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Maximising employee potentialand business performance:the role of High Performance Working

Maximising employee potential and business performance: the role of High Performance WorkingMaximising employee potential andbusiness performance:the role of High Performance WorkingForewordEEF and CIPD have worked together to provide this briefing on a topic that we both see as fundamental to improvingproductivity in UK manufacturing and other sectors. This brief is unique in that it pulls together all the research that hasbeen conducted on High Performance Working (HPW), which makes a compelling case for its introduction. In addition, itprovides valuable information on implementation, maximising its impact and avoiding common pitfalls.The evidence base suggests that the use of HPW is limited in UK manufacturing and we hope that this document willencourage more firms to go down the HPW route. Effective human resource management is critical to maximising thereturns from investment in capital equipment, skills and innovation.1

Maximising employee potential and business performance: the role of High Performance Working2

Maximising employee potential and business performance: the role of High Performance WorkingMaximising employee potential andbusiness performance:the role of High Performance WorkingSummaryThe global and competitive nature ofmodern manufacturing has increased thedrive for higher productivity in the UK.While there are many facets to achievinghigher productivity, an important factorcan be ensuring that lessons are learntfrom pioneering companies and thatbest practice is applied across themanufacturing process. This brieffocuses particularly on a key aspect ofeffective human resources (HR) practice;High Performance Working (HPW). Itaims to illustrate what HPW entails andhow it can help to maximise thepotential of employees and improvecompany performance.If you are considering going down theHPW route, the key findings of theresearch on the topic (covered in themain sections of this brief) and theimplications for your company aresummarised below and form a set ofbroad guidelines. In particular, it helpsto identify for you what HPW involves,what drives its take-up, whether and howit improves company performance, whythe take-up has been limited and how togo about introducing HPW.What is High PerformanceWorking?• While HPW clearly involves using HRpractices and policies to boostcompany performance, there is not adefinitive list of practices that itinvolves. However, HPW practicestend to focus on employee autonomyand involvement in decision making,support for employee performance,rewards for performance and thesharing of knowledge andinformation. Part of HPW’s strengthderives from its flexibility toincorporate different practices tomeet the varying needs of individualorganisations. The specific types ofpractices that HPW can involve are:- appropriate selection and recruitmentprocesses;- comprehensive inductionprogrammes;- sophisticated and wide coverage oftraining;- coherent performance managementsystems with wide coverage;- flexibility of workforce skills;- job variety and responsibility;- teamworking;- frequent and comprehensivecommunication to employees;- use of quality improvement teams;- harmonised terms and conditions;- market competitive pay;- use of rewards related to individualand/or group performance; and- policies to achieve an appropriatework-life balance.• Although there is no definitive list ofpractices, existing research shows thatthe practices that make up HPW tendto have four dimensions:- employee autonomy and involvementin decision making;- support for employee performance;- rewards for performance; and- the sharing of information andknowledge.What drives the take-up ofHPW?• The driving forces for firmsintroducing HPW have tended to be‘problems in the market’, competitionor foreign ownership. However, thebenefits can be captured by any firmin any circumstances and HPW shouldbe viewed as a route to improvedperformance for your company. Thechallenge now is to ensure3

Maximising employee potential and business performance: the role of High Performance Workingwidespread take-up of HPW as amethod for improving performancefor companies in all types ofcircumstances. Case Study 1 (page 8)shows how INA Bearing CompanyLimited has used HPW to meet thechallenge from increased competitionfrom Eastern Europe.Does HPW improvebusiness performance?• The majority of evidence suggeststhat HPW can improve theperformance of your organisation. Asignificant body of research haslooked into the link between HPW andcompany performance both withinmanufacturing and in other sectors.Research from the US and EEF’s andCIPD’s own findings show thatcompanies that use HPW tend to havehigher productivity.• Some of the more striking findings formanufacturing come from a CIPDstudy by the Institute of WorkPsychology at Sheffield University. Itshows that in a sample of 100manufacturing companies based inthe UK, HPW practices accounted foraround a fifth of the variation inprofitability and productivity betweenfirms. In addition, studies across theglobe have shown that investment inthese practices and the skillsassociated with them impacts on thebottom line.• There is an opportunity to learn fromthe experience of the UK aerospacesector. HPW has slowly but steadilydiffused through the UK aerospaceindustry and there is evidence of aclear link between HPW and sales andvalue-added per employee.Aerospace firms with a greaternumber of HPW practices also hadmore lean production systems in placeand a higher training spend. If youare looking to maximise productivitygains for your organisation, a potentcocktail is the combined use of HPW,lean manufacturing and training.• The introduction of HPW can bringbenefits for your employees in termsof increased job satisfaction andmotivation. The environment of trustand intrinsic rewards that HPWcreates also brings higherorganisational commitment, as wellas increased job satisfaction. Wheresuch practices lead to higherproductivity and higher skills levelsthey can also generate higherearnings for employees.How does HPW improveperformance?• A major study for the CIPD, carriedout by researchers at Bath University,has been pioneering in itsexamination of the process by whichHPW leads to improved companyperformance – looking ‘inside theblack box’. Its findings are critical ifyou intend to implement HPWsuccessfully and maximise its benefits.The main points to bear in mind are:- Managing performance throughpeople means finding ways to induceor encourage employees to contributemore effectively by triggeringdiscretionary behaviour that makesthe difference in a job being donewell. This happens when people findtheir job satisfying, they feelmotivated and they are committed totheir employer.- The most successful organisationswith higher than average levels oforganisational commitment andperformance are those with a clearvision and a set of integrated values –encapsulated by a ‘Big Idea’.- HR policies and practices must fitwith and be tailored to the businessstrategy, while at the same time beingflexible enough to help organisationsadapt to changing circumstances.Enduring values play an importantpart in achieving this.- In some cases, lower levels ofcommitment are explained more bydissatisfaction with the way policiesand practices are implemented andput into action, rather than the lack ofa particular policy.- Implementing and enacting policiesis the task of line managers and theirrole is therefore critical.4

Maximising employee potential and business performance: the role of High Performance WorkingMaximising employee potential andbusiness performance:the role of High Performance WorkingIntroductionBoosting UK productivity is critical for thesuccess of UK manufacturing in theglobal economy. There are many facetsto higher productivity including moreinvestment in capital equipment, higherskills levels, greater innovation, increasedflexibility and improved infrastructure.However, these factors must beunderpinned by wide dissemination ofbest practice in areas such as leanmanufacturing and human resourcemanagement to ensure that productivitygains are maximised. This brief focuseson a key aspect of effective humanresource management - HighPerformance Working (HPW).There is now a wealth of literature onHPW and how it contributes to companyperformance. This brief looks in detail atwhat this research shows and moreimportantly at what HPW involves,whether it delivers results and whataspects are relevant for manufacturing.It illustrates exactly what HPW entails,how it can help to maximise thepotential of employees and improvecompany performance. By drawing onexisting research the aim is to help firmsbenefit from the experience ofcompanies that have alreadyimplemented HPW.1. What is HighPerformance Working?One of the problems with understandingHPW and what it entails is that there isno universally accepted definition. Infact, there is no single agreed definitionof what makes up the bundle of HPWpractices that deliver results. Much ofthe research covered in the followingsections uses different terminology todescribe the set of practices that itconsiders – for example they could becalled Human Resource ManagementPractices or High Involvement Practices.However, the research is bound togetherby the basic principles of investigatingHR practices that boost companyperformance through channels such asgreater employee involvement andincreased teamworking. So for simplicityand the purposes of this brief it has beendecided to group research on HRpractices that link to companyperformance under the HPW heading.That said, it is possible to consider whatthe literature suggests HPW involves andfrom that generate the keycharacteristics of HPW. From the outsetit is vital to recognise that part of HPW’sstrength derives from its flexibility toincorporate different practices to meetthe different demands of individualorganisations.Patterson et al set out the key aspects ofHPW and their views tie in with much ofthe literature. The commoncharacteristics of HPW are seen to be:• appropriate selection and recruitmentprocesses;• comprehensive inductionprogrammes;• sophisticated and wide coverage oftraining;• coherent performance managementsystems;• flexibility of workforce skills;• job variety and responsibility;• teamworking;• frequent and comprehensivecommunication to employees;• use of quality improvement teams;• harmonised terms and conditions;• market competitive pay;• use of rewards related to individualand/or group performance; and• policies to achieve an appropriatework-life balance.These practices are considered toimprove company performance throughthe three causal routes of: increasingemployee skills and abilities; promotingpositive attitudes/increasing motivation;7

Maximising employee potential and business performance: the role of High Performance Workingand providing employees with expandedresponsibilities so that they can make fulluse of their skills and abilities.Ashton and Sung in their book for theInternational Labour Organisation (ILO)look in detail at new ways of organisingwork, rewarding performance andinvolving employees in the decisionprocess in the workplace. They regardHPW as involving concern on the part ofemployers with developing their labourforce and making use of practices suchas teamworking, job redesign, employeeinvolvement in decision making,extensive communication andperformance related pay to enhanceorganisational performance. Ashton andSung follow Guest, who in his researchstudy for the CIPD outlines the 18 HPWpractices listed in table 1.It is recognised that other research hasextended this list to more than 30practices, but also that there is nodefinitive list of practices. Rather, all thepractices can be categorised into fourdimensions:• employee autonomy and involvementin decision making;• training, development and support foremployee performance;• rewards for performance; and• the sharing of information andknowledge.Table 1High Performance Working Practices1. Realistic job previews2. Psychometric tests for selection3. Well-developed induction training4. Provision of extensive training forexperienced employees5. Regular appraisals6. Regular feedback on performancefrom many sources7. Individual performance-related pay8. Profit-related bonuses9. Flexible job descriptions10. Multi-skilling11. Presence of work improvementteams12. Presence of problem-solving groups13. Information provided on the firm’sbusiness plan14. Information provided on the firm’sperformance targets15. No compulsory redundancies16. Avoidance of voluntaryredundancies17. Commitment to single status18. Harmonised holiday entitlementSource: GuestThese underlying dimensions areachieved by introducing sets or bundlesof practices, rather than one particularpractice on its own. The end result is anew way of organising production thatbreaks with the tradition of ‘commandand control’. The High PerformanceWorkplace encourages the developmentof workers’ skills and taps into theiremotional capital and tacit knowledge inorder to enhance organisationalperformance. In addition to developingtechnical skills and multi-skilling, theneed for ongoing problem solving,communication and teamworkingrequires the continuous exercise ofdiscretion and day-to-day learning byemployees. This environment of selfconfidence,flexibility and continuouslearning is at the heart of the performanceimpact of the HPW approach.2. What drives take-up ofHPW?According to Ashton and Sung, a numberof factors are contributing to the take-upof HPW, notably globalisation, thespread of new technologies and theintensification of competition. Theopening up and growth of new marketshas been accompanied by the growth ofmultinationals, which has helped tospread new forms of management. TheJapanese experience in the 1980s, withits emphasis on quality, responses todownsizing and focus on quality ofworking, has contributed to the drivetowards HPW. The main trigger for theintroduction of HPW at the level of thefirm is a ‘problem in the market’. Thiscan take the form of a threat to thecontinued viability of the organisation,although the exact nature varies fromcompany to company. Some of the earlypioneers introduced HPW in response toincreased competition, for example, from8

Maximising employee potential and business performance: the role of High Performance WorkingJapan. The introduction of teamworkingis often driven by pressures from themarket. This can come through thedesire to be market leaders, improvecustomer focus, the need to cut costsand improve industrial relations. Foreignownership can lead to the introductionof HPW, as has been the case in theautomotive industry. Firms are morelikely to increase their use of HPW whenthey have already implemented a varietyof complementary HR practices. Inmany cases there is not a consciouseffort to introduce HPW, rather just anaccrual of the practices to improvecompany performance through the useof good management. The resultant adhocand incremental growth of HPWexplains why there is no universallyaccepted definition of what it constitutesor a specific model for action. Toimprove the take-up of HPW in UKmanufacturing, it must be seen as amethod of improving companyperformance, rather than just a responseto difficult times. This requires makingthe case that HPW boosts companyperformance and showing how it doesso. The case study in Box 1 on INABearing Company Limited shows howthey have used HPW to meet thechallenge of increased competition fromEastern Europe.Box 1Moving to HPW case study:INA Bearing CompanyLimitedBackgroundINA Bearing Company Limited is asubsidiary of a German privately ownedmechanical engineering group. Some360 employees at Llanelli, West Wales,manufacture high precision componentsfor the automotive industry (mainlytappets and tension pulleys). Two thirdsof these staff are hourly paid, spreadacross four grades including team leaders.The remaining Llanelli employees areinvolved in quality, maintenance,engineering, production scheduling and arange of support functions. A further 80staff are based in the West Midlandswhere activities are concentrated onsales, distribution and applicationsengineering. The business has faced aparticularly challenging time. In the1990s it experienced rapid growth. Overthe last three years, however, new lowcost competition has emerged as groupproduction capacity has been placed inEastern Europe (Slovakia and Romania)where wages are lower.INA Bearing Company Limited hasresponded by seeking to competethrough developing the capability todeliver higher value added products.There has been a planned and sustainedfocus on continuous improvement, costreduction and, as an integral componentof the process, a sustained attempt toupskill the workforce. As PersonnelManager Adrian Roberts puts it:“Previously the investment has been inmachinery, now the investment is inpeople. You never know what the nextproduct will be, so you need to updatethe skills and knowledge so that peoplehave technique and ability to cope withwhatever comes their way.”The change process began with amanagement offsite strategy day held inMarch 2001. The culture changeprogramme developed there identified‘production location of choice’ as thevision for the Llanelli factory. ‘Integrity,Innovation, Respect, Commitment andPassion’ were identified as values. Aseries of initiatives were put in place on aplanned timetable.The culture change programme involvedcontinuous improvement, training andflexibility; significantly they were linkedand supported by the statement “the rateof learning must be greater than the rateof change” (L>C).As the guidance for communicationstates: “To achieve this vision a “learningculture” must be at the core of ouractivities, so that we are practising aculture of continuous improvement andconsequently whatever “change” isnecessary in the future we have therequisite skills, knowledge and experienceto adapt and achieve our targets. This willmean the training and development of all9

Maximising employee potential and business performance: the role of High Performance Workingpeople in the organisation to improve ourskills and knowledge. We will beassessing and appraising everyone withinthe organisation to ensure that we have asuitably trained and experienced team.”Following the strategic away-day the tenserving managers were allocatedresponsibilities for undertaking one-toonediscussions with employees toexplain the initiative and its significancefor the company. All employees wereincluded. To achieve the requisiteinterviews by the deadline, one of themanagement team was obliged to workuntil 4.00am to outline the initiative toindividual employees who were on thenight shift. This was found to be a mosteffective attitude survey and revealed allsorts of issues. The Trade Union has alsobeen actively involved and is supportingmanagement.New initiativesCurrently the company is undertaking anumber of related initiatives. It hasnearly completed a team leadershipprogramme linked to the NVQ level 3 inManagement, and is three quarters ofthe way through a supervisoryprogramme linked to NVQ level 3 inBusiness Improvement Techniques. INAhas also completed a 5S workplaceorganisation initiative that involved allemployees and was used as the catalystto get everyone involved in continuousimprovement and the development of alearning organisation. INA is about toembark on a further continuousimprovement programme (‘Kaizen’),again for all employees, and has alsoembraced techniques such as Six Sigma.In addition, an extensive programme ofNVQs is underway. All operators areworking towards NVQ level 2 PerformingManufacturing Operations. NVQs receivesupport at INA Bearing Company Limited,in part because there is no readilyrecognised qualification formanufacturing operations.Developing a learning cultureA shift from training to learning isrecognised as desirable and is takingplace. According to Adrian Roberts INABearing Company Limited is trying todevelop a learning culture: “We need toremove any barriers that prevent peoplelearning. Many of our staff left it behindat school. We want to get them back intolearning. We want to create a culture ofself development where people takecharge of their own learning.”Such changes are taking place, but not asfast as the company would wish. Oneinitiative currently underway is theestablishment of a learndirect e-learningcentre in the site offices. This initiativehas been developed with the locallearning hub Coleg Sir Gar(Carmarthenshire).All senior managers (the team currentlystands at eight) are required to reportregularly using a standard four-sectionscorecard. Important measures reflectperformance priority, particularly businessoperating statistics, with one element ofreporting specifically designed to reflectprogress in achieving L>C.One specific priority in managing thechange from training to learning includestraining for line mangers. First, there is asignificant on-going programme todevelop skills relevant to team leadersand supervisors. Achievement of NVQs isan essential component, so too is atraining programme to acquire the skillsand knowledge. These are delivered forboth team leaders and supervisors on aone-day a month modular basis.Tutors/facilitators are drawn from theColeg, a consultancy group, andindividuals from senior managementgroup at INA. The senior managementteam play a key role in not onlydemonstrating their commitment tolearning, but also to contextualise thetheory to enable it to be transferred tothe workplace.Looking ahead it is intended to move tothe next stage of the culture changeprogramme and move forward oncontinuous improvement (Kaizen). In thisstage there will be collaborative learning,as work groups will be meeting on aregular basis to improve practices – andto learn from each other. In addition, theteam leaders and supervisory programmewill be completed soon. This should resultin progress in creating a learning cultureand feed into the continuousimprovement initiative.10

Maximising employee potential and business performance: the role of High Performance Working3. Does HPW improveperformance?Whatever the background drivers,potential take-up will to a considerableextent also depend on the degree towhich HPW can be shown to improvebusiness performance. While HPWseems to be particularly relevant tomanufacturing, evidence also shows thatit has been a success in other sectors andcan therefore apply to mostenvironments.The US experienceResearch into the US experience in the1990s (Huselid, Black and Lynch)provides convincing evidence that HPWhas contributed to US productivitygrowth. It shows that it is not theadoption of any single practice thatappears to be crucial but thecombination of a number of them andthe involvement of employees indecision-making.EEF survey evidence shows that over80% of manufacturing firmsimplementing these workplace initiativesfound them successful at achieving theirgoals of raising productivity/profitabilityand increasing employee participationand satisfaction. Those firms that hadimplemented HPW were more likely tohave higher productivity and profitability.Success in UK manufacturingA CIPD research study led by Pattersonat the Institute of Work Psychology inSheffield conducted interviews with 100manufacturing companies over a tenyear period. The aim was to determinewhat factors principally influencedcompany performance. They focused onfour questions: Do employee attitudespredict company performance? Doesorganisational culture significantlypredict variation between companies intheir performance? Do human resourcemanagement practices explain variationsbetween companies in profit andproductivity? Which managerialpractices are most important inpredicting company performance?The results show that employee attitudescan influence company performance andthat organisational commitment is alsoimportant. The more satisfiedemployees are with their jobs, the betterthe company is likely to perform. Themeasure of satisfaction covered manyaspects of working life, from pay andconditions through to softer issues suchas recognition for good work, attentionpaid to suggestions and relationshipswith team members and supervisors.The results suggest that good peoplemanagement goes beyond traditional HRpractices such as recruitment, appraisaland training. It is important to takeaccount of many aspects of employeesatisfaction including their needs forgrowth and development, their sense ofsecurity, relationships withcolleagues/supervisors and the balancebetween home and work.Organisational culture is interpreted asthe aggregate of employees’ perceptionsof the quality of communication, supportfor innovation, level of supervisorysupport etc. Cultural factors were foundto have a significant impact on companyperformance, with the variable that mostexplained change in performance beingconcern for employee welfare.Chart 1The link to company performance% of variation in change in companyperformance accounted for by the HR factors%19181716151413121110ProfitabilityProductivitySource: Patterson et alThe results shown in chart 1 indicate thatHRM practices taken together accountedfor around a fifth of the variation inprofitability (19%) and productivity(18%) between companies. Acquisitionand development of skills (selection,training and appraisal) and job design(job variety and responsibility, skillflexibility and teamworking) are11

Maximising employee potential and business performance: the role of High Performance Workingsignificant predictors of change both inprofitability and productivity. Inaddition, HRM practices are seen as farmore powerful predictors of change incompany performance than R&D,technology, quality and strategy. Theauthors suggest that the reasonmanagers are so slow to implement suchpractices is that managing people ismore ambiguous than other businessgoals and this makes it more daunting.HPW is working across the globeAshton and Sung consider the wealth ofevidence on whether HPW can deliverresults in terms of higher productivityand profitability. They find evidence of arobust link between HPW and companyperformance and that ‘put plainly,investment in these practices and theskills associated with them pays off onthe bottom line’.Studies have been conducted across theglobe from the US, to UK, Canada,Taiwan, China and New Zealand, with allthe results pointing in the same direction(see in addition the detailed study ofHPW in UK aerospace conducted byMarc Thomson of Templeton CollegeOxford, Box 2). These practices areevident in organisations across the globeand are producing similar results. Notonly were the results coming fromdifferent countries but from varyingmethodologies, adding to the robustnessof the findings. The results also showthat the performance improvements onlycome from the implementation ofbundles of practices that are selfreinforcing,rather than single initiatives.Benefits for employeesAlthough the outcomes for employeeshave not been investigated asthoroughly as the impact onperformance, the evidence base points toHPW leading to higher job satisfaction.In addition, autonomy over task-leveldecision making, membership of selfdirectedteams and communication withpeople outside the work group areassociated with workers trustingmanagers and experiencing intrinsicrewards. Trust and intrinsic rewards inturn feed into a strong positive impacton organisational commitment and jobsatisfaction.Given that HPW can lead to higherproductivity, it is not surprising thatemployees can also benefit from higherearnings under it. Higher earnings mustalso be linked to one of the otherbenefits of HPW for employees - higherlevels of skills. The higher level oftraining that can underpin HPW tends toproduce higher levels of skills. Researchin the UK points to these new skills beingconcentrated in IT, problem solving,communication and teamwork.12

Maximising employee potential and business performance: the role of High Performance WorkingBox 2The UK aerospaceexperienceThere are some very relevant andinteresting conclusions from a study ofthe UK aerospace industry (Thompson)that takes a unique approach by usinglongitudinal panel data onestablishments which allows anexploration of performance effects ofHPW. It paints a picture of slow butsteady diffusion of HPW in the aerospaceindustry and there is further evidencethat HPW is related to companyperformance.The study looks at the relationshipbetween an HPW index and companyperformance. The index looks at use ofthree distinct but related groups ofpractices:1. High involvement practices, whichcreate greater opportunities for employeeinvolvement such as: semi-autonomousteam working, continuous improvementteams, responsibility for own work quality,job rotation, information sharingprogrammes and briefing groups.2. Human resource practices, which helpbuild skills levels, motivation and abilitysuch as: appraisal, personal developmentplans, performance based rewards, highlevels of on and off-the-job training,sophisticated recruitment techniques andbroad job grading structures.3. Employee relations practices, whichcan help build trust, loyalty and identitywith the organisation and include:harmonised terms and conditions ofemployment, formal grievanceprocedures, induction programmes, jointconsultative committees, regular socialgatherings, same canteen and eatingarrangements.Over the 1997 – 2002 period a strongand positive relationship was foundbetween the HPW index and sales andvalue-added per employee. Those scoringhigh on HPW in 1997 had average salesin 2002 of £133,000 per employee,compared with £67,000 for those scoringlow on the index. The pattern between1999 and 2002 is even more marked andis summarised in chart A. It shows thatthose establishments in the top quartileon the HPW index in 1999 recorded salesper employee in 2002 of £162,000,compared to £62,000 for those in thebottom quartile – a difference of 161%.Further analysis that looked at the role ofindividual practices found that givingpeople a stake in the business wasparticularly effective at boostingperformance. Use of profit sharing andshare ownership schemes in 1997correlated with higher sales per employeeand higher value-added per employee in2002. It was also found that greaterprovision of information to employees –e.g. briefing groups – was associated withhigher levels of profit per employee. Staffturnover was lower where firms gaveChart AHPW and business performance in aerospaceHow companies scored on HPW in 1999 &VA/Sales per employee in 2002£000s180160140120100806040200Bottom quartileVA per employee2nd quartile3rd quartileHPW index 1999Sales per employeeTop quartileSource: Thompsonemployees more responsibility for thequality of their own work. The authormakes it clear that while these individualpractices are important, they should beseen as a part of a wider, more integratedset of practices that constitute HPW.The results also show a link between theuse of HPW and lean manufacturing.Chart B shows that those firms with agreater number of high performancepractices in 1999 also had more leansystems in place in 2002. In 2002 thosehigh on the index used 3.3 lean systemswhereas those low on the index used 1.5.Companies with a greater number of13

Maximising employee potential and business performance: the role of High Performance WorkingChart BThe link between HPW and lean/trainingNumber of lean practices in place 2002 andoff-the-job training spend as % of nonmanagementwage bill 20023.5 Lean practices Training spend32.521.510.50Bottom quartile2nd quartile3rd quartileHPW index 1999Top quartileSource: Thompsonpractices such as semi-autonomousteam-working, provision of information tofront-line workers and job rotation withinand between teams, tended to have morelean practices. These types of highperformance working align closely withand potentially reinforce lean systems,producing a powerful drive for higherperformance.HPW, through such practices as teamworking, multi-skilling and informationsharing means that the workplacebecomes an important place of learning.The research shows that the distinctionbetween on and off-the-job training isblurring and that an increasing amountof off-the-job training is actually carriedout in the workplace. Chart B shows thatthose companies using a greater numberof HPW practices are also investing morein off-the-job training. There is also clearevidence that a worrying gap ininvestment in training is opening upbetween companies according to theextent to which they use HPW. Thoseestablishments high on the HPW index in2002 devoted 2.6 times more of theirtotal wage bill to training than the rest.These findings support the contentionthat an important factor in HPW is theprovision of training and development.In summary the experience from theaerospace sector tells us that:• HPW and workforce development havea direct bearing on companyperformance, with the benefits of suchpractices outweighing any costs.• HPW plays an important role insupporting the development of leanmanufacturing.• HPW helps learning to occur in theworkplace, with those organisationsusing such practices investingsignificantly more in off-the-jobtraining.Firms that seek to improve theeffectiveness of their employees andthereby of their need to introduce workpractices that increase employeeparticipation, provide opportunities andincentives for workers to improve and alsodeploy their knowledge, skills andabilities.14

Maximising employee potential and business performance: the role of High Performance Working4. How does HPW improveperformance?Getting inside the ‘black box’With a significant body of researchshowing a strong relationship betweenthe way people are managed andcompany performance, Professor JohnPurcell at the University of Bath has gonefurther in a CIPD research study andinvestigated what is actually happeningin companies that get success fromintroducing HPW – looking inside the‘black box’. The research focuses oncase studies in twelve organisations(covering more than 1,000 employees),ranging from an NHS trust, to amanagement consultancy, retailers,manufacturers and financial firms. Inparticular Purcell looks at the importanceof discretionary behaviour by employeesand managers and the effect ofvariations in this behaviour on businessperformance.Discretionary behaviour is crucialTo attempt to understand how thevarious practices are implemented by linemanagers and how they are perceived byemployees, the CIPD study explores thelinks between discretionary behaviour,employee attitudes and businessperformance. The research attempts tobuild on Appelbaum et al (2000) whichinvestigated the links between highperformance work systems andperformance in 44 manufacturing sitesin the US. It found that discretionarybehaviour is one of the keys tounderstanding the links between HRpractices and organisationalperformance. In more detail, every jobcontains both prescribed anddiscretionary elements, with thediscretionary elements very dependenton the occupant of the role and theirjudgement and feel. The key link withperformance is to get employees not justto do their job but act beyond contractand do more than they are formallyrequired. This depends on improvementsin job satisfaction and organisationalcommitment and motivation. It is alsostrongly influenced by the way managersexercise their own discretion and howthey put HR practices into operation.These links between employee attitudes,discretionary behaviour, andperformance outcomes are the core ofthe CIPD research model that links HPWto performance. The researchdemonstrates that performance is afunction of three factors (AMO) listedbelow:• Ability – skills, experience, knowledge;• Motivation – to apply abilities – bothfinancial and intrinsic; and• Opportunity – to engage indiscretionary behaviour.Ability refers to the fact that people willwant to apply for jobs in an organisation,have their attributes recognised and bewilling to learn new skills. For Motivationthe assumption is that people aremotivated to use their ability in aproductive manner because they respondto various rewards and stimuli. And inorder for people to provide high qualitywork (beyond the satisfactory level) andwish to engage in extra activities such asproblem solving, they need to be giventhe Opportunity to do so.The full model is illustrated in chart 2.The central assertion is that AMO feedsdirectly into the three elements oforganisational commitment, motivationand job satisfaction. There are threefurther keys aspects to the model.1. The outside ring of eleven policy orpractice areas (seen to be the mostuniversal and most likely to be ofimportance) in human resourcesmanagement are identified to feed intoand give practical meaning to AMO andare themselves interrelated with oneanother.2. Another crucial feature is front-linemanagement, which is at the centre ofthe model, emphasising the importanceof their role in bringing HR policies to life.3. Finally, performance outcomes feedback into the attributes box, showinghow the experience of working for asuccessful organisation and theexperience of success feeds back to helpreinforce attitudes.15

Maximising employee potential and business performance: the role of High Performance WorkingChart 2The people and performance modelTraining andDevelopmentPerformanceAppraisalCareeropportunityJobsecurityRecruitment/selectionABILITYAND SKILLPaysatisfactionMOTIVATIONANDINCENTIVEFront linemanagement-ImplementingOrganisationcommitmentDiscretionaryBehaviour-EnactingMotivationWork-lifebalanceOPPORTUNITYTO PARTICIPATE-LeadingJob satisfactionPerformanceoutcomes +-ControllingJob challenge/job autonomyTeamworkingInvolvementCommunicationSource: Purcell16

Maximising employee potential and business performance: the role of High Performance WorkingThe ‘Big Idea’A notable feature of the organisationsstudied is the existence of a ‘Big Idea’.This is a clear sense of mission,underpinned by values and culture,expressing what the firm is and itsrelationship with its customers andemployees. For example, in Jaguar the‘Big Idea’ is quality – it is not just anoutcome seen in product reliability,design and build but also aboutprocesses and routines. It drives downcosts by reducing reworking, eliminatingthe need for a large number of qualityinspectors and minimising accidents andinjuries. The ‘Big Idea’ is seen as one ofthe keys to the HR-performance link as itcreates the organisational valuesnecessary for the particular policies towork effectively and helps to securediscretionary effort and commitment.Line managers crucialAs already mentioned, the role of linemanagers is also critical. The way HRpolicies are implemented is related tothe interplay between managerial andemployee discretion. Managers play avital role in making involvement happen,in communicating, in being open toallow employee concerns to be raisedand discussed, in allowing people spaceto influence how they do their job, andin coaching, guiding and recognisingperformance and providing help for thefuture. Deliberate action to strengthenthe skills of line-managers had beneficialeffects in a number of the organisationsconsidered.This emphasis on the role of managersbrings its own issues about how todevelop managers. The CIPD look atthese in another research study“Developing Managers for BusinessPerformance” and identifies three keyand mutually reinforcing requirementsfor connecting business challenges andmanagement development. Firstly,making the case for developingmanagers by convincing key stakeholdersof the significance of management tobusiness performance. Secondly, makingthe connection between businessstrategies, organisation andmanagement development. Finally,managing the learning – getting theimplementation right. The CIPD briefingprovides a checklist to assessperformance and prioritise action todevelop management capability.Those organisations with the ‘Big Idea’that were values-led and managed, weremuch better able to sustain theirperformance over the long-term. Itmeans that not only are the HR policiesthemselves important but that the waythey are put into operation alsocontributes to the ‘HR advantage’.There was evidence that employees whowork in a high-performing organisationare more likely to engage in positivediscretionary behaviour and that thedirection of causation goes fromperformance to attitudes viadiscretionary behaviour (shown in theAMO model by the feedback loop). A keyconclusion therefore is the need to keepthe sense of success going and that the‘halo’ effect of positive feedback canhelp sustain performance during toughertimes.To summarise, the important issuesraised by the CIPD’s People andPerformance research are:• Managing performance throughpeople means finding ways toencourage employees to work moreeffectively by triggering discretionarybehaviour that can make thedifference in a job being done well.This happens when people areappropriately trained, find their jobsatisfying, feel motivated and havethe opportunity through involvementand consultation to contribute,thereby making them committed totheir employer.• Important HR policies and practicesthat were apparent from the researchare those that create opportunitiesfor:- career advancement;- doing a challenging job;- having some influence on how thejob is done;- training;- having a say in decisions that affectthe job;- working in teams;- working for a firm that assists peopleto balance life at work and home;17

Maximising employee potential and business performance: the role of High Performance Working- being able to raise matters ofconcern;- having a boss who shows respect; and- having managers that are good atleadership.• The most successful organisationswith higher than average levels oforganisational commitment werethose with a clear vision and a set ofintegrated values – a ‘Big Idea’.• HR policies and practices must ‘fit’with and be appropriate for thebusiness strategy, while at the sametime being flexible enough to help anorganisation adapt to changingcircumstances. Enduring valuesplayed an important part in achievingthis.• In some cases, lower levels ofcommitment were explained more bydissatisfaction with the way policiesand practices were implemented andput into action, rather than the lack ofa particular policy.• Implementing and enacting policies isthe task of line managers and theirrole is therefore critical.• There is clear evidence of a linkbetween positive attitudes towardsHR policies and practices, levels ofsatisfaction, motivation andcommitment, views of theeffectiveness of management andoperational performance.• Successful firms are able to meetpeople’s needs both for a good joband to work in ‘a great place’. Theycreate good work and a conduciveworking environment and become ‘anemployer of choice’.The CIPD research concludes that“Organisations seeking to optimise thecontribution that people managementcan make must develop policies andpractices that meet the needs ofindividuals and create ‘a great place towork’. However, this does not mean justcopying best practice. Organisationsmust create and transmit values andculture which are unique to themselves,which bind the organisation together,and which can be measured andmanaged. HR management must not bea stand alone function but be fullyintegrated into the managementprocess”. The conclusions for HR policiesthat contribute to high performancefocus are five-fold:• Careers and training remain vitallyimportant in influencing employeeattitudes and helping to createpositive discretionary behaviour.• Job design is very influential. Wherepeople have some influence over howthey do their job, and where they findtheir job demanding and challenging,they are much more likely to have jobsatisfaction, be motivated and morecommitted to the organisation.• Designing and managing involvementand communication systems are amajor part of successful HR policy andpractice.• Appraisal is valued, and broadeningcoverage and the scope for discussionhave positive outcomes.• Work-life balance can be instrumentalin making employee attitudes morepositive.5. Why has take-up beenlimited?Most of the evidence suggests that thereis room for improvement in the take-upof HPW in the UK. Professor MichaelPorter concluded in his review of UKcompetitiveness that “UK companiesadopt modern managementtechniques…….later and less often thantheir competitors”. EEF’s own surveyevidence in Catching up with Uncle Samlooked at the use of workplace initiativeswhich encapsulates some forms of HPW.The results showed that while UKmanufacturers are embracing someaspects of HPW, over half of firms saythey have done so moderately, minimallyor not at all. The majority of firms usebasic practices such as outputmonitoring and individual performanceappraisal. Take-up of some of the moreimaginative initiatives such as employeeinvolvement, team/individual incentivesand profit-based pay was significantlylower.18

Maximising employee potential and business performance: the role of High Performance WorkingIn addition, EEF results show a differencein take-up and performance betweenforeign and domestically-ownedcompanies in the UK. US-owned firms inthe UK are making greater use of allforms of workplace initiatives than theirUK-owned counterparts and at the sametime are enjoying higher productivityand increased profitability.There is further evidence suggesting thatthe take up of HPW is limited. A CIPDstudy by Guest et al (2000) uses the1998 Workplace Employment RelationsSurvey (WERS) to examine the UK’sexisting HR practices across both thepublic and private sectors. The studydoes so by looking at the eighteenprogressive practices outlined in table 1which range across such areas asrecruitment, training, appraisal, jobdesign, quality and communication. Theresults show that the take-up of suchpractices is low and that while somefirms have a human resources strategyand manage their people well, there is along tail of poor performers that doneither. Only 1% of companies usethree quarters or more of the practicesextensively, while 25% have fewer thana quarter of the practices in place. Theresults show a clear link between the useof more human resource practices andgreater employee involvement, positiveemployee satisfaction and commitment,higher productivity and better financialperformance.Thus, despite the wealth of evidence,these studies indicate a surprisingly lowtake-up of HPW practices. This suggeststhat there is considerable scope tofurther improve levels of profitability andproductivity in the UK.Chart 3Uptake of reward schemes% of firms stating they currently operatethe following…%45 Manufacturing Economy wide4035302520151050AwardsLong-term Incentive PlansRecruitment/Introduction bonusTeam bonusesCash recognition schemesGolden hellosConsolidated bonusesLength of service bonusEmployee share schemeSales commissionProfit-sharingNon-consolidated bonusesOther recognition schemesGolden handshakesGainsharingPieceworkSource: CIPDUse of associated reward schemesalso limitedNew mechanisms of rewarding staff canbe a component of HPW, although theyare by no means sufficient and on theirown can fail to deliver significant results.The annual CIPD Reward ManagementSurvey provides information on theuptake of various reward schemes. Theresults are broken down by sector andchart 3 shows that of the various rewardmechanisms listed none were used bymore than 40% of firms. Althoughemployee share schemes and profitsharing were used by roughly a third offirms, team bonuses were only used by afifth of manufacturers.The Survey also asks firms how effectivethey feel their reward package is on awhole host of criteria. Manufacturersfind their current reward schemes aremost effective at recruitment, retentionand rewarding staff fairly – a reflectionof firms’ priorities of retention andreward. Manufacturing firms see theircurrent reward systems as less suited tomotivating employees, improvingcompany performance, improving links toemployee performance and improvingproductivity. These aspects have a muchhigher priority in HPW and suggests thatmanufacturing still has some way to gobefore HPW is considered widespreadand effective. Current reward schemes inmanufacturing seem to reflect moretraditional priorities of retention andfairness, with considerable use of servicerelatedrewards still evident.Factors behind the limited take-upIf there are clear benefits fromintroducing HPW, it begs the question asto why more firms are not doing so. Avariety of different reasons can be putforward to explain the lack of take up.19

Maximising employee potential and business performance: the role of High Performance WorkingOther strategies are open to a firmwishing to enhance its profits in theshort-term – increased outsourcing, useof new technology to reduce staffinglevels, improved recruitment and trainingand mergers and acquisitions. Some ofthese options may be viewed as cheaperand better able to deliver results in theshort-term.System inertia has also been describedas a constraint on the spread of HPW.This refers to where well establishedorganisations experience a resistance tochange as organisational practice andculture become embedded. HPW can beeasier to introduce where a company issetting up a new establishment and hasa clean sheet because there is no priororganisation or tradition. Three reasonsare put forward for this inertia: firms getlocked into their initial choice ofpractices; firms experiment with changebut when it does not pay off abandon it;and the switch to HPW may also meanadopting new production anddistribution technologies that requireadditional costs.Mistrust between management andemployees can also make it difficult tointroduce HPW, for example, followingpast job cuts or where there have beenpoor industrial relations. Downsizing onits own does not necessarily preventHPW, particularly if management haveput in place measures to develop trust.Trade Unions are not seen as aconstraint on the introduction of HPWand can facilitate it where they areclosely involved in training policy andemployee involvement. There is alsoevidence at the European level thatWorks Councils and Unionrepresentatives can contribute tosuccessful change, although clearly this isnot the only way to bring about change.Chart 4What are the barriers to the introduction ofworkplace initiatives?% of respondents citing as a barrier...%50454035302520Attitudes to changeInsufficient timeLack of understandingCultural issuesWorkforce skillsCost of investmentSenior management skillsSupervisor skillsManagement attitude151050Source: EEF/NOP Surveyin Catching up with Uncle SamThere are costs to the introduction ofthese practices, not least in terms of timeand effort of the people involved. Therecould be additional costs from therequired increase in coordination and theacquisition of new skills. The design ofhigh-quality team based reward andrecognition systems is also difficult andcan be hard to implement. Teams alsoneed time to be able to absorb andinterpret new information and learn howto solve problems. There is also evidencethat HPW practices cannot beimplemented overnight, but that it takesconsiderable time and effort to get themproperly understood, operated andeffective.Attitudes to change are an importantconstraint according to EEF’s surveyevidence from Catching up with UncleSam. Chart 4 shows that the mostimportant constraint cited by firms onthe uptake of workplace initiatives is“attitudes to change”. This representsboth employee and employer attitudesand could reflect different issues indifferent firms, ranging from employeescepticism due to outcomes from pastchange, to employers’ lack ofunderstanding of the issues. Whateverthe cause of this inertia within firms theend product is the same – either a failureto implement HPW at all or with therequired intensity.20

Maximising employee potential and business performance: the role of High Performance WorkingBibliographyAppelbaum, Bailey, Berg and Kalleberg(2000): Manufacturing advantage – whyhigh performance work systems pay off,Cornell University Press.Ashton and Sung (2002), Supportingworkplace learning for high performanceworking, ILO.Black and Lynch, (Aug 1997), How tocompete: the impact of workplacepractices and IT on productivity, NBERWorking Paper 6120.Black and Lynch (Jan 2000), What’sdriving the new economy: the benefits ofworkplace innovation, NBER WorkingPaper 7479.CIPD 2002, Developing Managers forBusiness Performance, CIPD.CIPD 2002, Reward Management Survey,January 2002.EEF, Catching up with Uncle Sam: Thefinal report on US/UK manufacturingproductivity, EEF August 2001.Guest, Michie, Sheehan and Conway:Employee relations, HRM and businessperformance: an analysis of the 1998Workplace Employee Relations Survey,IPD 2000.Patterson, West, Lawthorn and Nickell:The impact of people managementpractices on business performance, CIPD1997.Pfeffer, Jeffrey (2001): Business and theSpirit: Management Practices thatSustain Values, Graduate School ofBusiness, Stanford University.Porter and Ketels (2003): UKcompetitiveness: moving to the nextstage, DTI Economics paper no.3.Purcell, Kinnie and Hutchison (2002):Bringing policies to life: discretionarybehaviour and the impact on businessperformance, WERC University of Bath.Purcell, Kinnie, Hutchinson, Rayton andSwart (2003): Understanding the peopleand performance link: Unlocking theblack box, CIPD.Stern and Sommerlad: Workplacelearning, culture and performance; CIPD1999.Stevens and Ashton: Underperformanceappraisal, People Management 15 July1999.Thompson/SBAC: High PerformanceWork Organisation in UK Aerospace, TheSBAC Human Capital Audit 2002.Hueslid, Mark A, (1995): The impact ofhuman resource management practiceson turnover, productivity and corporatefinancial performance; Academy ofManagement Journal.23

Maximising employee potential and business performance: the role of High Performance WorkingEEF Regional and affiliated AssociationsEast Anglia32 High StreetHadleighIpswich IP7 5APTel: 01473 827 894Fax: 01473 824 218East MidlandsBarleythorpeOakhamRutland LE15 7EDTel: 01572 723 711Fax: 01572 757 657ECIABroadway HouseTothill StreetLondon SW1H 9NSTel: 020 7799 2000Fax: 020 7233 1930Mid-Anglian54 High StreetSandyBedfordshire SG19 1AJTel: 01767 681 722Fax: 01767 691 773NorthernDerwent HouseTown Centre: District 1WashingtonTyne & Wear NE38 7SRTel: 0191 416 5656Fax: 0191 417 9392Northern Ireland2 Greenwood AvenueBelfast BT4 3JLTel: 02890 595050Fax: 02890 595059North WestMount PleasantGlazebrook LaneGlazebrookWarrington WA3 5BNTel: 0161 777 2500Fax: 0161 777 2522Scottish Engineering105 West George StreetGlasgow G2 1QLTel: 0141 221 3181Fax: 0141 204 1202SheffieldBroomgrove59 Clarkehouse RoadSheffield S10 2LETel: 0114 268 0671Fax: 0114 266 4227SouthStation RoadHookHampshire RG27 9TLTel: 01256 763 969Fax: 01256 768 530WesternEngineers’ HouseThe PromenadeClifton DownBristol BS8 3NBTel: 0117 973 1471Fax: 0117 974 4288West MidlandsSt James’s HouseFrederick RoadEdgbastonBirmingham B15 1JJTel: 0121 456 2222Fax: 0121 454 6745Yorkshire & HumbersideFieldheadThornerLeeds LS14 3DNTel: 0113 289 2671Fax: 0113 289 3170SEMTA*(Sector Skills Council for Science,Engineering, Manufacturing andTechnology)14 Upton RoadWatford, Herts WD1 7EPTel: 01923 238 441Fax: 01923 256 086*EEF strategic partner

About EEFEEF, the manufacturers’ organisation, has a membership of 6,000 manufacturing,engineering and technology-based businesses. Comprising 12 regionalAssociations, the Engineering Construction Industries Association (ECIA) and UKSteel, EEF is one of the UK’s leading providers of business services in health,safety and environment, employment relations and employment law, world classperformance, education, training and skills.Contact usEEFBroadway HouseTothill StreetLondon SW1H 9NQTel: 020 7222 7777Fax: 020 7222 2782www.eef.org.ukAbout CIPDThe Chartered Institute of Personnel and Development (CIPD) is the professionalbody for those involved in the management and development of people. Aqualification from us is the passport to a career in people management anddevelopment and is highly valued by employers. Membership demonstrates acommitment to high standards of professionalism and to continuing professionaldevelopment. It also offers many benefits to both students and practitioners.Contact usCIPDHouse Camp RoadLondon SW19 4UXTel: 020 8971 9000Fax: 020 8263 3333Email: cipd@cipd.co.ukwww.cipd.co.ukNOVEMBER 2003ISBN: 1 903461 29 4