High-performance work systems – comprising strategic human resource management, workplace partnership, and equality and diversity systems – are associated with better working conditions, according to a new Irish study published in 2008. Employee turnover was found to be 7.7% lower as a result of such strategies. Moreover, the research identified that this comprehensive form of work organisation can generate a 14.8% productivity rise and a 12.2% boost to innovation.
A new study of Ireland’s top companies has confirmed a strong link between better working conditions, bottom-line business performance and the use of high-performance work systems (HPWS) at the workplace. HPWS include strategic human resource management (HRM) in relation to staffing, training and development, performance management and remuneration, and communication and participation practices, as well as partnership, diversity and equality strategies, and flexible working arrangements.
The findings offer new insights into how the effective management of people in companies can drive competitiveness in tangible ways such as improved productivity, innovation and employee retention, as well as enhancing working conditions. The conclusion that HPWS can substantially boost working conditions, labour productivity and workplace innovation is contained in the report entitled New models of high-performance work systems, which was published on 22 January 2008.
About the study
The report was commissioned by the National Centre for Partnership and Performance (NCPP) and the Equality Authority, and compiled by a team of academics from Dublin City University (DCU), University of Limerick and University of Kansas, led by Professor Patrick Flood of DCU Business School, together with Professor Jim Guthrie, University of Kansas and Dr Victor Liu, University of Limerick.
Taking a representative sample of 132 companies drawn from ‘The Irish Times top 1,000 companies’ database – which is deemed to encompass a representative, multi-sectoral set of Irish-based businesses – the participants included both indigenous and foreign-owned companies with operations in Ireland. Initially, 1,005 companies were invited to participate in the survey, of which 241 enterprises responded. Data were utilised from the 132 companies that completed both a Chief Executive Officer (CEO)/General Manager and a human resources (HR) survey questionnaire, resulting in the overall response rate of 13.2%.
The economic activities of the participating companies reflect the general profile of medium-to-large enterprises in Ireland: approximately 50% operate in the services sector, 38% in manufacturing, 8% in construction, and the remaining 4.5% are in agriculture, forestry and fishing. Some 50% of the companies surveyed are indigenous Irish-owned businesses and 50% are subsidiaries of foreign companies. Trade unions represent 33.7% of participating companies’ employees. The average company has been established for 37 years and the median number of employees is 270 persons.
Research aims
The researchers were asked to measure the following:
- the average rate of labour productivity per person – defined as annual productivity per employee; revenue per employee was the measure of productivity used – and to quantify the proportion of which could be attributed to the use of so-called HPWS;
- workforce innovation rates – measured by a company’s ability to generate revenue efficiently through the introduction of new products and services, and operationalised using data on the number of employees, sales revenue and responses to the question: ‘What proportion of your organisation’s total sales (turnover) comes from products or services introduced within the previous 12 months?’;
- rates of employee turnover to determine the extent to which these were affected by the use of HPWS. The measure of employee turnover was taken from responses to the following question: ‘Please estimate your annual voluntary employee turnover rate (percentage who voluntarily departed your organisation)’.
Main findings
Labour productivity
This represented the total production output divided by labour inputs per employee. The use of HPWS accounted, on average, for 14.8% of labour productivity among the survey sample. In terms of total economic value, annual revenue per employee was found to be €299,992, of which €44,399 per employee a year was directly attributable to the use of HPWS. For the median-sized company in the survey – employing 270 workers – this equates to an additional €12 million in annual sales revenue.
Workforce innovation
The use of HPWS accounted, on average, for 12.2% of workforce innovation, equivalent to sales revenue of €2,061 per employee a year, or €556,200 in the median-sized company.
Employee turnover
The use of HPWS accounted, on average, for a 7.7% reduction in annual employee turnover.
Diversity and equality
The report includes a specific examination of the diversity and equality theme. It found that, in the sample of companies studied, diversity and equality strategies are positively associated with 6.5% of the increase in labour productivity, 7.9% of the rise in workplace innovation and 4.4% of the decline in employee turnover.
Combination strategy most effective
The research team examined the business impact of each of the four components of HPWS –strategic HR management (SHRM), workplace partnership (WP), diversity and equality systems (DES) and flexible working systems (FWS) – individually as well as collectively. It found that productivity and other gains were at their highest level when all four components were employed together in a cohesive and synergised manner (the ‘multi-dimensional model’), rather than the selective use of one or other of the components separately. The table below outlines this positive effect.
Effect of combining HPWS elements
| Labour productivity | Four elements together (SHRM, WP, DES, FWS) account for 14.8% variance in labour productivity. Total economic value equates to €44,399 per employee, or almost €12,000,000 in median company with 270 employees. |
| Workforce innovation | Four elements together account for 12.2% variance in workforce innovation. Total economic value equates to €2,061 per employee, or €556,200 in median company with 270 employees. |
| Employee turnover | Four elements together account for 7.7% variance in employee turnover. Total economic value equates to retention of up to two additional employees in median-sized company. |
Note: Survey sample of 132 companies drawn from the ‘Irish Times top 1,000 companies’ database, including indigenous and foreign-owned companies with operations in Ireland.
Source: Author’s summary, based on NCPP and Equality Authority, 2008
Commentary
The conclusions amount to a rallying call for companies that are yet to embrace fully the ‘business case for partnership’ agenda. This agenda seeks to implement complementary progressive HR policies to enhance labour productivity and workplace innovation, which are associated with improvements in the business bottom line.
However, many employers still view HPWS as too costly for their bottom line, tend to rely on a short-term ‘fire-fighting’ approach to employment relations, and implement HR policies on an ad hoc basis. HPWS often require significant investment and a strategic long-term approach to managing workplace change.
Tony Dobbins, IRN Publishing