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High Performance Organizations

Adapted from Human Resource Management in a Business Context, 3rd edition (2007)

In all the debates about the meaning, significance and practice of HRM, nothing seems so certain than the link between HRM and performance. But is it?

Karen Legge (2001), one of the most respected and astute commentators on human resource management says:

"And what, might it be asked, are the present day concerns of HRM researchers, who (...) are of a modernist, positivist persuasion? In a word, their project is the search for the Holy Grail of establishing a causal relationship between HRM and performance. And in this search some success is claimed, in particular that the more the so-called 'high commitment/performance' HRM practices are adopted, the better the performance'(Legge, K. "Silver Bullet or Spent Round? Assessing the Meaning of the 'High Commitment Management/Performance Relationship" in Storey, J. (ed.) (2001), Human Resources Management: A Critical Text, 3e, Thomson Learning).

She argues that in order to examine the relationship between performance and HRM we need to address three fundamental questions:

1. How are we to conceptualize HRM?

2. How are we to conceptualize performance?

3. How are we to conceptualize the relationship between the two?

The theoretical meaning of HRM is addressed in Introduction to HRM and see also Defining HRM.

Here we will look at HRM operationalized (according to Legge's approach) in terms of high commitment or high performance work practices. In practice, unpicking the meaning of 'high performance management' from from wider notions of management can be difficult. For example, the US Department of Labor (1998) defines high performance as:

"A comprehensive customer-driven system that aligns all of the activities in an organization with the common focus of customer satisfaction through continuous improvement in the quality of goods and services."

You will probably have recognized that the roots of this definition lie in Total Quality Management. In the past, the practice of TQM has often been procedural and bureaucratic but the high-performance approach has brought in elements of human relations or 'soft' HRM such as commitment and empowerment. The term was publicized by David Nadler within his 'Organizational Architecture' approach which focused on 'autonomous work teams' and 'high performance work systems'. Edward E. Lawler III used the term 'high performance involvement' as an alternative to empowerment, advocating the use of small teams of highly committed employees.

The Institute of Work Psychology (2001) at the University of Sheffield states that High Performance Work Systems usually involve three main sets of management practices designed to enhance employee involvement, commitment and competencies. They describe these as:

1. Changing the design and conduct of jobs through flexible working (especially functional flexibility - broadening the pool of 'who does what' through training), team work, quality circles, suggestion schemes.

2. Ensuring that employees are given the knowledge and competences to handle high performance work through team work training, team briefings, inter-personal skills, appraisal, information-sharing.

3. Resourcing and development practices designed to attract and keep the right people with the right motivation. These include some guarantee of job security, an emphasis on internal selection, sophisticated selection techniques, and employee attitude surveys with feedback to the workers involved.

Here there are further indications of an integration of 1970s and 1980s management techniques together with a certain amount of repackaging for the 21st Century.

Pfeffer (1998) acknowledges that building a high-commitment organization is not easy and that CEOs are often too busy or distracted to focus on the people. However, he advocates the following as key elements of high-commitment management:

* Building trust so that everyone in the organization can share knowledge.
* Encouraging change
* Measuring what matters arguing that financial data tends to be historical rather than what matters now. He advocates use of the 'balanced scorecard' a technique that also weighs non-financial criteria in the equation.

In the public sector, the US Department of Labor (1998) sees high performance revolving around three main principles:

* An organizational focus on achieving customer satisfaction.
* A constant search for continuous, long-term improvement in all organizational processes and outputs.
* Taking steps to ensure the full involvement of the entire workforce in achieving quality.

So what are the key operating practices of such a high performance system? According to the Department of Labor they are:

Leadership and support from top levels of management - the most critical element of the process. Top managers must develop a climate of trust where risk-taking and innovation are encouraged and rewarded. This means that workers and managers must together develop a shared vision of where they want the organization to go. It also means that there must be tolerance shown towards the inevitable setbacks and mistakes along the way. And managers must be open to suggestions and requests from workers for the removal of barriers to good customer service. This implies a considerable change from the top-down 'I'm in charge and all mistakes will be punished' attitude prevalent among higher management.

Strategic planning - mapping out how the organization will achieve its strategic objectives. But such a plan must be constantly reviewed.

Ongoing commitment to training and development for all employees - not just top-middle ranking staff where organizations concentrate their funds too often. Neglecting the training and development of customer-facing staff is potentially damaging in terms of its consequences. Somehow, an organization must also withstand the pressure from budget-cutters to reduce training levels as an easy (and stupid) way of reducing costs.

A focus on the customer - not just meeting customer expectations but exceeding them, and devoting considerable energy into finding out the changing expectations of customers through surveys, feedback and other mechanisms. This applies to internal as well as external customers.

A focus on quality - advocating a TQM approach of dealing with problems as they occur and providing a perfect end product. This differs from the traditional 'inspect, reject or deal with complaint' approach.

Empowering frontline employees and an emphasis on teamwork - the buzzwords: empowerment, employee involvement and teamwork come in here. Harness the intelligence and energies of your employees 'the potential for successful and quality results is virtually limitless."

Develop measures of progress - data collection mechanisms to ensure that customers are receiving reliable and satisfactory service and that internal processes are functioning properly.

The US Department of Labor (1998) identifies problems with the high-performance approach in respect of government employees (problems that apply in most cases to all non-manufacturing sectors):

1. High performance is conceptually easier to understand in a manufacturing than a service context.

2. Competitivenes is a main motivating factor in the private sector, but scarcely a consideration in the public sector. 'Government is mission-driven rather than profit-driven'.

3. 'Government is viewed by many as the archetypal, inflexible, hierarchical structure, and, therefore, incapable of change.'

4. The traditional measurable outcomes of the manufacturing sector - reduced production costs, improved market share, increased profitability - are not so easy to measure in the service sector.

Gardner, Wright and Gerhart (2000) query the nature of the evidence supporting the supposed value of HR initiatives in improving performance:

"While extremely promising, this research, with few exceptions, has relied on the survey responses from one knowledgeable informant per company to measure the quantity and quality of firms' human resource management systems. Reliance on just one informant makes the measurement of the human resource management construct susceptible to excessive random (i.e. unreliability) and systematic (i.e. bias) measurement error ...'

As they point out, this threatens the validity of the construct that HR practices are directly related to high performance. Paradoxically, however, the two types of error may be having opposite effects. Citing earlier statistical work by Gerhart, they argue that random errors from single- informant surveys may be obscuring and therefore undervaluing the financial benefit of HR practices. Conversely, there is likely to be an over-estimate from systematic errors.

Where do these systematic errors come from? Gardner, et al argue that:

"This type of error will occur if respondents report HR practices based not on accurate valid estimates, but rather based on an implicit theory that high performing firms must be engaged in progressive HR practices while low performing firms must not be engaged in such practices."

They cite the example of a large diversified, perhaps multinational company. If a senior HR person is asked to state the percentage of employees covered by a 'progressive' human resource practice, where does the HR person get the information from? Hopefully from a sophisticated human resource management system, but probably not. Instead, they contend, the respondent will provide an answer based on their own implicit theory of what is happening in the firm. Discussing coverage of this issue in research literature they point out that surveys typically ask for the views of senior managers who, to paraphrase, are likely to believe in their own upbeat propaganda aimed at shareholders and employees. In more academic terms, they say that, surveying the literature, "there is general consensus that executives' descriptions of past events suffer from low reliability." They also point to studies which show that outsiders' judgements of a firm are based on financial performance and conclude that it is reasonable to assume that insiders are also likely to be influenced in the same way.

They formulated two hypotheses:

1. The estimated extent of the usage of human resource practices for high-performing firms will be greater than low-performing firms.

2. The evaluation of the effectiveness of the HR function for high-performing firms will be higher than for low performing firms.

These hypotheses were tested on line managers, HR executives, MBAs and HR Masters students who were given scenarios of high and low performing companies and asked to rate a range of HR practices. The scenarios did not provide any information on HR practices, so their judgements were based entirely on implicit theories. The conclusion was that the hypotheses were confirmed to some extent in all four groups. This places a question mark on the supposed evidence from much of the survey research on the relationship between HR practices and high performance.


Gardner, T.M., Wright, P.M. and Gerhart, B.A. (2000) 'The HR-Firm Relationship. Can it be in the Mind of the Beholder?, CAHRS Working Paper 00-20, Cornell University.
Institute of Work Psychology (2001) What is a high performance work system, University of Sheffield.
Legge, K. "Silver Bullet or Spent Round? Assessing the Meaning of the 'High Commitment Management/Performance Relationship" in Storey, J. (ed.) (2001), Human Resources Management: A Critical Text, 3e, Thomson Learning
Pfeffer, J. (1998), The Human Equation: Building Profits by Putting People First, Harvard Business School Press
US Department of Labor (1998), Government as a High-Performance Employer, SCANS Report for America 2000, US Dept of Labor.

This article is based on Human Resource Management in a Business Context by Alan Price (3rd edition, 2007)

Introduction to HRM


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