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Impact

Of

People Management

On

Organizational Performance

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TABLE OF CONTENTS

1. Introduction ------------------------------------------------------------------- 03

2. People Management As A Source Of Competitive Advantage


----------------------------- 03

3. HRM Practices ------------------------------------------------------------------ 04

4. Evidence of Studies Implicating Relationship Between Managing


People And Organization Performance.
---------------------------------------------------------------------- 04

5. Models Of Measurement -------------------------------------------------------------


06

6. An Evaluation ------------------------------------------------------------------------
07

6. The Conclusion ----------------------------------------------------------------------


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7. References------------------------------------------------------------------------ 09

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1.Introduction

The precision, with which people are managed, developed, motivated and involved
truly impacts business performance maybe even more that competitive strategy,
quality, research and development. The assignment makes a sincere effort on
attempting to analyze the link between the two and present evidence to support the
for and the against of this proposal. It is imperative for an understanding of people
management as a source of competitive advantage for which one must realize
employees as resources that cannot be duplicated, imitated with procurements or
alternates that makes them unique. The study has recognized the limited available
research employed in demonstrating the causal links between people management
and organization performance. There is a lack of comparable analysis to the
elements of management activity and the gauging of the contribution it makes to
organization performance.

The assignment presents HRM practices that make a difference to the employee in
encouraging involvement and performance. It further explores the view of McKenna
& Beech’s Human Resource Management A Concise Analysis presenting an
agreement of researchers on the make up of the effective bundle of HR practices
which returning to our proposal implies why HR practices are expected to make a
significant impact on an organizations success. The attempt seeks to present
evidence linking effective people management and organization performance from
learning’s derived from documented researches and books by various authors and
researchers. The assignment purposefully includes a research by Hewitt Consultants
Asia Pacific which seeks to identify the causal link between employee engagement
and organization performance because it was interesting and had an insightful
analysis that could succinctly capture the essence which was to be presented. A
model presented in the assignment developed by Accenture identifies a framework to
measure the impact of HR practices on an organizations performance which in most
researches was found to be wanting. An evaluation binds the arguments against the
proposal and that which presents areas found not to depend on people management
as a management of essential resource. It presents deskilling of jobs as central focus
to oppose people as key resources of the organization.

2. People Management As A Source Of Competitive Advantage:

The world’s leading organizations are today focused on the success of their people.
Change is the only constant in the business arena and is one of the most important
reasons to drive fundamental transformation in organizations. Globalization and
hyper-competition is having a deep impact on the ability of organizations achieve
and sustain long term objectives. Most competitive edges last for shorter periods of
time as technology develops and more companies get faster at responding to
change. Duplicating products, services or processes are commonalities. What then
makes some businesses more successful than others?

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There are many factors but the primary factor is the ability of some companies to
acquire and use resources more effectively than their competitors, resulting in a
competitive advantage. In other words the extent to which a company obtains
resources that are not imitable or replaceable — and utilizes those resources to
derive their full value — will result in the company having a competitive advantage.
This concept is often referred to as the resource-based view of a company Barney
(1991) , and one of the most important resources that any company has in its quest
of competitive advantage is its people. Pringle & Kroll provide four attributes for any
asset to be a key resource;
A) It must be valuable
B) It must be rare
C) Un-substitutable (no alternative providing similar benefits to achieve similar
ends)
D) Inimitable (those who do not have the resource cannot procure it)
According to Pringle & Kroll the fourth criterion is considered central to the Resource
Based Theory. The fourth criterion also indirectly points to intangibility of the
resource one that is also perfectly includable to possessing employees who are a
resource that provide competitive advantage. A company that recruits and retains
employees with better skills, are self motivated, and are more experienced than what
their competitors have will eventually have an advantage over their competitors
regardless of the type of business they are operating.
For one to consider employees as truly a source of competitive advantage thereby
being a single most important contributor to the profits of an organization one must
test assumptions that lead to its existence before attempting to reach a verdict on
the fact that people are most valuable resource and the difference they make
impacts the performance of a company in which case how they are managed makes
a large difference to the overall performance of an organization.

3. HRM Practices:

McKenna & Beech (2002a) advocates viewing HRM as an “approach to personnel


management that considers people as key resources “. According to them there is a
difference over what actually comprises the bundle of best HR practices. But overall
accepted HRM practices can be conceptualized as follows

Selection and recruitment: Listing a set of criteria and basic requirements for the recruitment
and selection of candidates. Some Insurance companies like Max New York Life Insurance in
India my former employers used Cattells 16 PF test to recruit advisors.
Induction: Making it a part of the process for new recruits immensely helps new candidates
adjust to the new environment and can start delivering immediately.
Training: Quality of work and performance of individual can be accelerated by this tool.
Appraisal: An excellent appraisal system can retain excellent individual and can garner
goodwill for the company.
Team working: Developing a sense of comradeship and increasing interpersonal skills by
formal team settings. According to McKenna & Beech (2002b) it helps develop the peer
based control of work.
Quality improvement teams: Is a tool to reduce status distinctions and makes use of skills
ideas and efforts of all people of the organization as pointed out as an essential by McKenna
& Beech (2002c) though not in the same linkage.
Reward and recognition schemes: It encourages employees to perform and make efficient use
of the time on the job to generate required outputs
McKenna & Beech (2002d) further present an agreement amongst researchers on the
consolidation of an effective bundle of HR practices which constitute of
Employment Security: Providing security to employees only increases loyalty
towards the organization furthermore reducing head count as a source to reduce

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costs in its own way is a costly medium to exercise cost reduction it also provides
competitors with available resources to employ
Selective Hiring: Finding a good fit between candidates and the organizations work
culture is imperative for the successful output delivering capacity of the candidate.
Team working and decentralized decision making: Is also a method for cost savings
by focusing on peer controlled work culture thereby reducing the hierarchical layers.
This leads to lower level employees taking higher responsibilities.
Comparatively high pay contingent on organizational performance: If the employees
feel the pay deal is favorable then organization can expect greater effort and
involvement by the employee.
Extensive training: Enables new skill development and initiates changes
Reduced status distinctions: Strong status differentials obstruct performance derived
from use of skills, ideas and efforts of all the people in the organization.
Sharing information: Develops trust and is a medium to share organizations
objectives to every employee among the many faceted nature of information sharing.

4. Evidence of Studies Implicating Relationship Between Managing People


And Organization Performance:

Jeffrey Pfeffer views employee treatment as the heart of an organizations success in


his book The Human Equation (Pfeffer, 1998). He quotes Huselid, who surveyed and
analyzed at a large number of firms across the US concluding that the heavy use of a
number of specified HR practices was associated with a level of sales revenue that
was on average $27,000 per year per employee. The corresponding increase in
shareholder value was put at $18,500, while the increase in profits was estimated at
nearly $4,000 per year per employee (Huselid, 1995). Other studies by a number of
authors (Fig 1.1), whether in automobiles, steel, clothing, oil refining or in the service
sector, point to similarly impressive outcomes. Based on these ideas Pfeffer claims,
there is powerful evidence to suggest that executing high performance management
practices makes bottom line sense.

Industry/Author Results
1. Banking industry Higher employee productivity
Richard & Johnson (2001) Lower employee turnover

2. Service sector companies Up to 40% lower employee turnover


Batt (2002) 16.3% sales growth

3. Multiple industries $27,000 average increase in sales per


Huselid M (1995) employee
$4000 average increase in .firm cash .
flow per employee
$18,500 average increase in company
market value.

4. Auto assembly Greater productivity


Macduf (1995) Higher quality

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5. Service Greater customer satisfaction
Rogg et al (2001)

6. Newly quoted companies 20% greater likelihood of survivability


Welbourne & Andrews (1996) than companies with low emphasis on
human resources

Fig 1.1

The above studies suggest a positive note linking management of people and
organization performance. Theorists and academics have directed most effort
towards examining the relationship between attitudes and individual job
performance, particularly focusing upon the impact of job satisfaction. Though it is
widely accepted that positive work culture and attitudes fuel business performance,
for example, studies have shown that companies with the most respected or admired
organizational cultures (those, for instance, on Fortune’s “100 Best Companies to
Work For” list) consistently outperform the S&P 500.
Hewitt’s Best Employer studies have shown higher revenue growth and greater
profitability to those that belong to that list.

Their study shows that organizations that are voted among the best places to work
create an environment that enables employee engagement to deliver stellar
performances. Hewitt defines an engaged employee as one who is positive and loyal
to the organization, puts in extra effort in work and behavior that contributes to
business success. Their findings implicate higher employee engagement (73% vs.
52%) and lower turnover (10% vs. 15%). Their research using 100 public
corporations over a five year period has demonstrated

• High performing companies have an engagement score that is 20-25% higher


than average;
• The correlation between employee engagement and a company’s average
five-year TSR is 0.54. This means the level of employee engagement explains
29% of the variation in TSR; and
• A similar relationship exists between engagement and five-year sales growth.
The correlation measured here was 0.46, again indicating a strong
relationship

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According to Paul Bernthal, Manager of DDI’s Center for applied behavioral research,
when an organization focuses attention on its people, it’s making an investment in its
most important resource. A company can cut all the costs it wants, but if it neglects
its people, the reduced expenses won’t make much of a difference.

5. Models Of Measurement

Accenture has developed the Human Capital Development Framework which enables
to identify and measure the factors that affect organizational
(Accenture.com/outlook). As shown in the figure 1.2 below, the framework employs
four levels of measurement to assess an organization’s human capital practices and
determine the benefits it receives
from investments in people.
The first Tier measures organizational performance
The second Tier contains key performance drivers that directly contribute to business
unit and/or enterprise results; they are the intermediate organizational outcomes (for
instance, productivity, quality, innovation and customer satisfaction) often captured
on a balanced scorecard.
The third tier human capital capabilities, consists of qualities that are needed for vital
business outcomes (employee engagement or workforce proficiency).
Tier 4, human capital processes, consists of measures that drive human capital
capabilities
(Accenture.com/outlook) “Data is collected at all four tiers of the framework. Data
from Tiers 3 and 4, for the most part, are collected through online questionnaires
completed by the organization’s HR unit and frontline employees. The result is a
human capital development scorecard that presents an organization’s ability to use
human capital to generate business results. The scorecard uses numeric and graphic
terms suitable for benchmarking (that is, it uses a red-yellow- green reporting
system: each performance measure is scored using a 3-point scale, ranging from red,
for competitive disadvantage, to yellow, for improvement suggested, to green, for
competitive advantage) to provide
a fact-based foundation for making recommendations for the development and
management of people that will result in improved business results”.

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Fig 1.2 Source: accenture.com/outlook 2003 pg 60 -67 How to boost your workforce
performance ROI Cheese, P & Robert, R.J.

The Bureau of Labor Statistics (www.bls.gov)conducted a comprehensive review of


more than 100 studies and found that people practices have a significant relationship
to improvements in productivity, satisfaction, and financial performance.

6. An Evaluation:

Any measure of linking management of people and organization performance must


have set standards by which an accurate measurement can be exercised and
evaluated. The criteria’s must be narrow (like commitment, behavior etc) or broad
(like productivity, profits, EVA).There are many studies that assess HR practices in
complexity. It has been argued over the last 3 to 4 decades that job satisfaction and
attitudes help an organization to perform better under the assumption that a
satisfied worker tends to work harder and better than an unsatisfied worker. This
area is so deeply embedded that it is mostly an accepted fact which is never
subjected to severe assessment. Previous research done by renowned academics
and researchers have indicated a weak association between job satisfaction,

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commitment and individual job performance (Iaffaldano and Muchinsky, 1985;
Mathieu and Zajac, 1990). Lam and Schaubroeck (1998) have questioned the proof of
the linkages between performance and management of people. It is often noticed
there is a rare inclusion of other direct measures of managerial success this exclusion
highlights the contribution of HR to an organizations performance. An organization
may be efficient and successful at a couple of activities like successful supply chains
and excellent HR practices both of which are mutually supportive and therefore are
equally responsible for the organizations success.
The other school of thought is the most concerning factor while considering the
rationale of the linkage is the type of industry, the type of products and the type of
economy the organization is operating in. An organization that is a firm believer of
the Taylorist approach to work would be most concerned with the deskilling of the job
and would therefore not require a Best Practices Environment for his employees. In a
developing economy where jobs are few and work is for basic survival would not
really result in a linkage in management practice and performance of the company.
In today’s world most jobs are deskilled (for eg. Call centre, customer facing service
roles etc) where application of management practices would not necessarily be a
single most contributor to an organizations success.

Another significant factor is an already existent goodwill of the organization that


could be a strong reason for a firms overall performance and growth. People
management and practices supporting it are definitely important but as Wood & De
Menezes (1998) discovered there are alternative control measures if applied would
bring about marginally different outcomes if not same. Firms listed in the Fortune’s
100 Best Places to Work For are performers not only because of a high contribution
from HRM but because they possess key resources technology or expertise
complementing the high levels of employee motivation, rewards and recognition and
other best practices adopted to continue their astronomical growth.

7. The Conclusion

Is efficient and effective management of people the only method to accelerate


organization performance. The assignment draws out from the research for the
proposal that it is one of the most important methods to sustain competitive
advantage but does not necessarily mean every company must adopt the practice to
ensure organization success. It is realized that some companies are profitable despite
the fact that they make little or no use of HR practices. The possibility is that the
sector, industry and type of business are essential in understanding the level of
impact management of people will make on business performance.
Multinational, transnational or global companies will no doubt be focused at
employing Best Practices since in international competition a company is committed
to quality standards, creativity and innovation are imperative for business growth.

It is clear from the above presented material that people management will only
continue to grow in the coming years as a significant contributor to business
performance. As global customers and global markets make their impact on
organizations the key differentiator will be the complex human capital one that
cannot be duplicated, imitated and is a unique resource for any organization.

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References

Barney, J. (1991). “Firm resources and sustained competitive advantage.” Journal of


Management, 17(1), 99.

Barney, J (1995) “Looking inside for competitive advantage” Managing People In


Organizations. New Edition Vol 2 Pg 498-509

Batt, R. (2002). “Managing Customer Services: Human Resource Practices, Quit Rates, and
Sales Growth.”
Academy of Management Journal, 45: 587-597.

Huselid, M. A. 1994. “Documenting HR's effect on company performance”. HR


Magazine. 39(1): 79-85.

Huselid, MARK A (1995) ‘The impact of human resource management practices on


turnover, productivity and
corporate financial performance’ Academy of Management Journal Vol 38 No 3 pp
635–72.

Iaffaldano, M.T. and Muchinsky, P.M. (1985) ‘Job satisfaction and job performance: a
meta analysis’. Psychological Bulletin, 96: 72–98.

Macduf. E, J. P. (1995). “Human resource bundles and manufacturing performance:


Organizational logic
and exible production systems in the world auto industry.” Industrial & labor relations review,
48: 197-221.

McKenna. E & Beech. N (2002), “Human Resource Management”, A Concise Analysis


Prentice Hall UK

MATHIEU, J.E. and ZAJAC, D.M. (1990) ‘A review and meta-analysis of the
antecedents, correlates, and consequences of organizational commitment’.
Psychological Bulletin, 108: 171–194.

Pfeffer, J (1998) The Human Equation. Boston, HBS Press.

Richard, O. C. & Johnson, N. B. (2001). “Strategic human resource management effectiveness


and firm
performance.” International Journal of Human Resource Management, 12: 299-310.

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Rogg, K. L., Schmidt, D. B., Shull, C. & Schmitt, N. (2001). “Human resource practices,
organizational climate, and customer satisfaction.” Journal of Management, 27: 431-450.

Welbourne, T. M., & Andrews, A. O. (1996). “Predicting the performance of initial public
offerings: Should
human resource management be in..” Academy of Management Journal, 39(4), 891.

Wood, S. & de Menezes, L. (1998). High commitment management in the UK:


Evidence from the Workplace Industrial Relations Survey and Employers’ Manpower
and Skills Practices Survey, Human Relations, 51, 485-517.

http://was4.hewitt.com/hewitt/ap/resource/rptspubs/hewittquart/HQ_11/articles/businessb
asics.html
www.bls.gov

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