Holistic human asset practices
Organizations exist to accomplish things that individuals acting alone cannot. I still remember this truism from the first management textbook with which I taught. In exchange for money and other things of value, individuals agree to give some of their time and energy to the organization. People organize for reasons of expected synergy, just as people engage in market exchanges for individual utility-maximizing reasons. Bill Ouchi, professor, consultant, and author of Theory Z, further broke organizations down into two broad types - hierarchies and clans. Hierarchies use rules of office, chains of command, and legitimate authority in an attempt to accomplish their purpose, while clans emphasize common values and common purpose, so are consistent with our ideas of leading a living organization.
In this chapter, we turn to choices entrepreneurs, leaders, managers, and human resource executives can make about the human assets in their organizations to generate increased commitment, motivation, and ultimately, financial performance.
The typical human resource cycle in an organization can be conceived of as selection, job assignment, training (or not), performance, evaluation, reward (or not), promotion (or not), eventual exit. In any given individual’s tenure with an organization, these steps may exist, and there may be multiple cycles through job assignment, training, performance, evaluation, and reward before eventual exit. Some steps may be skipped (e.g., training other than on the job), or unwarranted (e.g., a performance bonus). But in general, these are the areas we will focus on.
At each stage of the human resource cycle there are choices to be made, and these choices affect individual, group, and organizational outcomes. Intuitively, we may be able to see how organizations that “put people first” could be more successful financially. If people feel valued, they may have more loyalty to the organization, reducing voluntary turnover, they may feel more inspired on a day by day basis, increasing creativity and innovation, and they may, ultimately, give more back to the organization, resulting in better financial results. It can be a virtuous cycle.
Conversely, we can easily see how “people-last” policies could, at a minimum, lead to a workplace that is unpleasant for all but the most masochistic, and would struggle to find willing employees.
Yet along the continuum from “People Last” to “People First” where would you put most companies that you know? What could leaders do who aspire to get better results while treating their employees better as well? Why don’t more leaders and organizational decision makers implement more People First policies?
These are the questions taken up by Jeffrey Pfeffer and John Veiga in “Putting People First for Organizational Success.” They identify seven “bundled” human asset practices that demonstrably lead to better financial results. In one study they cite, being one standard deviation above the mean on these seven practices led to an additional $43,000 in shareholder wealth per employee.
1. Careful selection - In bringing in new members, people first companies hire for important skills and intangibles that are hard to learn or change through training the organization can provide (e.g., attitude, advanced degree). Ramping up membership levels is discouraged, as layoffs are to be a last resort.
2. Investment in training - Careful selection based at least in part on important but un-trainable skills is coupled with training in trainable skills, especially around desired new behaviors (e.g., working in teams). Inculcating important organizational messages, about mission and purpose, values, and goals, during an on-boarding process is one form of training that may increase alignment and enculturation.
3. Extensive use of self-organizing teams - High-involvement workplaces choose flexible and adaptable forms rather than rigid hierarchies. Flattening the hierarchy, de-layering, and empowerment approaches are along these lines. Training in group processes can facilitate this organizational change.
4. Reduced status distinctions - While many hierarchical organizations reward the upper echelons with perquisites of higher office, people-first companies strive to lessen the perceived difference among levels of the hierarchy, both materially and communicatively.
5. Above average pay, based at least in part on group results - Efficiency wage theory posits that employees assess their current jobs in light of other potential choices. An efficiency wage is higher than average, but pays off in reduced turnover (with its concomitant replacement costs). The wrinkle to go beyond individual performance metrics is an attempt to build more of an “ownership mentality.”
6. Information sharing - Information is power. In people first organizations, founders and current leaders often have a belief in the benefits of sharing power. At a minimum, individuals should have the information they need to do their job. Value can also be derived by sharing financial and other information about broader organizational perspectives. Information flow is enhanced by reduced status distinctions, among other things.
7. Job security - Organizations that put people first do not lightly discard those that have been invited to join the organization. Some adopt a strict no layoff or “full employment” policy, others resort to layoffs as an absolute last resort, both opting for alternatives such as across the board temporary pay reductions, voluntary sabbaticals, and so forth.
Assuming for the moment that the results cited by Pfeffer and Veiga are generalizable, why don’t more managers make these choices?
The reasons, simply, boil down to three.
First, many managers and leaders simply may not be aware of these results. While they make sense, examples such as Whole Foods Markets, Google, SAS Institute, Patagonia, and Play remain rare. The ethos of cutting unnecessary costs puts training budgets and full-employment preferences at risk.
Compounding this is the short-term focus that the financial markets have brought to bear on publicly-traded corporations and existing methods of rewarding management talent. Most managers are rewarded for immediate past performance, and will have moved on before future performance turns up. This breeds a short-term emphasis. Additionally, rewards are often correlated with the size of a manager’s staff, which argues for accruing headcount in good times rather than hiring selectively, then laying off when times turn bad.
Finally, leaders and managers are subject to two important biases that may make empowerment approaches specifically, or people first policies more generally, more difficult to implement. The first, the faith in supervision effect, fools us into thinking that results produced with supervision are better than ones produced without. The second, a self-efficacy bias, convinces us that results produced with some of our own input are better than ones that ignore our input. Both of these, if not overcome, can make it more difficult to trust employees and the team approach.