HR practices and Business performance: the evidence
Mike Emmott Adviser, Employee Relations Chartered Institute of Personnel and Development
Agenda
• To review CIPD research findings on: • (1) linkages between people management and business performance • (2) employee attitudes/psychological contract as a key factor • Where does CIPD go from here?
People Management and Business Performance: background
• influence of “intangibles” on share price • UK and US studies highlight specific linkages • HR practices are major influence on manufacturing productivity (18%) and profitability (19%) (Patterson et al 1997) • job design/skills development are key practices • links between employee involvement, satisfaction and commitment (Guest 1999) • ongoing CIPD study (Purcell 2003) looks into “black box”
Voices from the boardroom (2002)
• ESRC/CIPD-funded project covering large sample of UK firms • profit per employee of firms adopting <4 HR practices averaged £1700, compared with £3400 where >11 practices used • strong link from use of people management practices to commitment and profit in manufacturing, more variable in services • personnel specialist leads to higher profit per employee
What do senior managers think?
• senior executives dimly aware of research findings on people management and performance • senior executives distinguish between (1) application of HR practices and (2) effective line management/quality of leadership • managers see selection and performance appraisal as key drivers of performance • HR directors seen as supportive not proactive
Guest and King (CIPD 2002)
Management choice and employee voice
• two-way communications/ “having a say” • focus has shifted from downward communication towards employee feedback and problem-solving • supports performance via better employee contributions and improved management • main constraints are lack of management skills and enthusiasm • importance of informal voice, especially in smaller/newer firms • ambiguous role of joint consultation
Missing link: the Psychological Contract
“An individual’s belief regarding the terms and conditions of a reciprocal exchange agreement between the focal person and another party. A psychological contract emerges when one party believes that a promise of future returns has been made, a contribution has been given and thus, an obligation has been created to provide future benefits”. (Rousseau)
A model of the psychological contract
Background factors
Individual: Age Gender Education Union membership Level in organisation Type of work Hours worked Employment contrast Marital status Number of children Ethnicity Tenure Income Disabled Organisational Sector Organisational size Establishmentsixe Location
Policy influences
HR policy & practice Direct participation Job alternatives Organizational support Work centrality Surveillance Organisational change Suitably qualified Promises made
The state of the psychological contract
The outcomes
Attitudinal Consequences: Organisational commitment Life satisfaction Work satisfaction Work-life balance satisfaction Job security Motivation Stress
Fairness Trust The delivery of the deal
Behavioural Consequenc: Intention to stay/quit Knowledge sharing
State of psychological contract
• 91% of respondents feel secure or very secure • 3 in 5 trust immediate manager “a lot” • 50-70% of employees consistently report they are satisfied • 54% of all employees feel a lot of loyalty to their organisation but only 26% are very proud to say who they work for • central government employees most doubtful about their commitment, while NHS employees are particularly highly committed
Why does the psychological contract matter?
• decline of collective relationships • “soft stuff” but • captures changing nature of the employment relationship • focuses on subjective experiences - “hearts and minds” • links to organisational performance
CIPD research into employee attitudes
• • • • • •
annual employee attitude surveys undertaken since 1995 representative sample of UK workforce 1000 workers contacted by phone benchmark for local surveys Public and Private Sector perspectives on the Psychological Contract by David Guest and Neil Conway (CIPD 2001) Pressure at Work and the Psychological Contract to be published December 2002
How dissatisfied are British workers?
• majority of British workers are satisfied with their jobs, • do not feel insecure, • have a high level of commitment to their employer and • make positive judgements about the state of the employment relationship
• Guest 1999
People Management in the Public Sector
• extensive adoption of progressive HR practices, including eg equal opportunities, family-friendly, performance appraisal, training • performance linkage is weaker than in private sector • lower levels of trust and commitment, particularly in central government • employee satisfaction is declining and psychological contract poorer than private sector
Some issues
• Are our messages credible? • Can we sell them more effectively? • Where do we go from here? • What research opportunities are we missing?