sector in which theorganisation or company is operating. Inother words, some of these bundles aremore effective in some industrial sectorsthan others.

In order to highlight the differential use ofHPWPs in the different industrial sectors, wefocused on a smaller set of organisationoutcomes and examined how they relate tothe three categories of HPWPs within fourindustrial sectors5. The survey data did notenable us to examine all industrial sectors asthe number of companies was too small.

Table 6 shows the correlation between thethree categories of HPWPs and a selected setof organisational outcomes in the foursectors. In order to simplify the presentationof the results only significant results arereported. The absence of a symbol meansthat HPWPs are not correlated with theparticular organisational outcome.

5 The classification follows that of SIC92: (1)Manufacturing; (2) Real estate, renting and businessservices; (3) Financial intermediation; (4) Combining (i) Wholesale and retail trade; repair ofmotor vehicles, motorcycles and personal and householdgoods; (ii) Hotels and restaurants; and (iii) Transport,storage and communication.

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TABLE 6: CORRELATION BETWEEN THE LEVEL OF HPWP ADOPTION AND SELECTED

ORGANISATIONAL OUTCOMES BY SECTOR

Manufact- Business Financial Wholesale

uring service etc. services etc & retail etc.

Meeting business/organisational goals HR HRRC RC

Motivating staff HIHR HR HRRC RC RC

Providing quality leadership HIHR HRRC RC RC RC

Ensuring effective teamwork HI HIHR HR HRRC RC

Creating innovation/new ideas HI HIHR HRRC RC RC

CompetitivenessHR

RC RC

Creating organisational flexibilityHR HR

RC RC

Delivery adequate training and HI HIdevelopment provision HR HR HR

RC RC

Managing change HIHR HR HR

RC RC

Staff Turnover Rate HR (-)

% earning less than £12,000

% earning more than £35,000 HRRC

HI – High employee involvement practices

HR – Human resource practices

RC – Reward and commitment practices

When we undertook the case studies wefound that the companies in the financialservices sector made intensive use offinancial incentives (reward and commitmentpractices), whereas in the manufacturing andbusiness service sectors more use was madeof high involvement practices. This finding isreflected in the survey results that show thatwhen we look at the achievement of differentbusiness outcomes, then we find companiesin different sectors making use of a differentcombination of practices. For example, inachieving innovation and generating newideas, we find that in manufacturing all threebundles are used, whereas in businessservices, only human resource and rewardand commitment practices are used.Companies in financial services use acombination of high involvement and rewardand commitment practices and in thewholesale & retail sector, none of the HPWPbundles are associated with generatinghigher levels of new ideas.

In providing quality leadership, companies inmanufacturing utilise human resource andreward & commitment practices, as docompanies in the wholesale and retail sector.Those in business services rely exclusivelyon reward and commitment practices toprovide quality leadership and those infinancial services rely on a combination ofhigh involvement and reward andcommitment practices. Thus, the use ofthese different bundles would appear to beinfluenced by the sector in which thecompany operates and the businessoutcome expected. Put another way, in orderto achieve a given business outcome youwould need to use a different bundle, orcombination of bundles, depending on theindustrial sector and the product market youare competing in.

The human resource practice and rewardand commitment practice “bundles” areused to deliver the same outcomes acrossmost sectors and this is the case with regardto staff motivation. The achievement of otheroutcomes such as providing qualityleadership and managing change are usuallyassociated with the use of human resourcepractices, although depending on the sector,other bundles may also be used.

In wholesale and retail, relatively little use ismade of these bundles in meeting theirorganisational objectives, which may meanthat the companies rely on more traditionalcommand and control techniques ofmanagement or that these objectives are notthat important to them.

What is clear is that these HPW practiceswould appear to be used in different ways, in different sectors, in order to achieve given business objectives. This hypothesisreceives some support from the moredetailed examination of specific case studiesthat follow.

The case studies illustrate in detail howcompanies have developed and used avariety of HPWPs. These case studies serveto highlight the links between industrialsector and product market, the organisation’sproduct strategy and the adoption ofdifferent HPWP bundles. A successful HPWOneeds to match the three factorsappropriately. The case studies also explorethe impact that the implementation ofHPWPs have on skills policies.

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The case studies

What can we learn from the case studies?The case studies have been chosen from The Sunday Times 100Best Companies to Work For 2004 lists. The companies have beenchosen to represent a variety of industrial contexts, sizes andproduct strategies. They therefore highlight a range of performanceissues and different ways of using HPWPs to tackle these issues.The names of the companies involved in the case studies are:

• Aspect Capital

• Bacardi & Martini UK

• Data Connection

• Flight Centre

• i-level

• Pannone & Partners

• Quest Diagnostics

• St. Luke’s

• Timpson

• W L Gore

Before you read the cases, we would like to highlight a number of points that havearisen from the analysis of the ten casestudies in order to maximise what we canlearn from them.

HOW DIFFERENT ARE HPWPs?

As we have said HPWPs are not radical ’newpractices’. The ten case studies show thatwhat makes these practices effective is thevery careful strategic combination ofpractices that are appropriate in tackling thespecific performances issue in question. Theirony is that many of the staff that use andimplement them would not necessarily seethemselves as in the vanguard of modernmanagement practices, but merely asimplementing what they see as ‘commonsense good practices’ that deliver businessresults. All of the ten case studies illustratethis. To name a few examples, W L Gore hasimplemented a high degree of flexibility tocreate innovative teamwork leading to highlevels of innovation, while Flight Centredesigns its system to maximise the benefitsof a standardised approach to an expandingbusiness which they describe as “One BestWay”. Others such as i-Level and Bacardi &Martini use strong organisation values toguide work practices. Timpson concentrateson seeking the best personalities to ensurehigh levels of customer care. To all of thesecompanies, HPWPs are simply commonsense practices that have brought results.

HOW MANY HPWPs ARE NEEDED?

We have already described a list of ’typical’HPWPs that may form performance bundles.From the DTI/CIPD survey, it is evident thatthere is a relationship between adoptingmore HPWPs and performance outcomes.However, for the purposes of learning fromthe case studies, it is more important toidentify the ways in which practices aredesigned to support each other for specificoutcomes. In this sense, the case studiesdemonstrate the context in which thesepractices are used rather than the number ofHPWPs adopted and outcomes.

The range and manner in which HPWPs areused by the companies therefore depends onthe specific performance goals of theorganisation, the industrial context, and howthe relevant product strategy in a particularorganisation is employed to achieve results.For example, Timpson, in retail services,makes extensive use of performance/turnoverinformation for a wide range of purposes ona weekly basis. These include creating asense of competition, cross-learning andimmediate feedback. As a result, Timpson,unlike all other case studies in the report,does not have any formal performanceappraisal. The fact that Timpson shops onlyhave one or two people in each service unitmakes it less appropriate to place too muchemphasis on the general concept ofteamwork. Instead, they rely on thecombination of financial rewards and a goodcommunication system to support the frontline staff who are located in different parts ofthe country.

DIFFERENT HPWPs ARE LIKELY TO BE USED

IN DIFFERENT SECTORS AND TO ACHIEVE

DIFFERENT BUSINESS OUTCOMES

The quantitative survey has shown that theuse of HPWPs differs by sector but whatthese case studies suggest is that the use ofthese practices may also be influenced bythe dominant business objective.

For example, where the product marketrequires innovation and creativity, in thedevelopment of new products as in W LGore – a manufacturing firm, or thedevelopment of one-off creative solutions asin St. Luke’s – a services firm, the companiestend to stress the importance of developinghigh levels of trust to enable a widespread

sharing of ideas, and the building up ofcollective capabilities within theorganisation. In these companies, teamworkand informal sharing of ideas, support forlearning, and constant questioning ofsystems designed to enhance skills, arecommon. Also we find a greater emphasison developing and maintaining trust withinthe organisation and practices designed tocelebrate the values of the company.

In the financial services sector, the casestudy there, Aspect Capital, suggests anemphasis on personal rewards and usingrewards as one of the central practicesaround which learning support and culturalvalues are geared.

In the legal industry, continuousdevelopment in professional skills, such askeeping in touch with changes in legislation,is a given by virtue of the needs of theindustry. Hence, HPWPs focus on other areasof organisational activities: this is illustratedby Pannone & Partners who make use ofteam rewards for a job well done, ratherthan rewarding individuals according to thevalue of contracts they bring in. In anorganisation that has more than 500 staffmembers, this helps create and sustain acoherent team culture.

THE IMPORTANCE OF PEOPLE AND

PEOPLE POLICIES IN HPWPs

The majority of the HPWPs require thepractices to be built on the basis of strongemployee commitment to the organisation’sstrategy. This provides the basis for highlevels of trust. In all the case studies, soundand coherent people policies are thereforethe basis for successful HPWPs and forsustained organisational performance.

What is also important here is that thepeople policies have to be consistentlyapplied. This does not mean that thepractices have to be rigidly implemented.Rather, it means that the objectives of thepolicies must be seen as fair and consistent.The intended effect is to make the peoplepolicies meaningful to the employees inorder that they can have a ‘stake’ within theorganisation. The lesson here is that HPWPsare less likely to be successful in a dividedorganisation with contradictory objectivesand values.

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THE IMPORTANCE OF LEADERSHIP

IN HPWOs

Leadership is central in shaping issues suchas the culture and expectations within anorganisation. All of our cases show thatleadership is very important in both theconception as well as the development of aHPWO. At the outset leadership is crucial toidentify the main business strategy and howHPWPs might deliver results6. However, onceHPWPs start delivering results, leadershipgoes beyond a few individuals and becomesembedded in the organisation andleadership can be seen everywhere. Forexample, in the case of W L Gore, leadershipcan be readily identified in all the self-managed teams. The delegation of authorityto make decisions, and the widespreadcommitment to organisational values, meanthat the conditions are present for mostmembers of the organisation to exerciseleadership. The end result is that innovation,problem-solving and collaboration occur anytime and anywhere. Similarly, Flight Centreachieves widespread leadership through anegalitarian culture that encourages the ideathat ‘everyone is a leader’.

WHAT IS THE BUSINESS CASE FOR

ADOPTING HPWPS?

The survey results show a strong businesscase for adopting HPWPs. Twenty-two out oftwenty-three of the organisation outcomestested were correlated with adopting moreHPWPs. Some of the stronger correlations,such as those between HPWPs andmotivating staff, managing change, effectiveteamwork, communication and greater jobsatisfaction are clearly providing a businesscase for HPWPs. Likewise, all of the casestudies demonstrate the effect of HPWPs on a range of areas such as innovation,performance, teamwork, employeecommitment, employee welfare,competitiveness, productivity and creatingthe flexibility necessary to adapt to change.

Whilst not all of the cases have attempted todesign their work systems to achieve all ofthe above objectives simultaneously, manyare in a position to do so by virtue of being a HPWO.

DOES HIGH PAY NECESSARILY GUARANTEE

THE CREATION OF A HPWO?

In our survey, there was a positivecorrelation between organisations withgreater adoption of HPWPs and theproportion of employees earning over£35,000 p.a. However, the proportion ofemployees earning over £35,000 is probablya consequence of high performance workingand not the other way round. In most of thecase studies, good pay features in theirsuccess but while good pay is important inrewarding good performance, it is notnecessarily the cause of it. In this context,most case studies would suggest that pay, as far as the employees are concerned, isoften a ‘hygiene factor’ (i.e. an underlyingfactor that sustains commitment) in a highperforming organisation. Other businesschallenges and the quality of the workenvironment are more effective in retaininggood employees and therefore their long-term commitment to the organisation.

THE NATURE OF SKILLS IN A HPWO

Our case studies provide a number ofinteresting lessons on skills and how skillsoperate in the context of a HPWO. The casestudies show that all employers expectsomething more than technical skills fromtheir employees. As a result, they spendconsiderable time and resources inidentifying those ‘other’ skills duringrecruitment, developing them in employees’early years with the organisation, andsubsequently maintaining and improvingthem. In none of the cases are theydeveloping skills for the sake of skills. Skillsdevelopment is very focused and thereforeessential to business performance. As in the case of Aspect Capital, vast resourcesand time are spent in training theiremployees in both the sales teams and in the financial modelling teams and theresults of the training are reflected by theemployees’ performance vis-à-vis theirperformance targets.

6 In the case studies on the relationship between peoplemanagement and organisation performance by Purcell etal (2003), a similar characteristic of leadership wasidentified. Purcell et al called it the “Big Idea” – i.e. a clearmission underpinned by values and culture which in turndefines how organisational goals are to be achieved.

The transmission and development of skillsare seen as an essential part of themanagers’ job. They are a crucial componentof the company’s competitive advantage andtherefore not something to be delegated tothe training department.

In nearly every case study, training andcontinuous development can be regarded as a ‘given’, and it is not a matter of ‘HPWOstraining more’. As we have already said, in aHPWO it is more important to focus ontraining that is linked to performancerequirements rather than on quantity.Furthermore, tacit skills and institutionalknowledge are relatively more importantthan technical skills in many of the HPWOsstudied. As the training for tacit skills andinstitutional knowledge are more informalthan formal, there are immense implicationsfor skills policy in HPWOs. Thus, in a HPWO,skills policy goes beyond the formalisation oftraining (e.g. £X spent every year peremployee). It is about creating a workenvironment in which employees can learnall the time as part of their normal work andwhere they can take advantage of the systemfor performance and innovation.

The implication of making learning thenormal environment of work is that, in aHPWO, skills policy has two components: (1)a maintaining element – training/learning thatis necessary to maintain the basic operationand (2) a motivating element that enablesemployees to internalise training/learning sothat training/learning is something that theyenjoy and will make their work even moreexciting and motivating.

The former element of the skill policy in aHPWO is therefore identifiable and oftenmeasurable (e.g. ‘we will give everyoneinduction training or continuousdevelopment’, or £X allocated to a trainingbudget), but the latter (the motivatingcomponent) is not. The greater the attentionpaid to the “motivating” component of askills policy (e.g. making sure staff have ahigh level of job satisfaction and anenvironment of empowerment and careerprospect), the more individuals obtain fromthe effect of the skills policy as a whole.

The above argument is consistent withanother recent CIPD study conducted byPurcell et al (2003) in which an organisation’sperformance is found to be a function of‘ability’ + ‘motivation’ + ‘opportunity’. Likeour current case studies, Purcell et al arguethat beyond possessing the basic skills to doa job, what produces performance is theleveraging effects of motivation and theopportunity to ‘go the “extra mile”’.

IMPLEMENTING HPWOs AND

MANAGING CHANGE

As leaders in their respective industries,HPWOs are adept at handling change. This isclearly highlighted by the cases such asBacardi & Martini and Quest Diagnostics.Innovative practices in HPWOs mean thatthey are quick to respond to new businessneeds and can develop new capabilities.However, the irony of a HPWO is that theytend to be leaders in their industries,creating best practice rather than followingit. In these circumstances, you will readmany practical examples in the case studiesabout tools leading to change and theachievement of specific organisationalobjectives. A further set of case studies byJohn Stevens (2005) that focus particularlyon the problems and change issuesassociated with implementing HPWPs inmore traditional organisations is availablefrom the Wales Management Council.

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The ten cases studies

The ten case studies follow, but if you are interested in learningabout the experience of a particular sector or the use of specificpractices, the table below provides a summary of the notableHPWPs found in each company. A synopsis of each case study,which details the specific learning points in each case, is alsolocated at the beginning of each case study.

TABLE 7: HPWPs IN THE TEN CASE STUDIES

High employee HR practices Reward &

involvement commitment

practices

Aspect Capital

Services

Bacardi & Martini UK

Manufacturing

Data Connection

Services

Flight Centre

Services

• People culturethrough a ‘cultural plan’.

• Behaviour codethrough ‘PACT’.

• Use ‘Agile Team’ tobring innovation.

• EmployeeEngagement Survey.

• Morale indicators.

• Internal employeesurvey.

• Quality circles forimprovement andinnovation.

• Seven channels ofcommunication at all levels.

• Self-directedbusiness teams.

• Incubator for allround training.

• Appraising against 9 attributes for allround performance.

• Use “PACT” toappraise.

• ‘Back to the floor’ for managers.

• Recruit topcandidatesexclusively at theentry level.

• Life-long continuousdevelopment.

• Strong internalcareer development.

• ‘One Best Way’ forworld-wideoperation.

• Continuous trainingfor leadership.

• Use QuarterlyIndividual Bonus or ‘QUIB’.

• Family-friendlypolicies.

• Family/spouseinclusive benefits.

• Significant entrysalaries.

• Significant profit-sharing through anEmployee Trust.

• Profit-sharing.• Wealth Wise.• Money Wise.

TABLE 7: HPWPs IN THE TEN CASE STUDIES CONTINUED

High employee HR practices Reward &

involvement commitment

practices

i-level

Services

Pannone & Partners

Services

Quest Diagnostics

Services

St. Luke’s

Services

Timpson

Services

W L Gore

Manufacturing

• Re-design work for bettercommunication.

• Extensive informalcommunication – all under one-roof.

• Quality systems.• ‘Road-map’ to define

performance.

• Client-basedteamwork.

• ‘Quest Group’ tolook after collectiveinterest.

• Newsletter torecogniseachievement,performance and tocreate competition.

• Self-directed shop ‘unit’.

• Extensive use ofautonomous teams.

• Kaizen improvementsystems.

• Continuousdevelopment.

• ‘Wild card’ trainingallowance.

• 360 degreeappraisals for all.

• Continuousprofessionaldevelopment.

• Appraisals for careerdevelopment.

• Workforce diversityas source ofcompetitiveness.

• Personaldevelopment plans.

• Appraisals for life-long learning.

• Extensive informalcontinuousdevelopment.

• ’Making yourselfmore interesting’training fund.

• Tailor-made in-house training.

• The ‘Happy Index’.

• Extensive informalcontinuousdevelopment

• Profit-sharing.• ‘Leveller’ of the

month award.

• Work-life balancepriority.

• A ‘fairness’ incentive system.

• Performance-related pay.

• Collectiveownership.

• Significantperformance-related pay.

• Collectiveownership.

• 100% performancerelated pay.

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With traditional investment in the stockmarket becoming increasingly uncertain, thefinancial services sector has seen the rapidgrowth of hedge fund managing companies.Aspect Capital is one of these successful newcompanies in the financial services sector.

Not only has Aspect Capital been verysuccessful in producing remarkable returnsfor its investors since 1997, it has achievedits successful profile by taking a differentapproach from other financial companies.

Service/Product: Financial services

Turnover: £56.8m

Size of the workforce: 69 employees

Earning £35,000 p.a.: 74%

Famous for: Consistent and high levels of return oninvestment through quantitative investment techniques for hedge funds management

The business strategy: Achieving high performance throughpeople and technology

High performance learning points:

• Commercial success through technical brilliance deliveredthrough the support of good teamwork, effective leadership anda committed organisation;

• Uses nine key attributes to shape the culture of the business andteamwork. This counter-balances the industry’s tendency toemphasise ‘high pay’ to attract good technical people;

• An innovative reward system, including the Quarterly IndividualBonus, also addresses the need to achieve non-financialobjectives at work;

• Consciously learning from the past and identifying key elementsin order to build a better business model for the future;

• Strong focus on training including the imaginative use of highquality coaching and mentoring to build an ‘incubator’ for ‘on-the-job’ and company specific training.

CASE STUDY

ASPECT CAPITAL

A case of achieving high performance through people and technology

THE INDUSTRIAL CONTEXT AND ASPECT

CAPITAL’S BUSINESS STRATEGY

The financial services sector is highlycompetitive in global terms and is oftencharacterised by the need to sustain a highlevel performance through very attractivefinancial incentives. So for Aspect Capital,striking the balance between rewards andperformance is important. However, it iseven more important to create a highperforming workplace in which workers findhard work both fulfilling and worthy ofcommitting their career to.

Aspect Capital was founded in 1997, byAnthony Todd, Eugene Lambert, MartinLueck and Michael Adam, who had all beeninvolved in the successful development of aprevious company. This previous ventureturned out to be a pioneer in quantitativeinvestment management techniques forhedge funds management.

Deriving their technical knowledge fromprevious experience and their studies, thefounders of Aspect believe that the financialmarkets do not function entirely as marketeconomics would suggest, i.e. the result ofsupply and demand. They believe there arereal and persistent factors which influencerelative market returns and as a result withinAspect Capital, research and trading havebeen designed specifically to capitalise onthese ‘market imperfections’.

The founders of Aspect had a particularvision about financial markets. They believedthe stock market had had a long period ofgrowth that could not continue indefinitely.Their view at the time was that “…therewould be a risk of an extended period of re-adjustment, consolidation or, possibly, aserious decline in the stock market.” Theyalso thought that if and when the returnsfrom the stock market started to wane,people would increasingly look to alternativeinvestments. Aspect’s founders wanted toposition themselves to be an attractivealternative investment manager forinstitutions that were keen to diversify awayfrom the ‘long-only’ (expecting stock returnsto always be on the up) investment. Thesubsequent growth of hedge funds provedthat Anthony and his team were right.

Vision alone, however, would not be enoughto guarantee success. In addition to athorough understanding of the productmarket, Aspect Capital has been very good atdeveloping and incorporating IT technologyto deliver its business objectives. Ascomputing and software costs came down,Aspect Capital implemented another winningstrategy – using statistical modelling todevelop new investment products, and toprovide superior information to enhance itstrading performance.

Anthony and his team wanted to applyquantitative techniques across a broaderrange of financial products, believing thatthis would provide a more stableenvironment to generate a superior rate ofreturn for investors. Thus, at Aspect Capital,research and development turned theirattention to a wider range of trading models,using an extensive database of historicaldata to ensure their performance across adiverse range of market conditions.

BUILDING A TECHNOLOGICAL SYSTEM

WITH A PEOPLE STRATEGY

The other explicit goal of Aspect Capital is tobuild a business which people feelpassionate about working in. Anthonycommented, “Aspect Capital is designed tore-capture some of the dynamism that wehad in the previous company in the early1990s.” Aspect Capital was so serious aboutthe people strategy that it wrote a ‘culturalplan’ in 1998. The origin of the cultural planwas that, given the nature of the businessand its environment in the financial sector, apeople culture was often hard to find.“Issues such as looking after your staff,providing a challenging and dynamicenvironment, focusing on team work,creating a fair, sociable and open workplaceare the things that are frequently over-lookedin the industry”, commented Anthony. “A great working environment will increaseour chances of success. We don’t just wantto build a successful business, but we alsowant to build a workplace that we want toactively work in ourselves.”

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Whilst other financial sector employersdistribute performance bonuses focusing onthe employee’s ability to achieve ‘hard’(financially measurable) targets, AspectCapital uses its cultural plan in order topromote nine key attributes to make AspectCapital a better workplace. A significantproportion of Aspect Capital’s bonus systemtakes into account an employee’s rating onthe following nine attributes:• Teamwork• Initiative• People Management• Project Management• Attitude• Attention to Detail• Professionalism• Communication• Productivity

To signal other values which are equallyimportant to the workplace, Aspect Capitalcreates specific social activities to encouragea sense of community among staff, a widerange of benefits including healthcarecovering spouses and dependants, andexternal activities such as charity work toreflect Aspect Capital’s concern about itsexternal environment.

RECRUITMENT AND SKILLS

As a result of both these technical andcultural requirements, recruitment is not aneasy task. For example, Aspect Capitalrecruits some of the brightestmathematicians and programmers for itsresearch and IT teams and they are thebackbone of the quantitative approach to thehedge funds management and identificationof new financial products. Often, these areskills that you have to ‘pay over the odds’ torecruit, as the industry has a very competitivesalary structure. Pay is important in attractingthe highly skilled into the company, but it isnot sufficient to ensure that highly skilledindividuals will necessarily bringperformance into the organisation, especiallyan organisation that relies on teamwork. Thefact that Aspect Capital is dealing withcomplex financial products means that highskill is only a starting point. ‘Trainability’ – thepotential for future development andpossession of the nine attributes – is allimportant for Aspect Capital.

“We look for people with a particular skillset. But in fact, it is relatively easy to find theparticular skills. To find the right kind ofpeople with whom you want to work, that isfar more difficult. We spend a long, longtime hand picking key individuals who canbring ‘something else’ to the company, oftentaking eight or nine months beforeappointing the right individual.” Anthonyemphasised.

FINANCIAL APPRENTICESHIP

Aspect Capital deals with very complexfinancial products and therefore must takecare and time to train its new recruits. Forexample, a new recruit into the researchteam will attend external courses on hedgefunds and financial markets. Additionally,recruits straight from academia can spendtime in the Financial Engineering team,learning about Aspect Capital’s quantitativeapproach to hedge fund management, thedifferent areas of research and how researchinterfaces with the sales team and itsinvestors’ needs. This training can take fromfive days to one year to complete, dependingon the experience of the individual. This timespent within Financial Engineering, workingwith senior financial engineers, is also auseful way of assessing a new recruit’sstrength in every area of Aspect Capital’sresearch operation in order that they can beeffectively deployed.

For the sales team, the training is equallythorough. Hedge funds have grown so fast,in a very short space of time, that there is arelatively small reservoir of experienced andsuccessful sales people, which means thatAspect Capital often needs to train its ownsales and marketing staff. The long processof sales training is derived from acombination of internal on-the-job trainingand external training at specialistinstitutions. Internally, the sales andmarketing staff have to work with, and learnfrom, the research team in order to build ahigh-level understanding of complexfinancial products. Externally, the sales staffreceive formal training on sales, presentationand negotiation skills.

Sales and marketing training in the hedgefund context is very specific. As there is ahigh demand for very good hedge funds, thesales team is not just selling. They areessentially facilitating the due diligenceprocess for the clients and also providing‘after sales’ support on an on-going basis,which includes performance updates. As aresult, training for sales and marketing staffrelies on a complex process of identifyingessential client opportunities – throughnetworking, attending conferences, keepingan eye on the press, reports and financialsurveys – and successfully presenting acomplex financial product to an investor. It takes up to two years to train a competentsales and marketing employee, who is ableto deal with all of Aspect Capital’s financialproducts effectively.

LINKING REWARDS TO FAIRNESS,

HARD WORK AND PERFORMANCE

At Aspect Capital, everyone is regarded asessential in running the business. “You haveto have the top flight researchers, the ITtechnology to implement it. Then you have tohave the top flight dealing team – peoplewho have the knowledge to place orders inthe market efficiently. Otherwise, thequantitative model won’t be effective. Youhave to have the most diligent sales staff tointerface the products and clients. You alsohave to have the first class administrationrunning the front office, the middle office andthe evaluation.” Anthony sees everythingbeing important, and teamwork is defined atthe enterprise level. “The investors can seeour performance out there, and this is a veryperformance-driven industry, as far as hardfinancial results are concerned. You have topay people well in order to get the mostexcellent people in the company.”

The financial industry tends to pay over theodds to get the best people. Aspect Capitaluses its salaries and bonuses to ensure abalance between performance and othervalues. “We are very keen to get excellentpeople into the business. But also, it is truethat in addition to excellent skill sets, we arelooking for people to bring something else,something different.”

Aspect Capital’s approach is embodied in thequarterly review exercise (the QuarterlyIndividual Bonus or ‘QUIB’). The mainpurpose of QUIB is to ensure frequentplanning. At the start of each quarter,objectives are set for the company, for eachdepartment, and are agreed with eachemployee. All these are viewable byeveryone in the company. At the end of thequarter, each employee’s performance isreviewed, with reference to these objectivesand awarded a QUIB score ranging from 0 to200 in increments of 25. A score of 100reflects a good performance with allobjectives achieved. A score in excess of 100is awarded for exceptional effort. A score of50 or below reflects concerns over seriousissues. Everyone in the company has a QUIBmultiple, which ranges from 10% for junioremployees, 15% or 20% for senioremployees and 25% for directors. A bonus ispaid each quarter equal to the individual’sQUIB multiple, times their quarterly salary,times their QUIB score. The score focusesprimarily on performance against objectivesand, to a lesser extent, personal issues andfuture potential.

In addition there is an annual compensationscheme at the end of the year where everyemployee is entitled to enter into thediscretionary profit share scheme. Thepotential bonus pool is dependent on thecompany’s profitability during the previousfinancial year. Each individual is assessed ontheir contribution to the business during theyear. An important element in the process isa review of each individual against his or herpeers on the basis of the nine characteristicsmentioned previously. In addition, at theemployee’s discretion, the profit share canbe deferred. Any deferred portion isincreased by the company by 50% andnotionally invested in a range of Aspectfunds. These practices mean that AspectCapital is able to create a balance betweenachieving ‘measured’ performance andsofter issues such as teamwork, peoplemanagement skills and communication. Atthe same time, if profit share is deferred, thestake so created helps to align the objectivesof the employee with that of the company.

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Aspect Capital uses financial incentives tocreate excellent performance. The QUIBscheme is also a way to ensure a sense offairness among those who participate. It isunderstood that all staff are expected toperform reasonably in relation to theirposition and although this does not meanthat staff have to be ‘super-performers’, thecompany will not carry anyone whopersistently performs below a reasonableQUIB score. This ethos might seem harsh,but the sense of fairness is widely sharedamong the staff, who all have to build andcontribute to team success in a verydemanding environment.

The vision of Aspect Capital’s founders hasbeen realised. Not only is Aspect Capitalperforming well but it has the commitmentof its staff. The Sunday Times 100 BestCompanies to Work For 2004 survey reportedthat 93 percent of the staff thought that theirleader was full of energy, and eight out often were inspired by such leadership and itsstrong principles. Nine out of ten employeesat Aspect Capital trusted their colleagues todo a good job (the second highest score inthe survey), and 77 per cent of the staff got abuzz from working at Aspect Capital. Clearly,Aspect Capital represents one of the rareexamples where, in a harsh target-drivenenvironment, a job can still be fulfilling,enjoyable and most of all, extremely wellrewarded.

Bacardi-Martini Limited is a UK-based,international company with around 550 staff.With a single UK site in Southampton,specialising in bottling and distributingpremium alcohol beverage brands, Bacardi-Martini has a turnover of £400 million a year.In addition to bottling and distributing its

own wholly owned brands, Bacardi-Martinialso distributes brands for its tradingpartners such as Jack Daniel’s, SouthernComfort and Glenmorangie malt whisky.Over half of the Southampton plant’sproduction is for export markets.

Service/Product: Drinks manufacturer

Turnover: £400m

Size of the workforce: 550 employees

Earning £35,000 p.a.: 19%

Famous for: A leader/inventor of the ‘ready-to-drink’ market

The business strategy: Managing change and innovationthrough a value-based and people culture

High performance learning points:

• Consciously removes barriers between senior and shop-floorstaff in order to ensure smooth operation at all levels;

• Successfully created a set of organisational values tocommunicate, guide and reward behaviour appropriate to teamperformance;

• Uses appropriate training and recruitment to enhance the matchbetween potential and existing employees and the needs of a‘value-based’ organisation;

• Uses profiling instruments to support a better linkage betweenrecruitment, performance and career progression of employees;

• Uses surveys and the ‘morale indicator’ to gauge/improve theorganisation’s performance on issues such as business direction,leadership, performance, strengths and weaknesses;

• Established appropriate behaviour, expectations and systemsincluding the ‘Agile Team’, to manage organisational change.

CASE STUDY

BACARDI-MARTINI UK

Managing change and innovation through a value-based and people culture

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THE INDUSTRIAL CONTEXT AND BACARDI-

MARTINI’S BUSINESS STRATEGY

Despite its relatively long history, Bacardi-Martini has had a phenomenal success in therecent trendy ‘ready-to-drink’ market with thecreation of the Bacardi ‘Breezer’. Bacardi-Martini told us that the company knew thatthe Breezer market was the next ‘big product’from its new market research, but it wassurprised at the scale of its popularity and thenumber of imitators who followed Bacardi-Martini into the ‘ready-to-drink’ market.

Behind these successes is Bacardi-Martini’sparticular approach to its business. In fact,apart from its much acclaimed family and‘people-focus’ culture, which has securedfour successive top-ten places in The SundayTimes 100 Best Companies to Work For 2004,Bacardi-Martini has implemented mostaspects of a ‘high performance workingorganisation’ (HPWO). This has been thebedrock of its success and achievements. Inorder to take advantage of high performanceworking, the leadership of a company has tounderstand how high performance workpractices support its own strategy in relationto its product market.

A VALUE-BASED PEOPLE CULTURE

THROUGH LEADERSHIP

In the case of Bacardi-Martini, it starts withthe Chief Executive. Described by colleaguesas “… a slight lady in stature but with hugepersonality and charisma”, Stella David notonly created many aspects of the Bacardi-Martini work practices and performancesystems, but was also singled out byemployees at Bacardi-Martini as “inspiring”and “accessible” in the The Sunday Times100 Best Companies to Work For 2004survey. To the employees, Stella David ishighly visible within the everyday operationsof the business. It is a common event atBacardi-Martini to see Stella David havingher lunch breaks at the free restaurant withoperations staff, forklift drivers and othershop-floor staff, where working relationshipsare improved and informal discussion takesplace. Not only is Stella on first name termswith all staff, she sends them a birthday cardand company gift each year.

Some may say that such activities are trivial.However, the belief that senior staff have tobe close to front line staff is fundamental at

Bacardi-Martini. This is particularly reflectedby a practice known as ‘back to the floor’.Under ’back to the floor’, every seniorexecutive at Bacardi-Martini will return for aday to a shop-floor unit once every three tosix months. During that day, senior executiveswill spend the day working as part of theteam in a particular unit of the business. Moreimportantly, however, they are managed bythe team leaders and the teams themselves.For that day, not only do senior executivestake on a different role, they listen and learnwhile they are in that role.

This ‘back to the floor’ approach is anunusual way to make senior staff “visible andaccessible”. But, perhaps more importantly, itis an opportunity to hear the views ofindividual employees, such as what theissues are and what the constraints may be.This information is taken back to subsequentsenior executive meetings and informs thedevelopment of appropriate action plans.Hence, Colleen Potter, the HR manager atBacardi-Martini, describes the seriousness ofthe exercise, “… in order to bring aboutlistening, sharing and understanding, theExecutive Board are prepared to roll theirsleeves up and go and talk to people and findout what the issues are.”

The high visibility and accessibility of theleadership has two major benefits. Firstly,they facilitate the creation of an HPWO andsecondly, they enable the leadership tostrengthen a value-based organisation, oftena characteristic of HPWO. At Bacardi-Martini,the company values are embodied by whatthey call PACT:• Productivity• Accountability• Creativity• Teamwork

PACT describes everything an employeeneeds to know about Bacardi-Martini’sbusiness and its critical success factors.PACT is the way to do things. In other words,productivity, accountability, creativity andteamwork are thought to be the performancefactors. All employees should incorporatethose factors into their daily work. As aresult of the importance of PACT, employees’performance is measured by PACT.

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PACT is visible everywhere at Bacardi-Martini – on notice boards, printedinformation, company gifts and mugs.Within performance appraisals, training,individual and team objectives are setagainst PACT and reviewed on a regularbasis. Progress made on these objectives isthen linked to annual bonuses and profit andperformance-related pay is applicable to allemployees, regardless of status. PACT istherefore both a set of values and a meansof creating an effective organisation.

To balance the demands PACT makes onBacardi-Martini’s staff, the company has anextensive range of benefits, assuringemployees that they are valued by thecompany. Such provision includes free hotmeals at the restaurant, private health care,life insurance, sports facilities, helplines,discounted products and, a rare provisionthese days, the final salary pension scheme.A significant emphasis within these benefitsis that employees’ family members are“automatically” entitled to the benefits,including live-in partners. Bacardi-Martinibelieves that it is important to the businessthat staff feel good. It is important to signalto staff, with concrete benefits, thatorganisational performance can safeguardjobs and the wellbeing of all employees andfamily members. By linking performance tobenefits, Bacardi-Martini makes it explicitthat organisational performance andemployee benefits are closely related.

PACT is not just concerned with what peopledo, but also how people do it. Hence,Bacardi-Martini has also introduced the‘behaviour code’, which establishes theexpected social behaviour to underpinperformance:• Focus on the situation, issue or

behaviour, not on the person• Maintain the self-confidence and

self-esteem of others• Maintain constructive relationships• Take initiative to make things better• Lead by example

Within the above general principles, a ‘localbehaviour code’ is also incorporated intosome departments, e.g. specificrequirements on flexibility and attendance.The appraisal and bonus assessments takeinto account both PACT achievement andmeasurements against the behaviour code.

ENHANCING A VALUE-BASED

ORGANISATION

In order to ensure a delicate balancebetween PACT, a people culture and a senseof fairness, a number of issues becameimportant. Firstly, all assessors/managershad to be trained in review techniques, inter-personal skills and reviewing collaboratively,and were given full guidance on allocation ofpoints towards the bonus. Secondly, noteveryone was comfortable with theorganisational practices that Bacardi-Martinihas adopted, hence, recruitment was a veryimportant process in order to avoiddisappointment.

Through a competency-based methodology,PACT also shapes the recruitment process atBacardi-Martini. In order to create careerprogression opportunities for staff, vacanciesare always open to internal candidates first,regardless of their previous role, beforebeing advertised externally. All candidates –internal and external – are assessed in termsof their suitability vis-à-vis the PACT values.The emphasis in these competency-basedinterviews is on what the candidates havedone and not on what they would do. Inaddition, because PACT is supported by thebehaviour code, candidates’ personalityprofiles are also assessed through a formalprofiling instrument. Bacardi-Martini hasbeen very satisfied with the introduction ofthese techniques, as they brought a betterlinkage between recruitment, performanceand career progression.

As much as Bacardi-Martini is working hardto ensure its PACT values amongst allemployees, the company is also very keen tocreate two-way communication. In additionto the ‘back to the floor’ initiative there is astandard open door policy. There are alsothree formal channels – the ‘InvolvementGroup’, the ‘Employee Engagement Survey’and the ‘Morale Indicators’. The InvolvementGroup is attended on a monthly basis by theHR department and representatives coveringthe whole of the organisation including thetrade union. The Group discusses issuesfrom different areas of the business and seeksolutions. Often, the Group covers mattersranging from grievance procedures to socialevents. The Involvement Group is animportant channel for employees to dealwith their immediate concerns.

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Some Group representatives, who have been given training on listening andcommunication skills, also act as a source of ‘buddy’ support should employees wantto talk to someone other than their linemanagers.

The yearly Employee Engagement Surveydeals with broader issues and isanonymously completed by over 90 per centof the employees. The survey polls staffviews on the business direction, leadership,performance, strengths and weaknesses.Because the survey covers strategic issues, it is the main tool for the company anddepartments to form action plans. Workingwith the teams, line managers use theinformation from the survey to identifyspecific issues to form local action plans. Thelink between the surveys and action plansmeans that employees often see theinstrument as a means of empowerment.The minute the survey is completed, the HRdepartment starts receiving queries fromline-workers asking when they can see theresults. At times, the survey results alsogenerate a degree of competitivenessamongst the teams, with some teamswanting to know how to better their resultsin comparison to other teams.

The morale indicator, in contrast, with onlyten questions is a small monthly instrumentto gauge the wellbeing of employees andhow they feel about their work and support.The indicators provide a form of continuousfeedback on the mood of the workforce,plugging the gap between the yearlyEmployee Engagement Surveys.

MANAGING PERFORMANCE AND CHANGE

THROUGH INNOVATION

These elaborate systems of values, culture,behaviour code, feedback and rewards havenot been created in isolation or for show.They are the foundations of Bacardi-Martini’sability to bring innovation, improveperformance and, most important of all,manage change.

As you may expect, the sales and marketingdepartments are very passionate about thebrands but what is surprising is the level ofpride that employees across the organisationalso demonstrate in the business. This issomething that Bacardi-Martini actively

encourages with initiatives such as makingeach meeting room representative of one ofthe brands. For example the BombaySapphire meeting room is decked out in theblue of the bottle with the ten botanicals thatgo into the gin displayed in the cabinets.These initiatives clearly work as Bacardi-Martini scored the highest of any companyagainst the question ‘Are you proud to workfor your company?’ in The Sunday Times 100Best Companies to Work For 2004 survey.

Like most competitive organisations,Bacardi-Martini has to demonstrate a highlevel of plant-specific effectiveness. Thismeans that continuous improvements haveto be demonstrated and change andinnovation are part of a normal day’s work.

Such a radical change took place in 1999with the appointment of a new operationsdirector, John Speirs. With the newappointment, John was able to introduce theconcepts of the ‘Agile Team’ and ‘AgileThinking’. At its heart, ‘Agile Thinking’ is aform of lean production with the emphasison continuous improvement. The conceptinvolves an Agile Team comprising stafffrom different areas of work. The team isspecially trained to examine every workprocess within the organisation in order toidentify ways to reduce waste and improveefficiency and effectiveness.

The team members do not take overownership for continuous improvement butwork with every department in order toidentify new and improved workingprocesses. The ownership rests with thedepartments themselves. This approachmeans that new ideas may be derived from avariety of perspectives within the Agile Teambut, at the same time, ownership forimprovement stays with the relevantdepartment concerned. This approach turnsout to be a subtle way of changingemployees’ view about their jobs. Instead ofthinking, “Oh, it is time that we came upwith more ideas or thoughts”, employeesbelieve that “ … it’s part of my job that Ihave to find better ways of working andimprovement”. The success of Agile Teamhas removed the need for suggestion boxesas innovation and better work processes arenow ‘part of the job’.

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Over a period of four years, the Agile Teamhas achieved numerous successful wasteand efficiency improvements on productionlines, sales activities, warehouse anddistribution, data management andpurchase, quality assurance, personnel, plantservices and stock control. The following arejust some of the many examples:• Line filler changeover (reduced from 4 hrs

to 75 mins)• Production line packer changeover

(reduced from 110 mins to 60 mins)• Production process efficiency

improvements £4.4 million per annum• Point of sale warehouse relocation with

no disruption to the business• Pallet holding reduced from 1.2 million

to 457,000• ‘Kanban system’ eliminated overstocks

with no failed deliveries on customerorders

• Service level improvements in warehouseand distribution – 85% up to 97%

• Warehouse Utilisation – re-design oflayout and use of smaller bays – greaterspace efficiency

• More controlled management of materials at suppliers based on areplenishment system

• Write off reduced – finished goods £765kto £210k; materials £872k to £61k.

These examples only represent a smallselection from a long list of achievements.However, the real lesson to be learnt is theway change is nurtured and delivered. Likemost other companies, the barriers tochange included the inevitable scepticism,lack of trust and difficulties associated withbehavioural change. In order to handlepossible resistance to change, Bacardi-Martini has ensured that the agile process isclearly linked to other existing systems, e.g.communication, the behavioural code andPACT values. In this sense, Bacardi-Martinihas created the classic culture of a HPWO,adopting complementary systems to driveperformance in the most exciting way. Whatis also a real bonus for the employees isthat, as a result of Agile Thinking and theresulting changes, people can now see thedifference this has made to the business andthat improved efficiency is important tosafeguard jobs.

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Data Connection is one of the world’s mostsuccessful companies in communicationstechnology and their performance record isimpressive. As well as winning the number 3 spot of the The Sunday Times 100 BestCompanies to Work For 2004, the company

has consistently achieved profits exceeding20% of total revenue during each of the past22 years. With IT industries experiencing asignificant downturn in the last two to threeyears, Data Connection’s performance is instark contrast with its competitors.

Service/Product: Computer software

Turnover: £29m

Size of the workforce: 290 employees

Earning £35,000 p.a.: 47%

Famous for: Winning contracts from some of the biggestclients in the global market through innovative products andquality service

The business strategy: Business performance through world-class talent and quality delivery

High performance learning points:

• A clear business strategy of quality and innovation is used tosucceed in the hotly contested global market;

• Major focus on building business successes through therecruitment of exceptional talent;

• Recruitment restricted to entry level. Systematic personaldevelopment plans and small group coaching used to nurturefuture talent;

• Use an ‘employee benefit trust’ to build stake-holding andcommitment among employees;

• Performance rewarded through generous profit sharing;

• Financial rewards complemented by other non-financialpractices, including flexible working, to create effective work-life balance.

CASE STUDY

DATA CONNECTION

Business performance through world-class talent and quality delivery

Data Connection has achieved its leadingposition through a combination of qualityservice, innovative products and world-classtechnical workers. “I thoroughly recommendData Connection: the quality of their people,software and support has been first classevery time we have worked with them,”Lucent Technologies commented. In fact, inaddition to Lucent Technologies, DataConnection has won a long list ofinternational clients including BritishTelecom, General Dynamics, LockheedMartin, Nortel, Siemens, Cisco, IBM, NECand other international giants. Over 90% ofData Connection’s services and products arefor the export market, especially the USA,where the competition has been thetoughest. Such an international profile hastwice earned Data Connection the Queen’sAward for export achievement and no matterhow you measure performance, DataConnection is a world-beater.

THE INDUSTRIAL CONTEXT AND DATA

CONNECTION BUSINESS STRATEGY

Data Connection was founded in 1981 by IanFerguson, the current chairman, and sixcolleagues who previously worked with himat IBM. This experience at IBM wasextremely useful as Ferguson and colleagueslearnt much about successful operations,winning valuable clients and keeping them.As the communications technology industryhas relatively low entry barriers,international competition is high. Often onlythe very best talent will bring the bestresults. As Ferguson explained “Our successis due to our sustained ability to recruit,develop and retain truly exceptional talentacross the breadth of our operations,including engineering, support andcommercial management.”

This strategy served Data Connection well,as staff numbers grew steadily from ahandful to over 290 employees, of whom 216are software engineers. Profits grew inparallel fashion reaching $12m in 2002/2003.

In its day-to-day operation, Data Connectionhas adopted a three-pronged strategy. Firstly,Data Connection recruits the very bestcandidates to work for the organisation. The

idea is to impart innovation and the verybest quality into its service and products forclients. Secondly, once its internationalreputation is built up, Data Connectiontargets return business as the basis of steadygrowth and a source of steady profit. Thirdly,Data Connection uses its profit to support abalance between research products, whichmay not have any immediate return, andservices/products that will bring revenue inthe current year. Research products are thesource for future new products andinnovation. The result is that DataConnection now has hundreds of customersand thousands of different products across aspectrum of communications technology.

Like other leading companies in the sameindustry, Data Connection is currently facingimmense competition from the entry ofcompanies from the developing countries,where the cost of software development is alot lower. The global downturn in recenttimes has also affected the way DataConnection handles its market. In the earlydays, Data Connection’s reputation alonewould have secured enough customers tomake a handsome profit. In recent times,Data Connection has responded with asignificant marketing team comprising 25 to30 staff to tackle the ever increasingcompetition in the industry. However, DataConnection firmly believes that the originalstrategy holds. Ferguson explained: “Overthe last few years, customers have learnedthe hard way that it is necessary to scrutinisesuppliers for their financial stability, and fortheir ability to deliver what they promise.”

Another senior member of staff at DataConnection concurred, “The way we feel wehave been successful in doing this is byensuring quality. In this industry, quality issomething that you have a reputation forand that is why you get customers comingback to you again and again. Because if youdeliver what you say you’re going to deliver,and it works, and you do it on time, in thisindustry, that’s very rare. And so you willfind that the customers are prepared to pay apremium for quality.” This strategy meansthat not only is Data Connection successful,it has also found a way to create a highvalue-added niche.

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RECRUITING NOTHING BUT THE

BEST TALENT

Data Connection functions around teams. It builds its teams through recruitingindividuals of ‘exceptional’ ability.Historically, Data Connection has found A-level results a better predictor than degreeclass for individual performance. Typically,the applicants are expected to have all Agrades at A-level. Beyond that, the companylooks for good interpersonal skills, technicalaptitude, energy and enthusiasm.

To become a Data Connection employee isnot easy. For a start, there are over 3000applications for the 20-25 vacancies availableeach year. Data Connection takes recruitmentso seriously that there are a number ofhurdles that potential candidates have to gothrough. Firstly, candidates attend apreliminary interview which lasts a wholeday and includes tackling technicalproblems. Data Connection uses thispreliminary interview to identify appropriateaptitudes in software engineering becausethat’s what it’s all about.

Candidates invited back for a secondinterview face further tests. These includeattending a social gathering organised ontheir behalf. On a Wednesday afternoon, thecandidates spend some time at DataConnection with current staff and then theyare taken out for a meal. The evening meal isintended to be a chance to get to know thepotential candidates socially. The candidatesthen spend the whole of the following day atData Connection, during which time they doa presentation as well as having anotherinterview with one of the senior managers.

At Data Connection, recruitment is almostentirely for entry positions as they believethat it is of utmost importance for futuresuccess, to identify young talent and trainthem in the company’s culture. Graduatesthat started in August 2003 will typically beearning a package of £30,000-£40,000 by theend of their first year. As starting salaries,these are very high by any standard andpostgraduates are often paid more.

A PROCESS OF CONTINUOUS

DEVELOPMENT, APPRAISALS AND

PERFORMANCE TARGETS

Continuous development is a seriousbusiness in Data Connection and is afundamental part of a manager’sresponsibility. During their first year, a newrecruit may also be given a mentor toprovide day-to-day advice and guidance. But,more importantly, everyone has a formalindividual development plan that records thedevelopment process of an individual everythree months. The development includestechnical skills as well as personal skillsdevelopment. The exercise is so importantthat continuous development literally goeson forever. Everyone has at least one fullreview and three or four development planseach year. “I can show you my developmentplan that goes back over 20 years”, companyaccountant and human resource director,Derek Brooker, proudly emphasised.

In addition to this, a review is carried out bythe employee’s manager and normally heldevery nine months. In order that themanager pays sufficient attention and timeto the development of an employee and stillhas time to do his/her work, Data Connectionmakes sure that a manager only looks after 4to 6 employees. This review also doubles upas an appraisal and lists all the tasks that anemployee has done. It gives an assessmentand some advice about how they canimprove their performance, and this overallassessment is then linked to both long-termand short-term development goals. Indeed,considerable investment is made intodeveloping the 250 staff, with £3m spenteach year on training.

The review and development plan are veryimportant in growing the business. DataConnection uses this development processto identify the potential of a new employee,including strengths and weaknesses. Anemployee will be encouraged to become atechnical guru if they are particularly strongon the technical side. On the other hand, ifthe employee is good at managing people,they move all the way up through

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managerial positions and responsibilities. “It is the norm that staff who are at the verysenior level of management were taken onas graduates… including managing abusiness unit that generates £10million ayear.” Brooker commented.

Targets are set, but they are not part of anindividual’s appraisal or review. Targets areset for the five business units and themanager has to manage the team to deliverthe targets. All the business unit managersreport to the Chairman.

PERFORMANCE, REWARD AND

STAKEHOLDING

Data Connection has a strong notion of profitshare. Through the employees’ benefit trust,Data Connection is owned by the employees.Every year the majority of the profit thatData Connection makes is distributed to theemployees as the company is keen to rewardemployees handsomely for producing profitsyear after year.

Individual employees’ profit shares arebased on contributions, which are carefullyassessed and measured every six months.Each manager makes an assessment of thestaff for whom they are responsible, thatthen builds up into the unit’s contributionwhich, in turn, builds up into a company list.In the final analysis, Data Connection has anoverall list where every member of staff isranked and the profit share is allocatedbased on that ranking.

As the company has been making significantprofits since its beginning in 1981 – profitsexceeding 20% of total revenue every year –profit sharing has been a very importantmotivating factor for future performance. It also forms a significant commitment factoras profit sharing is only allocated to thosewho are employees at the company. Theprofit share scheme guarantees an additional7.5% of salary and depending on thecontribution, an additional sum varying from£1,250 to more than £100,000 in 2003.Brooker emphasised, “There is a lot ofloyalty amongst our employees. People areloyal to the company because they know thatwe look after them. One of the things that wealways try to achieve is the position where

people should not have to worry about theirremuneration package. This leaves them freeto concentrate on what they’re doing.”

However, the low staff turnover cannot be attributed solely to profit sharing.According to the The Sunday Times 100 BestCompanies to Work For 2004 survey, 83% ofstaff felt cared for by management and feltthat they were always supported when theyneeded to learn new skills.

FLEXIBLE WORKING AND STAFF

RETENTION – THE COMPANY MEETS

YOU HALF WAY

“If you have very good people, you want tohang on to them.” In order to retain goodstaff, Data Connection encourages flexibleworking wherever possible to meet staffneeds. This support is reflected by anunusual move that took place some yearsago. There was a feeling that some staff didnot want to work in the south-east – in factthey didn’t want to work anywhere nearLondon. Data Connection therefore openedan office in Chester, and those who wantedto move went to work there. This was furtherillustrated by the company opening offices inEdinburgh, Washington (USA) and SanFrancisco. This development of becoming amulti-site, global company evolved partly asa result of staff’s desires to work in certainareas and also from Data Connection's needto have people in different locations as thebusiness grew.

With many offices in different parts of theworld, Data Connection has created anotheremployee benefit – people can work fromEnfield, Chester, Edinburgh, overseas officesor home. Not surprisingly, The Sunday Times100 Best Companies to Work For 2004survey also showed that 75% of staff werehappy with their work-life balance.

To be a world class performing company,Data Connection seeks and values itsexceptionally targeted workforce. It has asimple formula, that is, with success, youneed to reward hard work, innovation andcommitment handsomely. For 23 years, theformula has worked wonders for DataConnection.

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the flights and travel market. Not only hadprices and profits been slashed, but thedownturn following the 9/11 attack hadmeant that some of the major airlines wereno longer paying any commission to travelagents, which used to be 10-15%. This left

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Service/Product: Travel agency

Turnover: £19.4m

Size of the workforce: 550 employees

Earning £35,000 p.a.: 14%

Famous for: One of the world’s fastest growing travel agencies with over 1,000 locations in 2004

The business strategy: Shared high performance and profit – one big global family and “One Best Way”

High performance learning points:

• Able to bring coherence to a global team through the practice of“One Best Way” and a variety of communication devices – sometraditional and some innovative;

• Use the “One Best Way” system to enhance staff mobilityglobally and deliver customer satisfaction;

• Incentivise employee performance through ownership, self-managed teams, transparency and ‘no-cap’ performance-based reward;

• Use a flat hierarchy to encourage ‘unity’ and the emergence ofleaders and leadership;

• Training and development, including the use of a learning centre,are fundamental in providing new skills and leadership;

• Use of many company benefits such as Money Wise and HealthWise, to support the well-being of staff.

CASE STUDY

FLIGHT CENTRE UK

Shared high performance and profit – one big global family and“One Best Way”

Flight Centre, the low cost travel specialist,began operating in the UK in 1995 and thebusiness grew rapidly. By 2004, Flight Centrehad expanded to 84 high street shops with atotal of 500 staff. Such rapid growth wasunusual at a time of intense competition in

Flight Centre needing to re-position and,with the continuous search for innovativeways to create profit, the company hascontinued to thrive.

THE INDUSTRIAL CONTEXT AND FLIGHT

CENTRE’S BUSINESS STRATEGY

Like its competitors, Flight Centre UK pridesitself on the one-stop client package andguaranteed cheapest flights. Travelconsultants at Flight Centre organiseeverything for the client, from bookingflights, accommodation and tours through totravel insurance and visas. But unlike others,Flight Centre’s approach is to provide a highlevel of service that will not only surpasscustomer expectations, but will have themcoming back regularly to Flight Centre and tothe same consultant.

Being part of a global company is seen as amajor advantage in this business, givingFlight Centre the ability to offer their flights50% cheaper than competitors in somecases. However, being global could also be apotential disadvantage, with shops spread allover the UK and worldwide. In order toensure a sense of being part of a globalteam, with a shared philosophy and cultureand equally importantly, to ensure consistentlevels of service and high performance,Flight Centre uses a system known as the“One Best Way”.

“One Best Way” is a standard organisationalsystem for the everyday operation of FlightCentre shops, wherever they are located. The standard system is not static andunresponsive. If an innovative practice isdeveloped in one shop in the UK, it will beextensively discussed and then, if useful,adopted across Flight Centre businessesworldwide. As Susan Garret, ManagingDirector of Flight Centre UK, commented,“Obviously, we don’t say that there is onlyone way, and we won’t even look at otherways of doing things. It’s become a bestpractice and then, we’ll decide whether that’sthe best way forward for all of us globally.So that’s something that we will continue torevisit… but there is one best way”. In fact,staff at Flight Centre “get together four orfive times a year to work out as a globalcompany which is the best practice and all ofus follow that practice.”

The “One Best Way” approach has an addedbenefit for staff mobility, both ingeographical and developmental terms.While there are many different unitsthroughout the world, staff can move fromone branch to another, or set up their ownbranch, knowing that the basic operatingsystems will be the same. Susan Garret, whoherself moved from South Africa to the UKjust three months before, noted: “I thinkwhat we base that on is because we are aglobal company. It enables our staff to pickup their business and move across toAustralia and know exactly how we operate,because we all work in the same way.”

This consistency is equally important incustomer service. “The customers know nomatter what country they are in, they will getthe same level of service. So our stores, nomatter where you go, look exactly the same,our consultants wear the same uniform. Theway we handle our transaction is done thesame way throughout the world.”

EVERYONE RUNS THE BUSINESS: PROFIT

SHARE AND TEAM PERFORMANCE

Flight Centre UK wanted to create a hard-working and fun company. One way toachieve that is to make ownership central towhat the company does. Following a recentcorporate restructuring exercise, instead ofbeing a centrally-organised company, eachshop effectively became a business and nowmakes its own decisions about what costsare required for the everyday running of thatspecific shop. It is about “each businessactually owning what they do and beingaccountable and responsible for what theydo”, Lin Hilditch, Human ResourcesManager, emphasised.

High performance is incentivised, not onlythrough the shop level of ownership, butthrough individual ownership. As well astargets for each shop, and for each teamwithin that shop, each member of staff hastheir own targets to achieve. In addition,each individual staff member profit sharesand manages expenditure in order toproduce a profit. As such, business senseand performance are central skills for eachmember of staff. Hilditch further commented,“…all of our people in our stores run theirown profit and loss statements. They all

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work on incentives and commission. They’reall 100% in control of their own business.When people are employed, we train them inthe Flight Centre way of running a business.And I think if anyone asks me what is thebest thing that I have learned from FlightCentre, and that’s right from day one, it’show to run a business.”

Flight Centre’s approach is performanceoriented. Staff are paid a basic salary, andthere is no cap on the commission that theycan earn. Some of the most successful staffin 2003 earned £30,000 within a year ofjoining. As each person has a profit and lossaccount, each individual has a target oncosts. So everyone pays for their own phone,their own desk, their own accounting feesand when they make a profit, they get apercentage of their profit.

Flight Centre UK is keen to stress that everyindividual within each shop is part of thesuccess of that shop. So while targets aremonitored individually, the close-knit teamswork together to support and developpeople, new and established. As Hilditchremarked, “There’s the rest of your team.Even though we talk about the individual, it’s very much a team focus and by keepingthose teams small, it means they work foreach other. So if somebody is out on atraining course or on holiday, the rest of theteam will look after your client base for youand will be given the same level of servicebecause, at the end of the day, what goesaround comes around.” In fact, the teamsare so important that ultimately the teamchooses any new employee. Potentialrecruits are sent to work at a shop for a day,as part of the final stages of recruitment sothat staff at the shop can see if they canwork as a team.

COMMUNICATION IS KEY

Part of the continued success and highperformance of Flight Centre UK is theconstant communication between differentshops in the UK, and between the leaders indifferent areas. This communication takes anumber of forms.

Information is shared in weekly meetingsbetween management and team leaders, andthen fed through to everyone else. Anewsletter is regularly circulated to all staff,

including details of everyone’s progress anda national handbook is produced once amonth, providing individual rankings andteam performance across the UK. Anothercommunication tool is the Intranet, whichhas figures, facts and successes updated ona daily basis. This tool is particularly usefulnot only for sharing information, but inenabling teams to compare theirperformance against others. This enables avery high level of “healthy” internalcompetition between teams to drive upperformance and profit.

Regular conference calls are held betweenHR managers or directors nationally andthey also attend national and global businessforums in order to share good practice andinformation about what has workedelsewhere. In addition, regular SWOT(Strengths, Weaknesses, Opportunities andThreats) meetings are held among 6 of thekey UK management teams and everyoneattends a national conference in the UK.

In order to reward good performance, thereare monthly meetings in each area torecognise the top performers. Thoserecognised as among the very best travel toFlight Centre’s ‘Global Competition onPerformance’, which has awards recognisingdifferent rankings including best improvedperformance. This form of communication isimportant in sharing and developing thecompany culture and ethos across widelyspread units. It is also useful in creating ahealthy competition. As Garret remarked,“everyone is talking to each otherconstantly”.

LEADERSHIP, UNITY AND

EGALITARIAN TREATMENT

Flight Centre UK seeks to operate a flathierarchy between their ‘shop front’ travel consultants and the ‘back office’management and operations. Leadership byexample is key to their operations: “…wedon’t have any ‘managers’ at Flight Centre,everybody is a leader. That means that, in astore environment, the leader is in exactlythe same role that the consultant is doing.So they have proven they can do that and,therefore, they can train and teach the otherguys how to do it by actually showing themthe way as opposed to telling them how todo it,” Hilditch commented.

Within the flat hierarchy, the front line staffare seen by Flight Centre as the ‘drivingforce’, being supported in their work by arange of departments. This flat hierarchy isconsistent with both the “One Best Way”ethos and the company’s core philosophy of“Unity” to ensure that all staff are treatedequally. For example, everyone wears thesame recognisable uniform regardless oftheir position. Flight Centre staff feel that thisincreases the accessibility of the leaders.Hilditch emphasised that: “When staff seeSue Garret walking in and wearing the sameuniform, it really sends a very strongmessage to everyone.”

Similarly, everyone is treated in the sameway when it comes to benefits and perks ofthe job, regardless of their position in thecompany. Garret emphasised that this“unity” was not only a philosophy, but adiscipline: “I mean because everyone isdriven by the same end result, there are noperks for anyone… no-one has a privateoffice. No-one has a secretary. Everyonedoes their own back office work. When wetravel we all travel together in the sameclass. It’s a very fair structure. … You arecelebrating unity. You are celebrating unityas a discipline. It’s very flat.”

SHAPING BEHAVIOUR AND DRIVING UP

PERFORMANCE AND INNOVATION

THROUGH INCENTIVES

Profit sharing is a key element in driving upperformance. However, a range of incentivesare used in order to shape the kinds ofbehaviours that Flight Centre recognise askey to success. Innovation is highlyrewarded, particularly in a market whereprofit margins are slim and innovations canmake a big difference to the everydaybusiness. Each year a Director’s Award isgiven for innovation.

Indeed, as Garret, Managing Director in theUK, reflected: “There is no secret in FlightCentre's successes. We highly incentiviseand you get the right behaviour.” Oneexample was in insurance policies, whereprofits are slim but, with innovation, goodcommission can be earned. In order toenhance performance in selling thesepotentially more profitable products, FlightCentre restructured its incentives system toreflect the importance of these products.

“In a matter of 8 weeks, we’ve gone fromselling an average of six policies per personto 15, and that is through driving the rightbehaviour. So I think it’s aboutunderstanding people’s behaviour andlistening to our consultants about howdifficult it is to sell a £64 flight and makeenough margin to make a profit off it.” Assuch, it is not only about demanding highperformance and outcome in certain areas,but about rewarding that behaviour.

DEVELOPING HIGH FLYERS AND TEAM

MEMBERS: TOP FOR TRAINING AND

DEVELOPMENT

Leadership potential is continually soughtamong staff and this practice is backed byinternal promotion. This internal career pathhas meant that 90% of Team Leaders havebeen promoted internally. A continuousprogramme of training and developmentstarts from day one. This means that FlightCentre focuses on developing its own peoplefrom the first day through to their fullpotential. As a result, Flight Centre wasrecently awarded the number one place fortraining and development at The SundayTimes 100 Best Companies to Work For 2004.

A range of training and personaldevelopment is provided both in the office,and in the Flight Centre UK Learning Centre,and covers a range of areas that are built upas the individual develops. A LeadershipDevelopment Programme is providedspecially for those identified as havingleadership potential. To support training anddevelopment, monthly one-to-one sessionsare given. These one-to-one sessions areeven more regular for new employees, andprovide continuous feedback and theopportunity for staff to air any problems orareas for development.

FIT, HEALTHY AND HAPPY AT WORK

Flight Centre sees staff fitness and well-being as a key factor in high performanceand happiness at work. Staff have access totwo benefits packages aimed at ensuringtheir personal and financial health and well-being. These are called Health Wise andMoney Wise.

As Hilditch commented, “They actuallyoriginated with the CEO. For example, HealthWise was something that he wanted to offer

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to the staff as a more Flight Centre focusedbenefit, as opposed to outsourcing it toMedicare. He established the facility thatcould get to know the staff, wouldunderstand the stresses and strains of thejob, and could really look after our staff.”

Staff are introduced to the Health Wise onjoining. They have a personal health andfitness consultation, followed by “a lifestyleassessment”. An individual training plan canthen be formulated. “It could be a fitnessassessment, it could be a lifestyleassessment, it might be you’re wanting tolose weight or you might be wanting to trainfor the London marathon and they’ll actuallygo out and assess that and set up theprogramme for you that’s relevant”, statedHilditch. Personal training sessions can beorganised to get them started, and trainingequipment can be taken home.

Fitness and being active are not onlyencouraged to promote well-being andhappiness, but are seen as key attributes ofthe kinds of high performers, who work hardand play hard, that Flight Centre tends torecruit. Indeed, an active social life is also apriority for Flight Centre UK. Regular funteam events and social events that bringtogether staff from different outlets areorganised by the Health Wise team.

Money Wise operates in a similar way,providing professional financial advice tostaff, helping them to make the most of theirhard-earned rewards and profit. This againpromotes staff performance andcommitment. Money Wise staff regularlyvisit the different Flight Centre branchesaround the UK, offering confidential adviceas well as group presentations. Advicecovers pension schemes, healthcare andbonus schemes that operate within FlightCentre UK, and can also include advice onissues from basic budgeting, moneymanagement and tax, through to advice onproducts such as insurance, mortgages andinvestments.

Taking all the Flight Centre’s practicestogether, it is clear that Flight Centre striveshard to foster performance and to look afterthose who create the performance. Thisbalance is reflected by the results in TheSunday Times 100 Best Companies to WorkFor 2004 survey. Flight Centre came out topon more questions than any other company,coming number one on 17 out of a total of65 questions. For Flight Centre, driving forperformance does not come at the expenseof being a good employer.

Compared with other established advertisinggiants in the industry, i-level is a new kid onthe block. However, with a total of 25industry awards in the past five years, plusthe latest accolade of Revolution magazine’sAgency of the Year and one of the SundayTimes Top 50 small companies to work for in

2004, the vision of its two founders – Charles Dobres and Andrew Walmsley – hascome true.

i-level originated from two separate ideas.Walmsley was doing an MBA project thatexamined whether there was an emerging

Service/Product: Digital media agency

Turnover: £12.3m

Size of the workforce: 60 employees

Earning £35,000 p.a.: 33%

Famous for: One of the most innovative digital mediacompanies with 25 industry awards in five years and an ambition to become the “defining media company of the decade”

The business strategy: Spotting a new product, finding a new approach and building a new industry

High performance learning points:

• Builds the necessary expertise to support an emerging on-linemedia market;

• Uses a set of five values to guide the creation of better customerservice for a new industry;

• Uses work re-design to remove hierarchy, to encourageparticipation, creativity, communication and collaborativeteamwork;

• Uses 360 degree appraisals to encourage the transparentassessment of the performance of all, including the directors, and to support the value-set of the organisation;

• Recruits on the basis of the personal attributes necessary to winover new business; these include the passion for success!

• Uses various devices to support creativity and innovation such aspersonal recognition and team-based ‘pitch competition’.

CASE STUDY

i-LEVEL

A case of new product, new approach and building a new industry

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digital media market. His research showedan increasing gap between advertisingmedia buyers’ demands and what the marketcould deliver. Dobres was disenchanted withthe inadequate treatment offered bytraditional advertising agencies for onlineclients. The end result was the formation ofi-level in 1999. i-level’s aim was to specialisein digital media advertising, via the internet,e-mail and mobile phones, with a declaredmission of becoming the “decade-definingmedia agency”. Its very focused approach toa new digital media industry – which i-levelhelped to define – resulted in immediatesuccess, with the signing of easyJet and thencompanies such as Yell and Smile as earlyclients. i-level currently represents otherfamous names such as Coca ColaEnterprises, BT, VSO, Specsavers, WilliamHill and the government’s publicityprocurement agency, COI Communications.

THE INDUSTRIAL CONTEXT AND i-LEVEL’S

BUSINESS STRATEGY

Despite the emergence of online advertisingopportunities in the latter part of the 1990s,via web sites, email and mobile phones,most traditional advertising agencies wereslow to capitalise on the emerging demand.In fact, because the systems of television,cinema, radio and press advertising hadbeen so well established, most traditionaladvertising agencies were treating onlineadvertising as an ‘add-on’. As a result,although these agencies had web or onlinemedia planning departments, most of these‘add-on’ departments tended to be small,consisting of just a few persons. Onlineadvertising had yet to be treated as equalwithin the traditional media advertisingindustry. Dobres recalls his observation of aprevious traditional media advertisingcompany: “No-one really wanted to beinvolved too much and the clients would geta couple of slides on on-line stuff at the endof a presentation… or they would neverspend any money on it.”

Deriving its guiding principles from fivevalues – humanity, openness, diligence,enthusiasm, integrity – i-level wanted tofundamentally change the way theadvertising industry dealt with clients foronline media. Dobres and Walmsley believethat the five values, together with the waythey communicate i-level’s service approach

to clients, form the strategic principles totheir immediate success and i-level’sprofitability in every year since its existence.

Dobres’ analysis on the success or failure of the industry is deceptively simple. “Inadvertising, including online media, there isa truism that says ‘you win a client becauseof great work; you’d lose a client because ofpoor service’, but great work is quitesubjective. So the poor service is guaranteedto lose you a client.”

As a result of this understanding, i-level’sstrategy was to create a workforce thatwould utilise the five values to deliver adedicated customer service. And in order tocreate a well-defined market, i-level adoptedthe education campaign for their potentialclients that: “You need a specialist, andonline media is a specialist discipline whichrequires new practices, unlike the press ortelevision.” By projecting a proper ‘solution’to the customer, i-level simply advertiseditself as “We do online media. That’s it.”With this strategy, i-level won the easyJetaccount within the first few days. Other bigclients followed within the next six months.

CREATING AN ENVIRONMENT

FOR SUCCESS

i-level’s five guiding principles – humanity,openness, diligence, enthusiasm, integrity –are in effect a framework to ensure betterinternal and external fit.

Internally, this has lead to a complete re-design of the way that people work. Mostimportantly, i-level sees hierarchy, and thephysical arrangements to support hierarchy,as an obstacle to communication, creativity,teamwork and organisational values. In thetraditional big media companies, hierarchy isreinforced by putting workers in ‘boxes’ orrooms, in long corridors and on differentfloors. Dobres believes that these physicalarrangements allow hierarchy to create “adegree of significant separation in variousforums.” So a complete open plan office isthe environment in which staff at i-levelconduct their normal day-to-day operations.

The benefits of such an approach, to anorganisation with 60 staff, can be subtle –just how do you create an efficientcommunication network among that many

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people? By allowing staff to chat asinformally and as often as they need, theenvironment creates what Dobres calls“ambient knowledge”, seen as the necessaryingredient to enhance communication, ideasand collaborative work. “For example,people can place the wrong emphasis onteamwork. You don’t make people be a team.You create an environment and processes,and then they’ll work as a team.”

If this open plan approach is done well, i-level believes that, to some extent, this caneven become the alternative to staff opinionsurveys and appraisals. For example, i-levelbelieves “knowledge is power” and that, intraditional organisations, too many workarrangements enable only a few keyindividuals to hold the relevant knowledgeabout the organisation. i-level wants asmuch information as possible to be availableto staff and to allow staff to participate in allthe debates. An open plan office with all thenecessary “ambient knowledge” is seen tofacilitate this. Dobres explained, “I thinkwhat we do for people is to help them feel ‘Iknow what’s going on’. And that sense ofknowing what’s going on gives people the‘permission’ and the environment to talk toanyone else because if they are willing to tellme that, they’re probably willing to have adiscussion with me”.

i-level carries out a 360 degree appraisalsystem once every year for everyone,including senior management, and this isanother tool to link into its five values andappraise performance. But because i-levelplaces so much emphasis on the open officeand its community environment, senior staffactually believe that “To appraise staff oncea year, that is good. But our approach is also try to do it every single day, in that open office environment!”

PERSONAL ATTRIBUTES FOR

ORGANISATIONAL PERFORMANCE –

IN SEARCH OF “PASSION”

What is the difference between thetraditional media advertising market and the digital/online media market? “From afunctional point of view, the difference isspecialisation. But from an emotional pointof view, the difference is passion,” Dobrescommented. “You can’t create passion. You have to have it, but if you have it you

have to communicate it. This will lead you to the market.”

The connection between performance and“passion” presents an interesting angle torecruitment and development. As theindustry is still relatively new, the chancesare that many people do not have thenecessary skills. Hence, i-level tends to lookfor people who really want to make adifference in this industry, and not justbecause they really like online advertising ordigital media. Dobres explained, “This issomeone who when they get intosomething, they will be absolutelypassionate about it, and they will not just ‘dothe job’.” Hence, a lot of the recruitmenteffort at i-level is on ascertaining the attitudeorientation of potential staff. “In a fastgrowing company, your recruitment issomething that can bring a company down if you don’t get it right.”

The common denominator is passion, but i-level wants to recruit as many differentpeople as possible. i-level sees diversity as astrength in an industry that requires differentideas and innovation. In addition, i-level isconstantly seeking appropriate staff to bepromoted to lead the company. This givesthis passion for success a goal.

i-level also finds that if passion is thefundamental building block for performance,pay takes on a different role. Pay isimportant. i-level put aside 15% of its pre-taxprofit in 2003-4 for performance bonuses,and share options are available to all staff.However, it is emphasised that: “People wantto work at i-level because it is the kind ofworkplace they want to work in.” In thisinstance, pay becomes a hygiene factor (i.e. there is a minimum level of pay that isimportant, but beyond that it is what i-levelrepresents that matters). Pay is necessary,but not the primary motivating force.

SUPPORTING PERFORMANCE THROUGH

CREATIVITY AND INNOVATION

i-level encourages staff creativity throughrecognition and support. Formal recognitionis important and the “i-leveller Monthly” andall-staff meetings help to do this. Throughthese, recognition is regularly used tocelebrate innovation. For example,recognition is given through the “Leveller of

47

the Month” award, in which a member ofstaff is nominated by staff for the greatestcontribution to the agency and the winneralso gets a prize. i-level believes that it isimportant to promote a particular cultureand to back it with formal recognition andsometimes “spot bonuses”.

i-level also enters a significant number ofexternal competitions and awards. To puttogether a paper or a case study for anaward, requires an entire media campaign tobe condensed into just one or two sides ofA4. The practitioners write the competitionentry, but consult senior staff such as Dobresor Walmsley and then senior staff help juniorstaff to “fine tune” their output. Entry intothese competitions, and winning suchawards, brings the additional benefit ofgiving exposure to this work not onlyexternally, but within the company.

In addition, an internal “pitch competition” isorganised among teams, which are givenfictitious briefs to respond to. Thiscompetition is intended to encourage mediapractitioner innovation. Well-known peoplefrom the industry are invited to judge thecompetition and again prizes are given.

As well as the external courses for thenecessary technical and craft skills in mediaadvertising, i-level has an unusual “wildcard” training budget, whereby everybodywho works at i-level is given an annualallowance for personal training anddevelopment purposes which should haveno apparent connection with work. The ideais to develop the skills and interests of staffin areas not considered before. This isexpected to enhance i-level employees’innovative ideas at work throughexperiences outside the immediate areas of work.

At i-level, innovation comes fromunexpected directions. This is a reflection ofthe kind of passion that means people wantto do things better and do them well. Forexample, an IT information managementsystem, known as the ‘campaignmanagement system’ has been designed and introduced to significantly improve thequality of workflow and job satisfaction ofstaff. The introduction of the IT managementsystem tackled a number of issues

simultaneously. Work with a media clientnormally takes many stages, from planningto placing media space on websites and isoften labour and process intensive. i-levelobserved that the more complex the processwas, the greater the chance a mistake wouldbe made. From a commercial point of view,i-level was not happy with the inefficiencybut, more importantly, it also meant thatmedia practitioners were bogged down withadministration – the kind of work that theydid not find particularly motivating.

The IT solution turned out to be a workflowre-engineering project. Partnered with asoftware developer and taking 18 months, i-level has designed its own “campaignmanagement system” to manage workflow. It was the first in the industry and i-levelretains part ownership of the intellectualrights to the system. Under the newcampaign management system, it bringstogether all the stages of work into onesingle interface. This compares much morefavourably with the previous system, whichrequired spreadsheets and other monitoringdevices. “It’s really quite revolutionary.Which means that we have something whichis creative, and time-saving - we estimateabout 30% saving in the process so far, andit’s still developing. It is crucial to make thejob far more interesting for planner/buyerswhile the administrative work is nowhandled with fewer mistakes.”

PERFORMANCE IN MANY WAYS

Walmsley and Dobres wanted to create adifferent and high performing workplaceand, at the same time, to be financially verysuccessful. The level of year on yearprofitability that i-level has delivered reflectsthat. This performance even carried i-levelthrough the global downturn in 2001-2.Many media advertising agencies wentunder, made redundancies or merged withrivals. Nobody was laid off at i-level, thoughthe industry was badly affected, and i-levelstill managed to grow that year. i-levelcontinued to invest in training throughoutthe period and Dobres recalls his reaction tothe crisis: “We think this will take 18 monthsfor us to come out of. If we don’t layanybody off, continue and develop, at theend of it, we will be ahead in terms ofcapacity and ability over everybody else. We will profit from it. And that’s exactly

46

what’s happened.” In fact, a contingentredundancy plan had been made, but hassince been destroyed.

“Investing in staff during an economic downturn”, is almost a fantasy idea in humanresource text books. But for i-level, it is truebecause, as Dobres added, “The waythrough is about belief and passion, and atthe end of the day, we also make goodmoney out of it.”

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In May 2004, Manchester Online reportedthat whilst the majority of legal firms in theregion had been struggling to make anygrowth in what was a very difficult year forthe industry, Pannone & Partners was thefastest growing legal firm in the Northwest

of England, returning a 20% growth inturnover and a 22% growth in profit.

Pannone & Partners’ success was based on a‘balanced growth’ strategy. The ‘balancedgrowth’ strategy, which contrasts strongly

48

Service/Product: Legal firm

Turnover: £26m

Size of the workforce: 500 employees

Earning £35,000 p.a.: 29%

Famous for: Using work-life balance as a reward for a hugelycommitted workforce

The business strategy: Balanced growth for competitive advantage

High performance learning points:

• Builds a business strategy which reflects the organisation’s self-awareness, which enables it to capitalise on its strengths;

• Clearly demonstrates the importance of the managing director taking thelead to create the organisational culture necessary to support its strategy;

• Able to create a workplace environment through work-life balance whichestablishes the link between a highly motivated workforce and a strongcommitment for organisational success for all;

• Uses an emphasis on quality of work experience to cultivate a strongsense of fairness within the workplace which secures the retention of thebest staff;

• Rewards staff through time off to engage in private pursuits rather thanthe use of financial incentives. Performance appraisals not linked to thefinancial reward system. Values employees’ own time above excessivetime commitments to the company;

• Use of an ‘under-one-roof’ strategy to tap into the benefits of internalcommunication through undefined networks. This effective form ofcommunication creates a sense of openness and ownership oforganisation.

CASE STUDY

PANNONE AND PARTNERS

Balanced growth for competitive advantage

with that adopted by the firms’ competitors,means two things. Firstly, the firm maintainsits involvement in both the commercial andprivate client sectors. Pannone & Partners’strategy appears to be in the minority, asmost of its large competitors have beenconcentrating on the more ‘lucrative’commercial sector.

Secondly, in order to maintain a moreeffective and coherent workforce with itsown brand of people culture, Pannone &Partners has chosen to stay with a single-sitestrategy – with all its staff based in theManchester office – while many of itscompetitors have been opening offices inother cities in order to build market share.

THE INDUSTRIAL CONTEXT AND PANNONE

& PARTNERS’ BUSINESS STRATEGY

In 1989, changes were made to theadvertising law in the legal industry.Subsequently, marketing professionalsbegan to appear in large law firms, bringingabout visibly greater competition amonglegal practices. However, higher competitionalso means that profit margins from clientfees may be squeezed, especially in theprivate client sector. The knock-on effectbrought two developments in the legalindustry: a growth in mergers in order tocapture greater market share and to diversifyinto a wider range of specialisms; and largerlegal firms concentrating on the commercialsector where higher fee returns are possible.

Pannone & Partners chose to maintain anequal profile between the commercial andprivate client work. As well as being ahistorical factor, achieved through earlymergers between legal firms with differentclient bases, this strategy of having a‘balanced approach’ brought greater stabilityto the business.

In the commercial sector, there are morepeaks and troughs in terms of the volume ofbusiness compared with the private clientsector. Indeed, the commercial sector hashad a very difficult period in which growthhas been relatively flat. This has beenreflected by the general slow growth amongmost commercial client firms in 2004. Theprivate client sector such as personalinjuries, on the other hand, is largelyunaffected by fluctuations in the economy.

Thus, for Pannone & Partners, the privateclient sector provides a certain degree ofstability. This approach makes the firmalmost unique among its competitors.Deborah Ascott-Jones, Pannone & PartnersDirector of Marketing, said “You cannot findanother legal firm of a similar size inManchester who has the same profile as us!”And with stability, there comes enhanced jobsecurity and greater focus in work.

However, it would be wrong to assume thatPannone & Partners wants stability for thesake of it. The key to the firm’s strategy is tonot be dependent on any one sector, inwhich case any significant economicfluctuation may create massive redundanciesand the associated negative effect on staffmorale, their commitment to the company,sense of achievement, and the immenseinterruptions in their career and private life.“The ‘balanced approach’ gives us lots ofbusiness continuity-type advantages.”Rachel Dobson, the Director of HumanResources emphasised.

In addition to job security, the Partners in thefirm are very clear that they want to strike abalance between creating a successful firmand encouraging staff to “have a life”outside work. To the people working at thefirm, at the end of the day, their work is partof achieving a particular lifestyle. “If wewanted to have a mega, mega successfulfirm and earn twice what we earned, then Iguess we could. But the fact is that we don’twant to. To do that I think you would have togrow more rapidly, with more mergers andhave multi-sites, but we’re not interested ineither.” Rachel Dobson commented. “When Ijoined, there was a turnover of £6m and Ithink the total staff was about 200, and nowit’s almost £30m and a total staff of over 500.But the firm has retained its character whichis quite an astonishing achievement.”Pannone & Partners is very careful abouthow the firm grows and how it may affectthe employees’ welfare. Namely, achievinghigh performance should not be at theexpense of quality of life.

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OBTAINING PERFORMANCE THROUGH

WORK-LIFE BALANCE AND RETAINING

GOOD STAFF

Within this brand of people culture, ‘work-lifebalance’ is seen as the most strategic tool tobuild a competitive organisation.

Recruitment agencies have told Pannone &Partners that it is one of the most soughtafter employers by people who are on themarket looking for a better employer. Thefirm’s well-known work-life balance policyand strong market position mean that thefirm does not have to consider offeringspecial packages in order to attract the bestpeople. In the south, it is well known thatlegal firms are often competing with eachother for better candidates through endlessoffers of flexible packages. “People just wantto work for us,” Dobson explained.

To some extent, the north-south divide in thejob market has enabled Pannone & Partnersto chart the course it wants. The conditionsin the south-east, in comparison, are morebuoyant than those in the Northwest.However, good fortune alone cannotguarantee a leading position, and Pannone &Partners’ way of creating an exciting andhappy workplace has not been achieved byaccident. Indeed, one person, Joy Kingsley,the Managing Partner, was singled out asresponsible for developing the firm’sparticular performance ethos.

At the conceptual level, most effective ideasare often quite simple, and Kingsley’sapproach is no different. Fundamentally,Kingsley sets out to create an excellentworking environment so that all staff –partners and other employees alike – canwork effectively together as a closely-knitunit, all under one roof. Within thisorganisational format, hard work,informality, good communication,participation, fairness and a good work-lifebalance are all basic ingredients of a highperforming workplace. To this end, goodperformance is not only rewarded financially– through bonuses – but also through moretime off for private pursuits and otheractivities outside work. Indeed, Kingsleyemphasises the latter over the former.

Ultimately, Pannone & Partners uses thisstrategy to retain good people. By retaininggood people, who are important to the firm’sfuture success, Pannone & Partners can givemore to its employees for a better work-lifebalance. The result is therefore a reinforcingvirtuous cycle.

“Keeping staff here is hugely important tous, and it is a top priority. We have a verylow turnover of staff, and that isn’t anaccident. I think one of the big reasons thatpeople stay is because of our approach topeople and work,” Dobson emphasised.“Another reason is the philosophy and therecognition that people have a life outsidework, and Joy believes that it is the mostimportant thing to absolutely everybody. It doesn’t matter who they are, time is theone thing that you can’t buy, and the abilityto have time back is something that peoplevalue hugely, and it’s one of the ways thatwe reward people. And so, if somethinggood happens, like winning a major client,we do give people days off.” At Pannone &Partners, giving days off to staff meansgiving time off to all 500 staff. “And that isone big successful and happy family”.

INCENTIVISING WORKPLACE

PERFORMANCE IN THE LEGAL PROFESSION

– FAIR PLAY AND FAIR PAY

Teamwork is very important in legal work,which is normally organised aroundspecialisms. At Pannone & Partners - theseinclude commercial litigation, insolvency,personal injury, family and intellectualproperty. Normally, good performance wouldbe measured by the results of each team,such as the value of contracts. However, thefirm places an emphasis on fairness when itcomes to judging performance. Performanceincentives are not based upon the amount ofbilling, but on doing a job well.

The potential problem with legal work is thatif billing were the sole criterion forperformance, then all lawyers would ’cherrypick’ their work. In other words, they woulddo the work which they thought was easiestto bill and which had the largest billingpotential, as opposed to the work which wasmore difficult or, on the face of it, less

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glamorous. This approach could create atension between individuals and teams.Pannone & Partners considers this sort oftension to be potentially harmful to theperformance and cohesion of theorganisation as a whole. A performingorganisation needs to go forward together.“Staff who do well will be paid better thanthose who don’t, but doing well is made upof much more than just billing,” Dobsonexplained. “It would not be fair thatperformance is somehow linked to thedepartment that they’re in, and some staffare in a position to bill more than somebodywho is just as good and just as able, andworks just as hard in another department.”

As ’fairness’ is the basis on which to judgeperformance and rewards, a four-yearqualified solicitor in one department willearn broadly the same as a four-yearqualified solicitor in the other departments.The same rule applies to other personnel. InPannone & Partners’ case, financial rewardfor good performance is therefore distributedon a collective basis. When the firm has agood year, everyone will be entitled to abonus and days off, rather than just a chosenfew. Appraisals are used, but there is nodirect mechanism to link appraisal to pay.Appraisals are more of a vehicle to examinecareer and developmental issues.

SUPPORTING WORKPLACE PERFORMANCE

WITH OPENNESS AND COMMUNICATION

Joy Kingsley is keen to encourage anextremely open workplace in whichinformation and ideas are allowed to flowfreely among all staff. Dobson explainedthat, “You will get to know just abouteverything, though sometimes this cancreate some difficulties. But, as a generalpractice, what a fantastic thing … Andbecause Joy does it, everybody else does it.People just love openness to informationand discussion.”

A new partner once commented, during hisinduction to the firm, that secretaries atPannone & Partners could tell him moreabout the financial report than he had everknown as a co-owner of his previous firm.

It is a common mistake to see goodcommunication as having some magicformula. There is no communication‘solution’ that can be bought off the shelfand introduced within any givenorganisation. Indeed, Pannone & Partnersshows that in a firm with more than 500people, it is difficult to talk about a system. It is more a case of creating the kind ofenvironment and expectation that generatesa vast amount of useful communicationwithin the organisation. Much of it is in anorganic form that occurs without any pre-defined mechanisms. “We often describe ourapproach to communication as ‘cream bunmanagement’”. Dobson commented. Whenthe cream buns appear one afternoon in theoffice, all employees know that good workhas been done and that they will berewarded with days off. This form ofcommunication is highly dependent onhuman interaction and the tacit knowledgeof how an organisation works. It may,therefore, explain Pannone & Partners’ overtdesire to maintain a one-site policy.

TECHNOLOGICAL INNOVATION TO

SUPPORT BALANCED GROWTH

Technology is often not used to anysignificant extent in the legal industry. ForPannone & Partners IT is used just like otherwork practices, as a tool to enhance itschosen approach to performance.

The one-site approach has been most usefulin enabling the firm's culture to driveperformance. However, it has also put thefirm at a potential disadvantage, as it may notbe able to offer the same kind of service toclients in other localities. Pannone & Partnerstherefore developed its own proprietarysoftware to overcome this disadvantage. The software essentially enables the firm tomanage, maintain and serve clients via theinternet on a national basis.

The software is very important for Pannone& Partners as complaints by clients wouldnot be acceptable within the qualityassurance process. It is vital to create aquality audit trail for the clients, within aneasily accessible environment. “Clients want

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to be able to look at their files over theinternet. They want to see what we’re doingalmost at the time of our doing it. The clientsdemand incredibly high standards forreporting back to them – e.g. how often theyhave to be contacted, and what qualitystandards have to be adhered to. Thesoftware enables us to serve clientsnationally without necessarily having local offices.”

One can observe the different efforts thathave been made to maintain an effective butsimple approach to performance. The fewdevices that Pannone & Partners has to driveperformance are all geared towardssupporting the work ethos that the firmwants to pursue. Therefore, if we contendthat a happy, well-balanced and highlycommitted staff is the basic ingredient for acompetitive and high performing workplace,then Pannone & Partners is well on its wayto winning the race. Pannone & Partners’work-life balance and staff retention strategyis reflected in their position in The SundayTimes 100 Best Companies to Work For 2004survey, with their number one spot in termsof lowest numbers of staff reporting thatthey would leave the company tomorrow ifthey had another job (12%) and reportingwork-related stress (15%).

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Having a formal workforce diversity policyand programme is extremely rare in mostindustries. Not only has Quest Diagnosticsestablished such a forward-looking policy, ithas also achieved one of the goals that it setout to achieve within its workforce diversityprogramme - namely, becoming one of thebest companies to work for. In 2004, this goal

became a reality. When Quest Diagnosticswas rated one of the best 50 smallemployers to work for in the UK.

Quest Diagnostics is an international leadingcompany of biomedical diagnostic testing,information and services. Their clientsinclude patients and consumers, doctors,

Service/Product: Clinical trials, diagnostic products and services

Turnover: £32.6m

Size of the workforce: 243 employees

Earning £35,000 p.a.: 12%

Famous for: Quality service and systems to cater for aglobal client base

The business strategy: Quality service, innovation andworkforce diversity for global competitive advantage

High performance learning points:

• Use of various systems to create the quality necessary toachieve success in a highly regulated industry and build a veryparticular business culture;

• Use of a ’Road Map' to define targets and systems to meetbusiness goals;

• Use of flexible and innovative work organisation to meet theneeds of a global market;

• Use of a single review system to link performance andpersonal development to reward;

• Use of measurable indicators to link progress in workforcediversity to organisational goals as defined by the ‘Road Map’.

CASE STUDY

QUEST DIAGNOSTICS

Quality service, innovation and workforce diversity for globalcompetitive advantage

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hospitals, pharmaceutical companies, biotechcompanies, health insurers, employers andgovernment agencies. Although the testingfacilities in the UK are located in the south-east of England, its operation covers samplesfrom wherever Quest Diagnostics operates inEurope and beyond.

Quest Diagnostics achieved its ‘bestemployer’ goal against a context of difficultcircumstances. Recent times have been verydifficult for the industry as a whole. Manycompanies continued to suffer from theglobal business downturn after 9/11. Equally,the many pharmaceutical company mergerstook place leading to generally lower levelsof research and development activities, pluscombined and rationalised operations. As aresult, testing activities also declinedsignificantly. By maintaining rigorous effortin applying its core values, of which qualityand innovation are crucial, Quest Diagnosticshas seen strong financial performance in2004, which was reflected in global earningsper share up 20% from 2003.

THE INDUSTRIAL CONTEXT AND QUEST

DIAGNOSTICS' BUSINESS STRATEGY

The clinical testing industry has a particularenvironment that makes gaining acompetitive advantage an interestingendeavour. On the one hand, the industryhas to comply with stringent standards andregulations. This means that, in comparisonto other industries, there is less room for anyvendor to differentiate its services from itscompetitors. Everyone has to have highstandards. On the other hand, there is plentyof room to innovate technologically for newservices and better testing of products. It isimportant that companies innovate to stayahead of rivals in the industry.

On top of this, a large part of the demand inthe industry is of a derived demand nature.Business volume is highly dependent uponthe research and development activities ofthe large international pharmaceuticalcompanies. When changes such as mergerstake place, this can substantially affect thefuture of the clinical testing companies ifthey are not sufficiently diversified. There isalso a cyclical pattern in which there can bea period of mergers, which is followed by aperiod of consolidation and expansion, whenbusiness will increase again.

Quest Diagnostics has adopted a qualityservice approach to secure the business ofits customers. This approach means that itachieves its values and goals through itspeople and flexible approaches tocustomers’ needs. “Our quality approachmeans that whoever is contracting ourservice they can to be absolutely 100%confident in the quality of service that weprovide … the 100% confidence goal is theonly thing that differentiates betweenourselves and our competitors,” LindaFairley, the Human Resources Directorexplained. The quality focus in fact driveseverything Quest Diagnostics does, includingthe way Quest Diagnostics markets itself.

QUALITY IN EVERY SENSE

Very few people would realise thatdiagnostic testing is the starting point ofquality patient care management. Qualityservice at the diagnostic testing stage allowsdoctors to detect disease earlier, makediagnoses more accurately, prescribetherapies sooner and monitor results withbetter information. Every client, whether inthe private sector or public hospitals, relieson this foundation to deliver their qualitycare. Establishing this connection means thatQuest Diagnostics can secure the business.

Not only does Quest Diagnostics recognisethis link, it educates its workforce that qualitydelivery underpins their systems and is thereason behind their success. A lot of whatthe industry does is driven by the regulatorybodies and following standards often leadsto the misunderstanding that it is enough tobe compliant. Quest Diagnostics knows that,in this sense, standards are in fact acommon denominator. Exceeding the‘minimum’ will win business customers over.

As a result of this quality strategy, QuestDiagnostics has a specific ‘Road Map’ toperformance, supported by specific targetsunder five headings – quality of servicecomes first, followed by satisfied employees,satisfied customers, aggressive innovationand profitable growth. By hitting targetsunder each heading each year, QuestDiagnostics is making progress towards itsperformance Road Map.

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For example, quality delivery is underpinnedby specific targets, as well as the adoption ofquality systems. Specific targets may includereport amendment reduction by x per cent –reports that require amendments mean thatthe completion of a job is delayed. Qualitysystems may include the use of Six Sigma (a data-driven quality control technique) as atool for operation as well as for buildingbusiness culture. Fairley emphasised that asa result of these activities and systems, “Wecan demonstrate to the clients that whateversample you send here, we treat in the sameway regardless of whether it comes in on aMonday or a Friday, January or June, youcan be confident of our results and thequality of the work … If you send a sampleto the US or the UK you’ll get exactly thesame quality results.”

PERFORMANCE, MOTIVATION

AND REWARDS

Employees’ performance is establishedthrough a review process. This review thenlinks to two elements: continuousdevelopment for the staff concerned andperformance feedback. The review is astandard meeting between managers andemployees in a particular business unit todiscuss various aspects of their work in theperiod under review. The outcome includes apersonal development plan for the followingyear. The personal development plan defineswhat developments will take place and also arating based on the previous year’sperformance.

Depending on the budget allocation, theperformance rating may attract a salaryincrease. So, a ‘commendable’ rating mightlead to an x percent increase in salary.“Sometimes it’s not so much the salaryincrease that the workers are motivated by,because the increases are in line with generalmarket increases.” Fairley commented. “A lotof employees are more motivated by theactual performance rating they get. Theywant to be an ‘excellent’ or an ‘outstanding’.”

There is another source of recognition,which is in the form of a bonus. This is apractice introduced from the US parentcompany and it has now become a globalscheme. By comparison, the bonus schemeis a more explicit and important recognitionof employees' contribution to the financial

success of the company. The bonus schemeis based partly on the local business unit'sfinancial results and partly on the corporatefinancial results of Quest Diagnostics worldwide – USA, UK and Europe, and onachievement of operational goals. Anddepending on how each business unitperforms, employees can earn 10% of theirbase salary if they achieve all the goals andtargets, up to a maximum of15% if theyexceed all targets.

INNOVATION AND BUSINESS

PERFORMANCE

Innovation at Quest Diagnostics takes manyforms and it may involve processes orproducts. The Road Map provides someexamples of the types of innovation:accelerating the process of development ofDNA extraction; increasing the number oftests in a particular area of testing;identifying partnerships for better services orproducts, and adopting technology to enablenew services.

The last item is an interesting illustration ofinnovation at Quest Diagnostics. The serviceat Quest Diagnostics emphasises not just thequality, but also consistent quality with fastturnaround time. This is particularlyimportant to make the global operation ofthe different testing facilities seamless andirrelevant to the location and time zone ofthe customers.

Already, Quest Diagnostics operates on aseven-work-days-a-week pattern. Workingquicker is one thing, but working quicker andbringing the results to the customers in theform they want is even more critical. QuestDiagnostics therefore introduced a reportsystem online so that the customers can seetheir data in ’real time'. This means that forthose customers who do not want to wait fora lab report to be posted or faxed to them,they can track the results by logging on tothe internet and monitor the progress of thetest online. The customers have been mostimpressed, and the innovation has attracteda great deal of positive feedback.

However, the most interesting point here isnot the innovation itself. It is the way thatinnovation has been formalised into theRoad Map. The Road Map does not restrictinnovation as, by definition, innovation takes

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place in many circumstances. What the RoadMap does is to direct a collective focus onthe importance of achieving high levelbusiness performance through innovation,and the targets are just a start. And mostimportant of all is that the effort forinnovation – at least for those targeted in theRoad Map – is measured. This is a verydifferent approach to most other companieswhere it is accepted that innovation is moreorganic and fluid. The consequences are thatmost organisations simply focus on theconditions for innovation and the recognitionfor it. Quest Diagnostics shows that you canapproach innovation differently.

WORKFORCE DIVERSITY AND

PERFORMANCE

As Quest Diagnostics has recognised that thebasis for quality work is the ability to get thebest involvement from its workforce, thenworkforce diversity has become one of themain vehicles to establishing the linkbetween workplace performance and humanresource practices in an organisation.

Diversity at Quest Diagnostics is a formalpolicy of inclusion, and it is fundamentallyabout valuing the strengths each individualbrings to the business, and striving to createa work environment where each individualcan succeed and contribute. Throughinclusion, diversity creates a means forhigher employee satisfaction for all. Throughinclusion, diversity also creates a businesscase as Quest Diagnostics has the workforceto tackle its ever-increasingly diversebusiness environment globally andprofessionally. The 4 ’Rs’ of workforcediversity – respect, reputation, representationand results – are measurable and built intothe Road Map to bring specific achievementto the organisation. For example, respectleads to specific diversity education in theorganisation; reputation leads to therecognition of ’best employer’;representation leads to recruitment anddevelopment practices; results should bedemonstrated by critical business feedbacksuch as employees’ and customers’satisfaction surveys.

As well as the benefits already mentioned,workforce diversity has made impacts inmany other areas of Quest Diagnostics’operation. For example, Quest Diagnosticsdoes not have an employee association.Better communication and industrialrelations, as Quest Diagnostics shows, canbe built by mechanisms such as workforcediversity and employees' satisfaction as aperformance goal.

Diversity is not a management-led initiative.There is a Diversity Committee, which ismade up of employees at the grass rootslevel. The Committee comes up with ideasand it looks at the different elements thatmake up diversity and decides each yearwhat the company should try to improve.“So this year for example, one of the goalsthat the Committee has set is to investigatehow possible it is to obtain the two-ticksymbol (for disabled workers),” Fairleyexplained. “They set targets each year and,at the end of the year, the company willreview each business unit’s diversity planand whether we achieved what we set out to achieve.”

As a case study, Quest Diagnostics has muchto offer in many aspects of its operation -e.g. service quality, flexible working, staffdevelopment and innovation. However, theformalisation of workforce diversity andapproach to innovation are worthy to besingled out as unusual and inspiring. Whilemany companies are still thinking only aboutcompliance with equal opportunitieslegislation, Quest Diagnostics seems to bethinking a few years ahead. But,fundamentally, workforce diversity makesperfect sense for a company which is keen toderive performance from people andperform business on a global scale.

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INDUSTRIAL CONTEXT AND BUSINESS

STRATEGY

St. Luke’s was created as a co-operative in1996 and rapidly achieved the status of aleading-edge company using innovativepractices. St. Luke’s is about using thecreativity of its co-owners to producemarketing solutions for its clients in theextremely competitive world of advertising.

The first thing that hits you as you enter St.Luke's building is the absence of a receptionarea - you are immediately in the heart of theorganisation.

Having grown to 120 employees from theinitial 26 co-owners in the boom years of theindustry it has since shrunk to 80 as itweathered the recent recession in marketing

Service/Product: Advertising agency

Turnover: £19m

Size of the workforce: 80 employees

Earning £35,000 p.a.: 48%

Famous for: Social responsibility, creativity and co-ownership by its employees

The business strategy: Sustaining performance through aninnovative culture

High performance learning points:

• Challenge conventional models of managing an advertisingagency in order achieve high levels of creativity;

• Use work and organisational re-design to experiment with newways of supporting employee development and creativity;

• Focus on delivering ‘creative’ solutions to meet clients' needs;

• Innovative concept of ‘teams’ is designed to ensure high levelsof client retention;

• Created support systems necessary to enhance theeffectiveness of these ‘client teams’;

• Use culture of social responsibility, trust and accountability,together with co-ownership, to cement the common interests of workers and the organisation;

• Use of a variety of forms of learning to support and grow creativity.

CASE STUDY

ST. LUKE’S

A case of sustaining performance through an innovative culture

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business. While its competitors were sackingstaff, St. Luke’s successfully followed a policyof ‘no redundancies’. This is a smallcompany that lives and breathes innovation,having made extensive use of highperformance practices as a means ofsustaining an innovative culture, althoughthe staff that use them would not necessarilyuse those terms.

Although advertising companies depend oncreativity, they are generally somewhatconservative and traditional in theirorganisation. Typically, they have a Board atthe top of the hierarchy, under them the‘creatives’ who develop the adverts, underthem the ’planners’ who create the strategy,then the ’suits’ who handle the accounts andat the bottom the support staff. Each groupof staff remains relatively self-contained intheir own section. The way they operate isthat the client first presents the agency witha problem. The planners then develop astrategy following which they present thecreatives with the brief. Having produced thesolution, the creatives then hand it over tothe suits who have the job of selling it to the client.

St. Luke’s set out to challenge this model.From the start, there was a very strongcommitment to being experimental, to doingthings differently. As Nina Kowalskaexplained, they threw out the conventionalmodel, their fundamental belief was that“Organisations are about individuals, and inorder to get the best out of people you haveto create an environment where people willthrive. We looked at every part and way thatwe functioned in terms of relationshipsbetween different departments, creativeprocesses, benefits of employees, and wetried to see what we could do in each ofthose areas.”

The result is an organisation that continuesto re-invent itself in a purposive mannerthrough the use of a strong culture.Underlying this process of change are atleast two guiding principles. The first is todevelop ways of working that ensure clientsreceive a creative solution to theiradvertising needs. The second is to ensurethat the employees have space to developtheir own creativity and learning.

CREATING THE CONDITIONS FOR

SUSTAINED CREATIVITY

Having rejected the conventional approachto organising work in functional groupings,St. Luke's decided to group its work activitiesaround the needs of the client. This meantusing teams dedicated to specific clients. As a minimum, these consist of an accounthandler, a planner to conduct the research,identify trends and come up with initialideas, and creatives who work on the ideasfor the advert and turn it into a reality. Oncethe client presents a problem, the goal of theteam created to work with them is to explorethat problem and deliver a creative solutionthrough a collaborative effort.

To facilitate this process, work is located in’brand-rooms', these are spaces dedicated toeach client, where the team works togetheron the solution. These rooms provide theshared space for interaction between teammembers, with the clients' materials allaround them. There, the team membersimmerse themselves in the business of theclient, in their product or service and throughthat process of interaction create solutions.Nina Kowalska, ’Social Entrepreneur’ at St.Luke's commented, “We believe that thework is better because of the way that wework. And if the work is better, the client willbe happier. If the client is happy, we willwork with that client longer; we will have agreat relationship with them. Therefore, theywill stay with us a longer time, and youknow that will give us financial stability.” Forthe team, it is crucial that the client isinvolved in the process, thereby arriving at asolution that is right for them and which theyhave actively been involved in producing,giving the client ownership. It creates astrong relationship with the clients, resultingin high levels of client retention.

The implementation of these highperformance work practices is not without itsproblems. It is hard work to bring togetherthe right mix of people and skills in theproject teams and it is costly in terms of thetime spent in meetings and negotiatingsolutions. Many hours are spent discussingoptions and strategies. However, these areseen as the necessary costs of producingcreative solutions and high levels of clientsatisfaction.

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To facilitate the effective operation of theseteams, a whole set of support activities andpractices have been established. Some ofthese central services include, the traffic andproduction departments which ensureprojects happen in time, the art-buyingdepartment who manage all printcommunication, and the TV productiondepartment which manages all TVadvertising. Of crucial importance is the factthat knowledge is made freely available.Everyone has access to businessinformation. The financial accounts of thevarious teams are open to all staff. Inaddition, there is a knowledge manager whois responsible for disseminating knowledgeand information and whose job it is to keepeveryone up-to-date with information,research and trends in the market. Theknowledge manager also works as amember of different client teams. Extensiveuse is made of IT and email forcommunications. However, as the use ofworkspaces and practices such as hot-desking encourage people to move around,most of the effective communication,dissemination of information and decisionsmaking, takes place through face-to-faceinteraction.

As for other management practices, theseare continually changing. This is partlybecause of the growth in the number of co-owners, but primarily a result of the fact thatif procedures are not working the co-ownerscan, through their position in the company,question them. This usually instigates adebate within the company about what moreappropriate procedures would look like. Inthis way the staff are fully empowered andparticipate in shaping managementpractices. The organisation has to beresponsive to its members and it is likelythat this, more than anything else, hasresulted in the extremely strong commitmentamong staff to the organisation, with over80% describing their employment at St.Luke’s as a ’dream job’.

The growth in size of the organisationpresented significant problems inmaintaining the responsiveness of

management to co-owners and to sustainingcreativity. Once they reached about 80 staffthey found that they could not operate as asingle group. They tried to reintroduce asystem of two sub-groups but found that thiswas splitting the company culture. St Luke’shas now settled on a more formal structureconsisting of a Board of four members withsome external expertise brought in toprovide a wider business perspective.However, the decisions made by this groupcan be, and have been, challenged by the“Quest” group. This consists of six staffshareholders who are voted for annually byemployees and their remit is to represent theinterests of shareholders (who are also theworkers of the company).

The company has experimented withdifferent forms of management system overthe years. Initially a Board of two members,plucked from experienced staff, wasestablished to meet legal requirements. Theylater experimented with the use of groupingsof co-owners described as ’Chambers', therewas a knowledge chamber, an operationalchamber and a welfare chamber and so on.These provided a forum where people met to discuss business issues. This provedunsatisfactory and was replaced with asystem of operational heads and morerecently by the Board of four members. In addition to this formal arrangement, the company uses focus groups to discussbusiness issues and it is not at alluncommon for people talk to the Questgroup over a cup of tea. Informality stillreigns supreme.

However, there is always room forimprovement and a genuine sense that ifyou experiment you have to be willing toadmit if it’s not working, and you need to bebrave enough to try something different. Forexample, there is an awareness that middlemanagement requires some help indeveloping their people management skills,and forms of peer mentoring and externalmentoring are being looked at as possibleways of tackling this. It is a hallmark of highperformance work organisations that theyare constantly seeking better ways ofmanaging people.

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PROVIDING THE CONDITIONS FOR

PERSONAL GROWTH

The second principle that underpins thiscompany is that work should be organisedaround the needs of individuals for personalgrowth. This is seen as essential for thepersonal development of staff but alsonecessary to sustain the creativity and high skill levels on which the businessdepends. To this end appraisals are takenvery seriously, as indeed, is the idea of life-long learning.

St. Luke’s initially started with a 360o annualreview, conducted by line managers and aperson nominated by the appraisee. An emailwas sent out to relevant staff asking forinformation under five different criteria. A written report was then prepared fordiscussion during the appraisal, coveringpersonal development, training needs, pay,holidays etc. After five years there was somedissatisfaction as some staff felt theirappraisals had been hurried, while others felt they were more thorough. Thisdissatisfaction was important because the appraisals affected their personaldevelopment and pay review. To counter this,a more formalised and thorough approachwas developed. In addition to the annualreview for those who have an identifieddevelopment need, there is 4-6 month check(known as an MOT) on progress.

Other support for lifelong learning takes anumber of forms. £150 is provided annuallyfor staff “to make themselves moreinteresting” which can be spent on almostany relevant activity. Training courses areused where appropriate, for example fordeveloping time management, socialcommunication skills and writing skills. The planners all go through formal coursesprovided by the Institute of Practitioners of Advertising (IPA) and they also use asimilar course provided by the IPA foraccount handlers.

However, much of the learning that takesplace is through more ad hoc and informalactivities. This is especially important for thecreatives. “You know any training thatcreatives do is giving them access to stuffthat is going to stimulate them, so we have areally extensive library, we have people whoorganise trips to galleries, we have artists

come in, so we’re bringing people inconstantly. Creatives are probably walkingaround now going off with their camera anddoing stuff because that’s the nature of thepeople. They almost do their own training ina funny kind of way. You know sometimes acreative might say I’d really like to go on acomedy course, or something and that’s fine:they can go and do that,” Nina Kowalskacommented. The important point here is thatall learning is valued and efforts are made tointroduce opportunities for it wheneverpossible in order to enhance the skills ofemployees.

As for rewards, salaries are determinedindividually and then subject to an annualincrease determined by the pay review. Aftersix months with the company all newemployees obtain shares in the companyand these are distributed every twelvemonths to all staff. Here again the companyis continually seeking to improve itspractices. Under consideration is the use of abase salary supplemented by individual andbusiness performance components, butthere remain problems of how you measureindividual performance and so on to beovercome.

CREATING A CULTURE OF COMMITMENT

AND TRUST TO WELD THE CO-OWNERS

TOGETHER

At St. Luke’s, change is continuous andregarded as central to the generation of thecreativity that provide its competitiveadvantage. Trust and accountability are atthe core of this culture. Staff are trusted towork from home, to determine when theyneed time off. In return their commitment is100%. The company aims to provide anattractive working environment whichreflects its commitment to the staff. Yogaclasses are provided once a week, aerobicstwice a week, there is an excellent caféwhich provides subsidised healthy food, free fruit and breakfast. Each employee isprovided with access to a confidentialhelpline which can give advice on a range of issues from personal hobbies to taxation,house purchase, mortgages, legal matters aswell as counselling.

The commitment to environmental and social issues is also strong. St. Luke’ssupports staff involvement in external

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community-based activities through a systemof social shares and the provision of time toenable them participate in external activities.This currently involves 40% of staff. Thecompany also implements an extensiveenvironmental strategy, monitors emissionsand funds projects aimed at nurturing the next generation of creative talent.

Maintaining this strong culture and itsassociated high performance workingpractices requires time and effort. Some ofthis is through formal activities such as ‘themaking the agency more interesting fund’which provides £1000 for each of 8 teams tocome up with ideas to make the place moreinteresting. This can be a physical idea, apolicy or an event and reflects the fact thatinnovation is central. They are currentlyexploring how they can make better use ofspace through the use of adjustable meetingspaces and are experimenting with a newinternet system that will provide virtualbrand rooms, accessible by their clients.

Driving this is a central concern aboutpeople: “It’s about people, it's aboutindividuals who have got passions andbeliefs, who really care about things beyondadvertising, frankly. You know, for a lot ofpeople, being here is a tool to do otherthings in life, and it just so happens that thisis a really great place to work and we dosome great work, but actually their passionslie elsewhere as with most people,” NinaKowalska commented.

To maintain such a culture means celebratingachievements when you win pitches andgalvanising people when they are a bit flat,perhaps after they have just lost one. It alsomeans continually changing the rules,practices and procedures to ensure that allstaff are fully motivated to give their best.

St Luke’s is an organisation dedicated tosustaining its market position throughinnovation. To achieve this, it has built aculture that focuses firmly on the clients andtheir needs. To ensure that the solutionsprovided to their clients are creative, StLuke’s has taken the time and trouble toguarantee that the development of suchcreativity is encouraged and fully supportedby the company.

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Timpson is one of the few British high streetbusinesses that comes with a long familyhistory – stretching back to 1868 when thefirst shop was opened in Manchester. Thecurrent chairman, John Timpson, is thefourth generation of the family whotransformed Timpson from the original shoebusiness to a multi-product high street shop.

Now Timpson not only repairs shoes - theoriginal service since the shoe retail businessceased in 1987 - it also sells services inengraving, key-cutting, house signs, watchrepairs, signs and locksmiths. Since the1980s, the number of shops has grown from150 to 315 and this continuous diversificationand growth reflects Timpson's ability to

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Service/Product: High street shoe repair and key cutting

Turnover: £57.7m

Size of the workforce: 2869 employees

Earning £35,000 p.a.: 2%

Famous for: A family business that transformed its originalshoe business to a multi-product high street shop

The business strategy: A people strategy for superiorcustomer service and business performance

High performance learning points:

• The ability to continue to diversify and to handle change iscrucial to continuous success;

• The application of “upside down management” to createleadership, empowerment and customer service;

• Combines the development of skills which are no longer widelyavailable such as shoe repairing, with the development ofeffective business management skills for every employee;

• Uses network organisation, to link geographically dispersedshop units, in order to enhance competition among shop units.Units' performance is transparent to all and is rewardedthrough bonuses for achieving excellent performance;

• Continuous innovation used to enhance long-termcompetitiveness and viability.

CASE STUDY

TIMPSON

The people strategy for superior customer service and business performance

change to meet new demands and its abilityto bring together a workforce that can meetthese challenges.

Not only is Timpson successful in business,it received two awards in 2004 for being oneof the best places to work – ranked 2nd onthe European ‘Great Place to Work’ list and 6th on The Sunday Times 100 BestCompanies to Work For 2004 list. So where does Timpson get its winning strategy fromand what are the secret ingredients ofTimpson’s success?

John Timpson learned his business ideas thehard but natural way – as a sales assistant inthe shoe shop in the 1960s. And there are nosecrets to Timpson's success – he wrote abook, entitled ‘Upside Down Management’,to tell everyone about his ideas.

THE INDUSTRIAL CONTEXT AND BUSINESS

STRATEGY OF TIMPSON

Having made a successful transformationfrom selling shoes to shoe repairs in the1980s, the business environment forTimpson continued to change. In the earlydays, shoe repairs represented 95% ofTimpson's turnover but this business hassince steadily declined. The shoe repairsmarket is now 10% of its former size.Timpson's strategy to address this has beento diversify into complementary services thatit can deliver from its existing high streetshops and to constantly seek new services toreplace declining demand. Key-cutting,engraving and watch repairs are examples ofsuccessful replacement services that havebeen developed. New services such aslocksmiths and jewellery repairs arecurrently being put into place.

Interestingly, despite the continuous changein the variety of services provided, Timpsonhas not altered its approach to building asuccessful business; namely: a customerfocused/quality service strategy. JohnTimpson learned two things from his shop-assistant days: customers are the beginningof everything a shop does; and managershave to learn to delegate and insteadconcentrate on supporting front line staff.Hence, he strongly adheres to the principlethat “…because the people who serve ourcustomers run the business, everyone else isthere to help.” John described this as

“upside-down management”, reflecting thathis lack of expertise in shoe repairs probablyhelps him to focus on the development of thebusiness and supporting his staff. Ratherthan focusing on mending shoes or cuttingkeys himself, John focuses on enablingothers to provide a great service tocustomers. “I suppose the thing I’ve learnt isthat it’s a great advantage in some ways torun a business that you’re not capable ofdoing yourself. I can’t repair shoes, I tried butI’m useless. You can be just as effective aslong as you actually listen to people, standback and let other people get on with it.”

This may appear a simple approach, but theTimpson strategy is actually very elaborateas it is built on motivating and empoweringstaff to maximise sales while workingwithout the constraint of many rules. “Firstly,we invest total authority in our shop staff todo what they think is best, no company rulemust get in the way. Secondly, we have to’amaze’ our customers. If we can do thatwith every customer, things will start tochange”. John gave the following example:“If a kid comes into the shop and only has£10 from his saving tin to do an engravingfor his granny, our shop staff can take adecision to accept the business even thoughwe would have charged a lot more under thenormal circumstances.” As a result, Timpsondoes not advertise in the media. The aim ofits quality service and empowermentapproach is to harness the power of theircustomers and get them to do theiradvertising. This means that if there are250,000 customers a week, the target is250,000 word of mouth recommendations for Timpson.

BUILD YOUR OWN STAFF FOR SUCCESS

John Timpson’s approach to businessperformance means that “everyone runs thebusiness”. But the question is: where do youfind the right staff? Recruitment can be aproblem. For a start, there are very few shoerepairers in the country and most of themare probably already working for Timpson.Given its customer focus, Timpson is quiteclear on this: “We don’t recruit skills. Wedevelop them. We recruit personalities.”Timpson therefore looks for the “rightattitude to work” – e.g. outgoing, happy andhaving ’can-do’ attitudes.

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Recruitment includes a two-day residentialcourse to ensure the right kinds of attitudesand behaviour are identified so that thequality service approach can be delivered.This approach has proved to be very reliable,as over a third of the new recruits normallycome through recommendation of theexisting workforce.

The real skills training begins with Timpson'sown apprenticeship scheme, which lasts for22 weeks and everyone must complete. TheTimpson Apprenticeship Scheme focuses oncritical success elements and these includethe three levels of technical skills (includinghealth and safety) for the four disciplines -e.g. shoe repairs, key-cutting and so on, pluscustomer service and Timpson's culturetraining. Much of the training is on the joband is supported by Timpson’s bespoketraining manuals.

Timpson is keen to encourage staff todevelop and move up to the next level oftraining. Every time an employee achieves ahigher level or a diploma in management, abonus point is awarded. This emphasis onstaff development is reflected by thechanging performance focus in Timpson’s.John Timpson explained: “My father used totell me that if only we could sell one extrapair of shoes in each shop per day, we would have made a fortune. Now I tell myson, James and everyone that success wouldbe assured if we had a good manager inevery shop.”

EXCELLENT PERFORMANCE THROUGH

WORK ORGANISATION

Performance is driven by a network of areamanagers who are the key motivators for theshop staff and their business. Thesemanagers do not ’manage’ in the traditionalsense. Having picked the staff with the ‘right'attitudes, the area manager is expected tosupport the shop staff in every way so thatsales targets can be achieved. This meansthat the area manager has to have an in-depth knowledge of their shop staff, theyneed to reward and praise them, discussproblems, be a good listener, organise socialevents, support apprentice training, lead byexample and so on. But most important ofall, they must gain the respect of their staff.

The relationship between the area managerand the shop staff is one of the keyperformance drivers. Friday is the call dayand the area manager is expected to call theshops and review the week’s salesperformance. Within Timpson howsuccessful a shop is in reaching its target isinterpreted as a reflection of the quality ofthe area manager’s support for the shop.

A recent innovation at Timpson is thequarterly “Happy Index”. This is aninstrument that measures the ’mood' of shopstaff by business area. As well as providinginformation on the morale of staff, the Indexalso provides a rough measure of therelationship between the area manager andthe shop staff. Timpson regards thisinformation as very useful in improving themanager-staff performance. John Timpsonemphasised, “The biggest problem you canhave in our business is when the areamanager loses touch with the people. Yes,the area manager is in an absolutely criticalposition to look after the people.”.

PERFORMANCE DRIVER – PAY AND BONUS

THROUGH COMPETITION

If you examine the content of the Timpsonweekly newsletter the major emphasis is onranking the sales performance of theprevious week. Each business ’discipline',e.g. weekly sales, weekly profit of key-cutting, watch repairs etc., has a ranking ofthe top performers and there is also a yearlyaward event that formally recognises the top performers.

These practices have instilled a sense ofinformal competition within the organisation.It is always difficult to obtain sales figuresfor competitors, so in the absence of suchinformation, internal sales figures serve asimilar purpose.

To reinforce this performance driver,bonuses are paid out regularly whenevertargets are exceeded. The targets are not setuniformly but interestingly, the target isproportional to the total wages in a particularshop. In some areas, the bonus is worthalmost 80-90% of the basic wage.

The weekly sales figures are a key elementof many of the performance systems atTimpson. “This is the great thing about the

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retail business. You have got the salesfigures every week. The performance is infront of you. No one can escape from that.So we know what’s happening out there.” As a result, Timpson has done away with the performance-related type of annualappraisal. The weekly sales figures make theperformance appraisals redundant, thoughother forms of development-relatedmeetings continue to take place between thearea managers and the shop staff.

INNOVATION FROM EVERYTHING YOU DO

The nature of Timpson's business meansthat innovation often occurs in the day-to-day work environment. For John Timpson,innovation can be found everywhere if onecares to look. For example, he was curiousabout the exceptionally high level of salesfor house signs in one area. John made avisit to the shop and noticed that the shophad simply positioned a freestanding displaysign on the pavement outside the shop andas a result sales doubled in this shop.

In another instance, a shop had recorded an exceptionally high turnover in watchrepairs soon after the service was launched.The shop's turnover was thirty times betterthan the lowest performer. John visited theshop and discovered that the increased saleswere the result of the way staff talked to the customers.

For most of these examples, John thenreturned to the office and wrote a trainingcourse to communicate the idea through thebusiness and this also reinforced how muchhe valued staff ideas. In fact, John Timpsonwrites a wide range of training manualswhich are also used to communicateTimpson's attitude to business and itsculture. These manuals serve manypurposes. Firstly, they have bespoke trainingcontent specific to Timpson's own operationand market conditions. Secondly, theycontain specific soft skills – e.g. customerfocus and the Timpson culture onperformance. Thirdly, unlike otherorganisations, Timpson relies on thesetraining materials to communicate goodpractices to every shops up and down thecountry. These practices are clearlyperformance-oriented as well as being aninnovation in their own right.

New ideas also come from a very differentangle. For example, since 2004 Timpson hasrun a charity week and for every £10 in salesTimpson donates £1 to charity. As well asbeing an act of charity, the gesture isTimpson's direct approach to its customersin order to create a particular customerrelationship. Since the scheme has beenintroduced the feedback from customers hasbeen most positive.

At the technology level, new practices andinnovation are often used as a means totackle cost control. For example, theintroduction of computer-assisted engravinghas improved the quality and consistency ofengraving products. More importantly, thetechnology increased sales becausecustomers liked the products and Timpsonestimated that sales went up by 50% in someareas. In order to introduce new technology,again, Timpson relies on its in-house trainingcourses and self-learning materials so thatskill training has the minimum impact ondaily operations.

USING CHANGE TO ENHANCE

PERFORMANCE AND LONG-TERM VIABILITY

At Timpson, new product lines have ensuredcontinuing profitability and performance. A number of important products/serviceshave been introduced in the last 10 years inaddition to shoe repairs. As well ensuringthe survival of the business, Timpson usesthese changes as opportunities to enhanceits main performance driver – i.e. earningsand bonuses. “Because the bonus scheme isso important as a performance driver, we’vegot to keep giving our people more chanceto earn more money. This is one of thedrivers to develop the business,” JohnTimpson explained. “The shoe repairsoperation may not last another few years.The recent introduction of locksmiths andjewellery operations are good examples ofwhat we have to do for our people.” Thenew operations allow staff to develop newskills and maximise their level of income.

In an interesting kind of way, the owner ofthe company is constantly seeking ways tosafeguard the company's long-termcompetitiveness and viability, but thestarting point is the welfare of its employees.

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INDUSTRIAL CONTEXT AND BUSINESS

STRATEGY

This is the story of the UK branch of a USmulti-national company that for the lastthree decades has achieved continuousinnovation in its products. Starting with itsunique textile, Gore-Tex, for which it is bestknown, the company has created newfluoropolymer products by sustained

creative research and development andthrough getting close to their customers andexploring new ways of satisfying their needs.They have developed new products for next-generation electronics, for medical implantsas well as high-performance fabrics, “weprovide the marketplace with differentiatedproducts that add value to the customer’sbusiness and make a profit”, Ann Gillies, the

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Service/Product: Gore-Tex manufacturer

Turnover: £26m

Size of the workforce: 426 employees

Earning £35,000 p.a.: Not disclosed

Famous for: Inventing world-renowned high-performancefabrics for leisure, industrial, electronic and medicalpurposes

The business strategy: Delivering continuous innovationby turning management principles on their head

High performance learning points:

• Unique form of work organisation designed to supportemployee collaboration and creativity;

• Leaders replace managers to deliver high levels ofinnovation;

• Use of informal communication to achieve high levels oftrust;

• Use of ’sponsors' to facilitate continuous development andtraining and achieve a close link between personaldevelopment and organisational needs;

• Remuneration system based on ‘peer’ evaluation;

• Uses strong organisational culture to underpin everythingthat the company does.

CASE STUDY

W L GORE

Delivering continuous innovation by turning managementprinciples on their head

Human Resource Manager at Gorecommented. So confident are they of theirability to sustain innovation that they have apolicy of moving out of product areas oncetheir patents expire and other companiesstart to compete on the basis of price, todevote their creative energies to developingnew products. In this organisation, change isthe only constant. Their success is measurednot just by the ability of the company tomake a profit but also by the number ofpatents they register.

TURNING MANAGEMENT PRINCIPLES

ON THEIR HEAD

All this and more has been achieved throughthe inversion of traditional managementprinciples. This has been done so thoroughlythat at Gore there are no managers, no jobdescriptions, no bosses to tell you what todo, just associates and leaders. Whereas in aconventional company an employee doeswhat he or she is told to do, at Gore theirassociates do what is needed to make thewhole organisation successful. In thisorganisation no one can release you to workon a project because there is no fixed job tobe released from. At Gore you are not paidto do a job. You are rewarded for thecontribution. Your colleagues see youmaking the success of the business. At Gore,you are not allocated to a position ofauthority over others. You achieve leadershipby convincing others of the quality of yourideas and your contribution to the goals ofthe business. This is how it is possible that50% of employees, when asked in anindependent survey, described themselvesas leaders.

How has this been achieved? How is itpossible that half of all employees seethemselves as leaders? In part it is throughapplying the lessons learnt by the founderBill Gore, from his experience at DuPont. He identified four guiding principles for workorganisation in the company:• Fairness to each other;• Freedom to encourage people to grow in

knowledge and responsibility; • The ability to make commitments and

keep them; and • Consultations with others in the company

before undertaking actions that wouldaffect the reputation of the company.

These principles are followed in all the localplants and operations.

BUILDING TRUST AND WORKING

THROUGH TEAMS

In the UK, these principles provide the basisfor building extremely high levels of trustwithin the company between all theassociates and leaders that comprise it.These are manifest in the way in which workis organised, in the way in which learning issupported, the ways in which work isrewarded and in the unique way in whichknowledge is shared, decisions made andcommunication is fostered. All this requiresthat substantial skills are built up amongstaff at all levels. Together these create apowerful sense of identification with thecompany and attachment to its values. Fromthis flows a high level of performance in theform of constant innovation.

One of the keys to this form of workorganisation is the fact that the operatingunits are kept small, ideally between 150 and170 associates. All are members of multi-disciplinary teams, for example, an HR team,teams of engineers, manufacturing teams,but these are constantly changing in terms oftheir composition. Some are global in theirmembership, such as the IT team and theleadership team in fabrics, the latter beingmade up of a German, American and UKperson. Most teams are local in that if aperson comes up with the idea for a newproduct, say in connection with motorcycleclothing, then he or she takes on theleadership of that team, followed by otherswho have an interest or specialist knowledgein the area. The result is that teams areconstantly changing, creating an organisationthat takes on an amoeba-like quality.

Members of the team determine theirobjectives, their mode of operating and theircomposition. If a person wishes to join anew team, because they are interested in theidea and feel they would like to contribute toit, then they discuss their commitments totheir core team with other members and sorthow their commitments can be met whilefreeing time for their involvement in the new team.

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These teams are linked through networkswhich ensure that all associates are aware ofwhat is going on in the company. Thisrequires considerable communication, hencethe need to keep the size of the units small.In this context Gillies explains: “It’s reallyimportant that you know who's doing whatbecause it changes all the time. That's thecore of the things that we advise new peopleearly on to do, is to build a network andknow who does what so that you know whoto ask and to have your questionsanswered”. To this end all new recruits arerequired to undergo a training course onlistening and communication skills.

Teams are led by leaders, but there aremany, many different kinds of leaders.“Some are leaders of projects, some areteams of leaders, some leaders of countries… but the difference in our organisation is‘you are only a leader if you have followers’.And people will only follow you becausethey respect your knowledge and your skilland you have a bit of a vision, so you needto have followers.” Gillies emphasises. It isthe leader that focuses on achieving theobjectives of the group and co-ordinates theactivities of team members. Leaders do notcommand, they facilitate the achievement ofobjectives. However, all the members of theteam will have an intimate knowledge of theproducts they are working with. Such teamscan have a short life or a long life dependingon the progress of the project or the coreactivities of the team.

DEVELOPING THE PEOPLE

The continuous development of people iscrucial to the achievement of team objectivesand to sustained creative innovation. This isensured through the activities of sponsors.These are chosen by the associate, and theirfunction is to help develop the person withinthe organisation. This is done throughhelping them to network within theorganisation, to acquire appropriate skillsand enhance their performance. Thesponsors help the associate pull together adevelopment plan and obtain feedback fromcolleagues to identify areas for furtherdevelopment.

When it comes to personal motivation, thefundamental belief is that people want to dowell, that they “don’t skive”, that if you

create the right conditions they look forwardto coming to work and that they are drivenby being part of a team where they feel goodabout themselves. In this context, W.L. Goreminimises the number of rules. It relies onthe individual associate to identify and act onwhat is best for the achievement of companyobjectives. For example, when it comes tobereavement leave, guidelines are weak onthe basis that some people may need fiveweeks off for the death of a near relativewhereas others who had a more distantrelationship with a relative would only needa day or so. The belief is that in these, andsimilar circumstances, the individualconcerned is best placed to make thedecision. As the associates are highlycommitted to meeting organisationalobjectives and have the knowledge to do so,there is literally no need for written rules.The rules form part of the conscience of the associate.

In circumstances such as this, whereindividuals are relied on to exercise theirown judgment, often after consultation withcolleagues, it is crucially important not onlythat staff are highly skilled and well informedbut also that the links between individualachievements and business performance aretransparent. At Gore, this is achievedthrough a system of payment that is 100%performance related. Thus, when it comes todetermining individual earnings, these are aresult of a process of evaluation conductedby colleagues. They are asked to rank eachother in terms of their respectivecontribution to company performance andthat then determines their earnings. Inaddition, any money the company makesabove its agreed objectives is sharedamongst all associates globally. Eachassociate also has a stock option whichrepresents a proportion of their earnings. In this way the commitment of the associatetowards the success of the company isrewarded directly and unambiguously. In order to ensure that the resultant pay iscompetitive, each year the pay of a numberof associates, from a range of roles andfunctions, is compared with peers in othercompanies.

SHARING VALUES

In a company such as this wheretremendous trust is shared between all, it is

also important that those entering thecompany should share the same values.Recruitment is therefore about securingpeople who are able to accept responsibility,have strong communication skills, are ableto influence others and, crucially, who willshare knowledge and have a team approach.This means that it is the success of theirteam that is seen as crucial rather than theirpersonal success. Formal recruitmentprocesses are kept to a minimum, butconsiderable care is taken to ensure that,once employed, the new associate has thesupport required to become fully acquaintedwith the new culture. All recruits enter aninduction programme and all are required tofollow a course in communication andlistening skills, as these form the bedrock ofthe company culture. For the company, theprocess is seen to have failed in thosecircumstances where “a person needs to betold what to do.”

MAKING INNOVATION THE NORM

The focus on innovation within the companyis all-encompassing. New informationtechnology is exploited to the full and usedin all areas. In sales, it is used to ensure thatanyone in the company can see what is inthe pipeline. In manufacturing, it is used tomake the processes more efficient, while inmaterials handling it has been used toautomate the process. In addition, thecompany have implemented Kaizan andsimilar management techniques. However,what is distinctive here is that there are nomanagement programmes involved, instead,continuous improvement is at the core ofwhat all the teams are engaged in, namelyidentifying bottlenecks and constraints,identifying what needs to be donedifferently. The drive comes from the teamsthemselves, not from externally imposedpractices and pressure. All targets are set bythe teams themselves, by the people affectedby them. However, care is always taken toensure they are balanced, for example, toensure that if you focus only on on-timedelivery that you do not run into problemswith quality.

MAINTAINING THE CULTURE

The implementation of these practices hasnot been without problems. When they builta new plant some time ago and staffed itwith new external recruits, they ran into

problems, “The effect of building this plantand having all these outsiders joining ourcompany started to have a detrimental affecton the bottom line ... effectively, theintroduction of a group of new staff fromoutside the Gore culture was diluting itsimpact.” To re-establish the Gore culture,they brought over established Gore staff fromthe US and Germany, and together with keylocal Gore staff they undertook culturaltraining, to show how the Gore cultureworked.

They learnt from this and since then everyeffort has been put into sustaining theculture. Gillies explains, “We really believethat our culture energises associates.Energised associates make effective teams,effective teams make business results,business results need effective teams ...” and so on. The maintenance of the culture istherefore seen as intrinsic to sustainedbusiness success and central to theireveryday activities rather than a separatechange management project.

To secure their success in creating anorganisation dedicated to continuousproduct innovation, Gore has implemented aset of high performance practices that haveturned traditional management practices ontheir head. By nurturing trust, their practiceshave ensured that all associates are fullycommitted to the values and objectives ofthe company. Central to this is the sharing ofknowledge in pursuit of group objectives.

Equally central is the abandonment ofmanagement directives and theirreplacement by constant communicationwithin and between teams on the use of bestpractice to achieve these objectives. Togetherthese generate a perpetual search forimprovements and new ideas.

As reported in The Sunday Times 100 BestCompanies to Work For 2004 survey, in thistype of environment almost 90% of staffbelieve that they make a valuablecontribution to business success while 86%believe that they can make a difference atthe company. This high performanceworkplace provides the basis for continuousinnovation and success.

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These case studies show that these practicescan be implemented in a number of differentways so long as the following principles arefollowed:• That senior management leads the

process and develops a strong supporting culture;

• That the appropriate people managementpolicies are consistently and effectivelyapplied;

• That the high performance organisationalpractices are clearly linked to organisationalobjectives and business goals.

Paying attention to these factors is veryimportant in making the link betweenperformance and the day-to-day operation ofthe organisation. In this respect, everyorganisation has the opportunity tobecoming a HPWO.

Secondly, the case studies havedemonstrated that you do not have to beonly a successful organisation to “afford”high performance practices. They show thatmany HPWPs do not have significant costimplications, and that in the majority of casesit was the adoption of HPWPs that created aHPWO, not the prior financial successes ofthe company. Nevertheless, it still remainstrue that in many cases, having created theHPWO, HPWPs do become the tools throughwhich an organisation’s competitive edge ismaintained and improved.

Thirdly, our case studies also show thatwhen a specific combination of practices isworking well, the company may not need toadopt additional practices; to do so may justentail a waste of effort. A good example isTimpson, which does not have formalappraisals.

Fourthly, there is no ‘one best way' or ‘onebest set of practices'; this is not a tick-boxapproach. The crucial component is thebusiness strategy, because this underpins thechoice of practices, the way they areimplemented and their effectiveness inimproving performance. It is the businessstrategy that gives the high performanceworking practices their dynamism andprovides the framework against whichperformance can be evaluated and improved.

The findings also suggest that the choice ofwhich bundle of practices to use in order toachieve a given organisational outcome orobjective is influenced by the type of sectorin which the organisation or company isoperating. Some bundles of practices aremore effective in particular industrial sectorsthan others.

Similarly the case studies provide a numberof interesting lessons on skills and how skillsoperate in the context of a HPWO. In HPWOsskills development is very focused onachieving specific business outcomes andlevels of performance. In none of the casestudies were the organisations developingskills for the sake of skills. The case studiesshow that all employers expect more thantechnical skills from their employees.

In most of the case studies, training andcontinuous development was regarded as agiven, and so it is not a matter of HPWOstraining more. As we have strived to pointout in a HPWO, it is more important to focuson training that is linked to performancerequirements rather than on the quantity oftraining. Furthermore, tacit skills andinstitutional knowledge are relatively moreimportant than technical skills in many of the

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Conclusion

The case studies and the survey have generated a number oflearning points. Firstly, they demonstrate a strong link betweenorganisational success and the use of HPWPs.

HPWOs studied. So in a HPWO, skills policyis about creating a work environment inwhich employees can learn all the time aspart of their normal work and where theycan take advantage of the system to improveperformance and innovation.

Finally, a high performing workplace is notabout instant success but about long-termviability. All the case studies show thatHPWPs need time to establish, nurture andimprove. However, once established, HPWPsare capable of producing a range of businessbenefits, ranging from reduced staffturnover, to higher levels of innovation,better quality goods and services andenhanced competitiveness.

Examples of products and companies included in this leaflet do not

in any way imply endorsement or recommendation by DTI. Bear in

mind that prices quoted are indicative at the time it was published.

GENERAL BUSINESS ADVICE

You can also get a range of general business advicefrom the following organisations:

England

• Call Business Link on 0845 600 9 006

• Visit the website at www.businesslink.gov.uk

Scotland

• Call Business Gateway on 0845 609 6611

• Visit the website at www.bgateway.com

Wales

• Call Business Eye/Llygad Busnes on 08457 96 97 98

• Visit the website at www.businesseye.org.uk

Northern Ireland

• Call Invest Northern Ireland on 028 9023 9090

• Visit the website at www.investni.com

Ashton, D. and Sung, J. (2002) SupportingWorkplace Learning for High PerformanceWorking, Geneva: ILO7.

Becker, B. E. and Husled, M. A. (1998) 'HighPerformance Work Systems and FirmPerformance: A Synthesis of Research andManagerial Implications’, Research inPersonnel and Human ResourceManagement, Vol. 16, Stamford: JAI Press,Stamford, CT. pp 53-101.

de Menezes, L. M. and Wood, S. ‘IdentifyingHuman Resource Management in Britainusing the Workplace Employee RelationsSurvey,’ International Journal of HumanResource Management, forthcoming 2005.

Guest, D. (2000) HR and the Bottom Line –‘Has the penny dropped?’ PeopleManagement, 20 July, pp 26-31.

Guest, D., Michie, J., Conway, N. andSheehan, M. ‘Human Resource Managementand Corporate Performance in the UK’,British Journal of Industrial Relations 41:2June 2003, pp. 291-314

Lawler, E. (1986) High-involvementManagement, San Francisco: Jossey-Bass.

Lawler, E. E. with Mohman, S. A. andLedford, G. E. (1998) Strategies for HighPerformance Organizations, CEO Report, San Francisco: Jossey-Bass.

Purcell J., Kinnie, N., Hutchinson, S., Rayton,B. and Swart, J. (2003) Understanding thePeople and Performance Link: Unlocking theBlack Box, Chartered Institute of Personneland Development: London.

Stevens, J. (2005) High Performance Wales:Real Experiences, Real Success, HighPerformance, Wales Management Council,Wales: Cardiff.

Thompson, M. (2002) High PerformanceWork Organisation in UK Aerospace – TheSBAC Human Capital Audit, London: TheSociety of British Aerospace Companies.

Walton, R. (1985) ‘From “control” to“commitment” in the workplace’, HarvardBusiness Review 63 (2), pp 77-84.

Wood, S. (2001) with de Menezes L. M. andLasaosa, A., High Involvement Managementand Performance, paper delivered at theCentre for Labour Market Studies, Universityof Leicester, May 2001.

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References

7 The ILO has made this book freely available to the public.For a free copy, please email Johnny Sung atjohnny.sung@leicester.ac.uk