DOING WELL BY DOING GOOD
The bottom line on workplace practices
by Ted Baker
Executive Summary
In recent years a large amount of empirical research has examined the relationship between a set of organizational practices – often termed high performance work practices (HPWPs) – and corporate financial performance. The practices considered in this literature review include not only those typically, if often nebulously, described as HPWPs, but also policies pertaining to training, union representation on corporate boards, downsizing, and environmental management.
A review of the amassed research in this area finds that:
• Most of the studies consistently associate the adoption of HPWPs with strong or, at worst, neutral financial performance. Although it is difficult to conclude unequivocally that firms can cause improved performance by adopting HPWPs, the powerful message that emerges from this body of literature is that there is virtually no evidence indicating that a firm is likely to suffer by adopting well-planned sets of HPWPs and employment practices.
• Although the overall evidence on training finds a positive association with financial performance, the number of studies in this area is small and suffers from methodological handicaps. Training, it would seem from some of the literature, works best when adopted as part of a larger bundle of HPWPs.
• The studies on union representation on corporate boards provide little evidence of any impact on the performance of firms, an area of research hampered by the relatively short period of time labor representatives have occupied these positions.
• The empirical evidence on downsizing runs contrary to popular notions, suggesting that downsizing has no positive effect on financial outcomes and may even have a negative one.
Introduction
The body of empirical literature that examines the effects on corporate financial performance of high performance workplaces and other types of practices has been growing. Much of the critical inquiry in this field looks specifically at high performance work practices (HPWPs), although a significant amount of research has also explored the effects on financial outcomes of environmental management policies and human resource management policies such as training, union representation on corporate boards, and downsizing. The complexities of the HPWP literature are great, partially because the term is liberally used to describe a wide range of potentially attractive policies available for adoption by firms. Unfortunately, this poses one of the greatest challenges facing this field of study – the lack of consensus over what constitute HPWPs or how they should be implemented. Other methodological limitations in this area of research make it difficult to draw strong causal inferences from the amassed literature. But despite these limitations, some interesting patterns emerge from an overview of this diverse literature on HPWPs. One of the significant findings is that most of these studies consistently associate the adoption of HPWPs with strong or, at worst, neutral financial performance. In fact, the powerful message that emerges from a review of this literature is that there is virtually no evidence indicating that a firm is likely to suffer by adopting well-planned sets of HPWPs and employment practices.
This book examines this body of literature in order to answer certain questions. One of these is whether the adoption of individual high performance strategies can be expected to contribute to firm performance across a wide variety of circumstances. Another is whether performance is boosted from building coherent systems of practices and coordinating these in sensible ways with market strategy. We find that the answers vary from study to study, but certain themes recur. For instance, obviously senseless combinations of practices won’t work- a workforce, for example, that is hired “unselectively” and given little training or guidance should not be expected to vastly improve a firm’s performance when suddenly “empowered” in some token way. Nor can a firm adopting a low-road strategy of massive layoffs with every downturn expect much benefit from combining such an approach with the implementation of “quality teams,” as advocated in some studies. However, the existing published research indicates that most of the “best practices” – those designed to prepare, permit, encourage, and reward employees for participating in performance improvement – can be expected to work reasonably well either individually or when combined in any but the most senseless arrangements.
This doesn’t mean that synergies among HPWPs will emerge easily, or that firms can multiply their market value by making a few simple workplace changes. It does mean, however, that organizations can make changes that have the clear potential to improve employees’ lives without great risk to organizational performance. Indeed, most of the evidence points to the clear possibility that changes aimed at building a skilled workforce, permitting people to make contributions beyond the day-to-day routine, and rewarding them for their results, can pave the road to stronger financial performance and greater competitive advantage.
Reviewing the literature on managerial strategies and environmental practices and their affect on financial outcomes provides a clearer sense of the current critical consensus and the methodological strengths and weaknesses of these areas of research. Although the overall evidence on training finds a positive association with financial performance, the number of studies in this area is small and suffers from methodological handicaps. Training, it would seem from some of the literature, works best when adopted as part of a larger system of HPWPs. The studies on union representation on corporate boards provides little evidence of any impact on the performance of firms, an area of research hampered by the relatively short period of time labor representatives have occupied these positions. The empirical evidence on downsizing runs contrary to popular notions, suggesting that downsizing has no positive effect on financial incomes and may even have a negative one. As for environmental practices, the systematic empirical research may be spare, but the consensus seems to be that there is a financial payoff to firms for environmentally conscientious policies.
