Learning Objectives
- Outline the basic structure of a high performance work system
- Describe the impact of high performance work systems on the organization
What is a high-performance work system
A high performance work system is an iterative process of aligning the human resource functions to the strategic goals of the organization. This requires substantial effort from management to overcome the administrative function that HR has traditionally assumed, in a way that human resources becomes a “group of separate but interconnected practices designed to enhance employees’ skills and effort.” It is important to note that a HPWS is not synonymous with the oft-mentioned High Performance Organization (HPO). HPO describes the entire organization while HPWS refers to the processes levered within the HR function of the organization.
Integration of HR into the strategic thinking of the organization requires attention to HRM philosophies, policies, training programs, administrative practices, and processes. These general areas focus on how HR creates value in compensation and incentives, recruiting and selection, dissemination of information, performance appraisals, and training focused on role specific and organization-wide skill development.
For an organization to transform their business operation into a HPWS, the intrinsic value of their employees must be foremost. They must therefore, be leveraged as a true competitive advantage, and not viewed as a cost center that drains organization resources. HPWS foster the growth of intellectual capital by allowing employees to contribute their creativity, tacit knowledge, and ability to adapt to external market conditions. As such, three conditions must be established as progression towards this ends. First, employees must have knowledge that managers do not. Second, employees must be motivated to engage their environment in applying these skill sets. Finally, the organizational strategy must rely on and utilize the discretionary use of these skill sets of employees. This requires decentralization of hierarchy that expands employees’ job depth, and allows for learning to take place at all levels of the organization. At its core, HPWS maximizes workplace specialization and takes advantage of the unique expertise each employee has gained from consistent performance in their role.
Primarily, the purpose of HPWS is to create a sustainable competitive advantage in the marketplace. The treatment of employees in such a way has a direct impact on how customers are treated and can create real value for a company. The competitive advantage of a HPWS can be sustained over a long period of time if the execution is difficult for competitors to imitate. For this to happen, the implementation and development of a HPWS must take place over a stretch of time that allows for members to learn from mistakes and improve as they go. This organic transition into HPWS means that competitors cannot simply replicate the process, it must be experienced first-hand, and provide allowances for adaptation to organizational needs.
Why it Matters
If the primary purpose of HPWS is to create a sustainable advantage over the competition, the impact must be actualized in the bottom line. Skill training lends itself to improved profitability by reducing the number of mistakes that employees make. The broader knowledge employees have about the overall business and processes improves quality of their output. A HPWS focused on value adding compensation methods leads to higher levels of engagement and motivation. Decision making in this context focuses on the long-term welfare of the organization that aligns both personal and organizational goals. A natural result of HPWS compensation policies is improved communication, increased quality, longer tenure, and higher adaptability to change. HPWS allow for worker input and increase job depth which results in reduced fatigue, higher levels of job satisfaction, lower absenteeism and lower turnover
The majority of studies on HPWS focus on the impact of firm performance and have shown the following results:
Firms that integrated training into strategic planning can result in an increase in productivity as high as 19 percent, and wages can increase by as much as twelve percent.
Gain sharing and profit sharing can result in three to fifteen percent increase in productivity.
Participation in workplace decisions can reduce production time of operations
Higher productivity by as much as seventeen percent was associated with increased levels of job rotation, worker autonomy, and employee involvement in teams
Skill development contributes to an upward trend in stock price by as much as twenty percent over a six year period.
These studies would indicate that HPWS create value across a wide range of industries, sectors, and levels of management. As a contributor to the profitability and competitive advantage, HPWS clearly should warrant serious consideration by management to pursue it.
Practical Implications
As mentioned in the background information, HPWS requires time to develop and is a process that requires serious commitment from executive management, human resource professionals, and members of the organization. Here are a few practices that can be employed by these practitioners in progression towards HPWS.
First, for HR to be considered a strategic partner within the firm, management support is essential. This validation from executive management will allow HR to transcend the traditional administrative role. Before HR practices can be strategically integrated, two perspectives must be aligned – HR professionals must see themselves as strategic partners and not merely a cost center, and they must, perhaps more importantly, understand the operation and the strategy of the business unit they are supporting. Beyond the strategic alignment with functional management, HR must engage strategies to address employee motivation, selection and development, and effective processes.
Strategic Partnership. In regards to the overall strategic alignment of HR, there must be an explicit effort to include HR in the strategic planning. The HR components of the overall strategic plan must be clearly communicated and the value they create must be easily understood within the context of the overall plan. Many business professionals that gravitate towards HR are adept in the administrative component of HR. To make the transition from administrators to strategic thinkers, the team members of HR will need skill development training to teach them how their function can add value in that way.
Employee Motivation. Employee motivation needs to be addressed in a HPWS. Foundationally, an annual review needs to be conducted so that the employee can recognize professional deficiencies and strengths. Ideally, this performance review will include coworker, management and self reflections of performance so that a broad scope of feedback can be incorporated. HPWS will provide employees with the necessary training and mentoring to address either the deficiencies or allow the employee time to develop strengths further. The personal development plan should be a functional document that outlines an attainable path for the employee to follow. These reviews should be the basis for promotion where merit trumps tenure.
Selection and Development. Attracting and retaining talent is a function of opportunities within the company and the opportunity that employees have to be rewarded for the efforts. While compensation plays an independent role in a HPWS, it is important to note that attracting new employees is also affected. The degree to which employees can receive bonuses as a result of their efforts and the progress outlined in the performance evaluation will determine the overall attractiveness of the firm to outside hires. Retaining talent, while also impacted by the compensation system, is also a function of promotion opportunities from within the company.
Compensation must be contextualized within the metrics of the industry. An organization must decide in what range of total compensation they want to be in relative to competitors in terms of cash bonuses, deferred incentive compensation, and total pay at risk (as opposed to guaranteed salary monies).
Effective Processes. Finally, HR must focus on the effectiveness of their efforts. If the intention is to improve quality, output, and reduce the negative impact of an inefficient organization, the key area should be on effective processes. Qualified people must be hired and retained, and the jobs which they engage everyday must be designed in such a way that they enhance business performance. At its core, HPWS is about value creation, and all of the tasks and responsibilities of the work force must be oriented towards this end. Further, employees must be provided the organizational resources and be trained to develop skills to enhance performance of the firm. Executive management must include HR in the overall strategic vision of the organization in such a way that align the two objectives – hiring qualified people and designing jobs that contribute to performance.
In an attempt to answer the question “why some companies thrive while others fail?” the Stanford University Graduate School of Business identified a number of factors that caused venerable organizations such as Montgomery Ward, Bethlehem Steel, and Pan Am Airlines to die, while company’s such as Wal-Mart, Nucor Steel, and Southwest Airlines were able to thrive. Two common factors among those calamities identified as cause of business failure were the continued use of aging business practices and the inability to adapt.1Among the most significant challenges facing a successful organization as it grows and matures is the need to adjust to changing circumstances brought on by fast-paced globalization. However, change is easier said than done. Firms that manage to thrive over decades have figured out how to develop a compromise between the current, and the expected future needs and practices of the business. Companies such as Montgomery Ward and Bethlehem Steel clung to the prevailing circumstances of the time including their management practices while others evolved. The old assumptions of how to run their businesses were not challenged, human resource practices did not evolve, inertia reigned, and disastrous results ensued for these organizations.2
A Harvard Business Review article addressed a similar question, why do good companies go bad? Any number of reasons ultimately are behind that fact that some companies do fail, including managerial incompetence, the inability to recognize or react appropriately to threats or the failure to deal with unexpected economic conditions. Overwhelmingly, however, it was the organization’s tendency to follow established patterns of behavior that created the climate for failure.3 A performance problem exists and something needs to change.
The long-term success of an organization depends on its ability to deliver a consistent stream of quality products and services to the marketplace that meet or exceed market requirements. Assumptions of how to provide those products and services that meet or exceed customer requirements have evolved the past two decades. Traditional sources of competitive advantage, including speed-to-market, patents, and economies of scale have been altered by the availability of technology and the impact of globalization. To grow and thrive in changing times, many firms now recognize that a highly motivated and skilled workforce is essential to maintaining a competitive advantage. With their workforce in mind, managers are now looking to their Human Resource Departments to assist implementing the big-picture competitive strategy.4 The purpose of this report is to review the practice known as high-performance work systems and how the implementation of this method can enable an organization to thrive and grow, despite changing circumstances, new competition, and a host of other elements that could cause companies to fail. High-Performance Work Systems (HPWSs) is the concept of the design of jobs, how the work within the organization is organized, whether it is assigned to teams or individuals, and how accountability is assured.5 This report will include an analysis of how the areas of Human Resource Development as noted by Gilley, Eggland, and Gilley fit against the High-Performance Work System practice.6 This report concludes with a recommendation for future leadership and HR practices.
The Link to the High-Performance Organization
The term high-performance work system is linked directly to the concept of a high-performance organization.7The sustainable, high-performance organization is one that can remain responsive to marketplace expectations and sustain the behaviors required to meet those expectations.8 Five success factors have been identified as keys to creating a sustainable high performance. 1) Senior managements’ perception of the marketplace. 2) A shared vision, mission, values, and strategies that are aligned with the realities of the marketplace. 3) Leadership practices that are congruent with the vision, mission, values, and strategies. 4) Infrastructures which support and reinforce the vision, mission, values, and strategies. 5) Employee behaviors that meet customer needs.9 Failure to adapt to a changing marketplace or become stuck in inertia is the result of performance gaps in one or more of these five success factors. HPWSs are designed to address these gaps and can result in a change to the organization’s approach to employee behavior and people management practices. Effective HPWSs facilitate the environment necessary to improve the financial and operational performance of an organization and better position it for sustained, long-term performance. Success factors regarding specific expectations from HPWS initiatives include improved efficiency and reduced costs. Additionally, the quality of work, the speed at which work is done, productivity and improved customer satisfaction are outcomes of successful HPWS implementations.
An important factor in the successful implementation of an HPWS is its ability to create a change in the organization’s cultural behavior regarding cooperation, innovation, and people practices, all of which impact operational and financial performance. Organizational culture is defined as a system of shared assumptions, values, and beliefs, which govern how people behave in organizations.11 To sustain long-term competitive readiness, an organization must have an organizational culture that can actively propel an organization to grow, learn and adapt to an ever-changing world. Organizations that successfully implement an HPWS have an organizational and people dimension mindset that 1) defines (or redefines) the desired culture required to enable the firm’s strategy to be executed, 2) refines the recruiting criteria to ensure that cultural aspirations are clearly reflected in hiring practices, 3) assigns accountabilities to achieve cross-enterprise collaboration and engagement, and 4) identifies groups with missing or inappropriate career paths and makes adjustments to drive engagement. Culture is the “secret sauce” or the way things get done in an organization. However, culture need not be static or fixed. Culture must adapt to the demands of the marketplace. A culture of risk aversion and command and control hierarchical authority may have worked in another era, but can be a process map for weak performance in today’s fast-paced world.12 An HPWS can enable improved employee engagement and inspire them to go the extra mile, not just for remuneration, but because their work fits the organization’s culture personally and professionally. The following table identifies characteristics organizations exhibit that successfully implement an HPWS.
Table 1. Highly Effective Companies Manifest 14 Characteristics.
| Leadership | · High-performance teams of individual leaders drive urgency and direction
· The pipeline is stocked with future leaders whose skills are matched to future needs · Middle managers embrace and translate strategy
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| Design | · Structure and resource allocation reflect strategic tradeoffs
· Few layers separate the CEO and the frontline, and spans of control are wide · Accountabilities, decision rights, and collaboration are constructed with thoughtful consideration · Individual capabilities are matched to role requirements
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| People | · The employer brand is a core asset
· Critical roles and key talents are clearly identified and treated with care · HR is a strategic partner and an enabler of the business
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| Change Management | · Change is a disciplined cascade
· The organization is evolutionary
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| Culture and Engagement
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· Culture accelerates strategic objectives
· Engagement is measured and cultivated to generate discretionary effort from employee
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High-Performance organizations exhibit behavior different from those that react to difficult times with knee-jerk decisions or some, lulled into complacency by decades of success, fail to heed the warning signs of impending disaster. Organizations that exhibit satisfactory HPWSs review these 14 characteristics and determine which are the most critical to sustaining their competitive advantage.13 These organizations will not merely set these characteristics on a shelf or place them on signs posted at the facility. Organizations that use an HPWS monitor and measure their adherence to these 14 characteristics with the same degree of oversight and intensity with which they require for their operational and financial performance.
Story from the HR World: A Lesson in Sales
Jill managed seven salesmen for the mid-sized software development company in Georgetown, TX. Her role was to develop her team to maximize the sales potential of each client. She audited the capabilities of each member of the team through a summary of their performance evaluations and discovered a trend in five of the seven salesmen – they were well versed in the technical side of the product, but lacked many of the soft skills needed to more effectively close deals. She submitted an expense requisition to HR to request authorization to bring in a nationally renowned sales training firm for a four day seminar. In addition to the sales team, she brought in the logistics, and credit teams to partake in the seminar. Even though these ancillary teams were not directly involved in the sales process, she thought they could benefit from the customer focus that the training presented. They dealt with many of the objections and value added conversations with internal customers they serviced. The result of the training was a needle mover. The team improved sales by a 5% margin, and the logistics and credit teams cultivated deeper relationships with those they served. Overall, morale improved, and the self improvement focus of the training allowed most of the team to benefit in their personal lives. They utilized many of the same techniques in the purchase of a car, a home loan, and one member even negotiated a lower green fee on his round of golf that following weekend. Jill recognized not only the deficiency in her team, but the reality that the organization should continually invest in the capabilities of their people to the benefit of both the organization and the individual. This is the heart of the high performance work system.
HPWS Implementation
The successful implementation of an HPWS within an organization creates the likelihood that a high-performance workplace will ensue. Organizational culture, day to day business practices, and value systems can be improved. Dramatic improvements in operational and financial outcomes become realistic and achievable.15 HPWSs become an integral part of the human resource development process as defined by Gilley, Eggland, and Gilley as a dynamic and evolving practice meant to improve organizational effectiveness.16 The four Gilley, Eggland, and Gilley components that comprise modern-day human resource development of 1) individual development, 2) career development, 3) performance management and 4) organizational development are integral parts of an HPWS.17 HPWS organizations build talent through the human resource department’s process to enhance the firm’s employee’s abilities, enhance their motivation, and increase their opportunities.18 The net result is an organization with a shared culture and mindset and an organizational capability that is long-term and sustainable.
Today, many organizations remain stuck with autocratic leadership, hierarchical structures, and command and control styles of leadership. More effective organizations have moved to either a transactional leadership style where the leaders help employees recognize the work necessary to be done, or a transformational style where the leaders have the ability to inspire and motivate employees to achieve more than they thought possible.19 Today’s organizations face ever-increasing challenges and threats that did not confront leaders of the past. To grow with long-term sustainability, today’s leaders, HR leaders, in particular, must become development leaders. Developmental leaders place the success and growth of those around them above all else.20 The result of such leadership is the type of engaged workforce necessary to compete in today’s marketplace. Organizations with developmental leaders who help employees re-invent themselves and become more attuned to working with their colleagues to compete effectively in today’s changing world are those organizations that will continue to thrive, grow, and sustainable for future generations.
- Make your case for which element of the HPWS is the most impactful to the profitability of the organization? Make sure to tie your answer to profitability.
- How are the components of the HPWS inter-related? Be specific.