October 9, 2000
Written by: Cheryl Keegan
Pfeffer, Jeffrey and Veiga, John F. (1999) "Putting People First for Organizational Success," Academy of Management Executive, Vol. 13, no. 2.
As the title would suggest, research points to a direct correlation between a company's financial success and its commitment to management practices that treat people as assets.
According to an award-winning study of the high performance work practices of 968 firms representing all major industries, "a one standard deviation increase in use of such practices associated with a 7.05 percent decrease in turnover and on a per employee bases, $27,044 more in sales and $18,641 and $3,814 more in market value and profits respectively."(2) A subsequent study conducted on 702 firms in 1996 found even larger economic benefits: "A one standard deviation improvement in the human resources system was associated with an increase in shareholder wealth of $41,000 per employee."(3)
In addition, several studies and further research were presented that would build an irrefutable business case that the culture and capabilities of an organization, derived from the way it manages its people, are the real and enduring sources of competitive advantage.
Based on these various studies, related literature, and personal observations and experience of the authors, a set of seven dimensions are presented that seem to characterize most, if not all, of the systems producing profits through people:
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Employment security
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Selective hiring
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Self-managed teams and decentralization as basic elements of organizational design
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Comparatively high compensation contingent on organizational performance
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Extensive training
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Reduction of status differences
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Sharing information
Pfeffer indicates that it is easy to form the ideas that are the foundation for people-centered management, however, implementing these ideas in a systematic, consistent fashion remains rare enough to be an important source of competitive advantage for firms in a number of industries for a number of reasons:
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Managers are enslaved by short-term pressures.
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Organizations tend to destroy competence.
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Managers don't delegate enough.
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Perverse norms about what constitutes good management.
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A one in eight chance.
Each of the ideas that are bulleted is expanded upon in the article. Numerous examples of achieving competitive success through people are cited throughout the article, as well.
