According to the dictionary, an organisation is an organised group of people with a particular purpose. To achieve this purpose, tasks are divided between the members of the group, and the task of some of those people is to manage the others. Interestingly, whereas most tasks are allocated based on competence and qualifications, the allocation of the task of managing people is often based on a different rationale. Many managers are appointed to their role because they excelled at the tasks that are carried out by the people they are supposed to manage. Many business owners take on the management of their staff, regardless of whether this is where their strengths lie. But people management is not easy and requires skills that, contrary to what is often assumed, are not just learned by doing. This is underlined by the finding from the European Company Survey (ECS) 2019 that only around one in five managers is successful in unlocking the potential of their employees. So what is it that these managers do differently?
The main thing that sets them apart is how they handle the ‘agency dilemma’. This occurs when the interests of the employer and the employee are not aligned, and when the employer does not know exactly what the employee is doing. It’s the typical employment situation, where the agent – the employee – can choose either to act in the interest of the principal – the employer – or to act in their own interest. Managers can address the agency dilemma in two ways: they can reduce the information asymmetry through close monitoring and controlling, or they can better align the interests of management and employees by offering incentives to the employees.
‘Well, monitoring ensures the job gets done …’
Managers in the most successful businesses all emphasise the latter, aiming to facilitate employees to work independently, offering monetary and non-monetary incentives, and involving them in decision-making. They recognise that a management approach focused on closing the information gap might allow managers to ensure that workers do their job but is unlikely to motivate them to make full use of their skills and go beyond their job description. As having a certain degree of autonomy is a motivational factor in its own right, limiting autonomy by monitoring and control can actually be counterproductive. Moreover, the extensive monitoring and control of employee behaviour signals a lack of trust of management in employees, which in turn undermines the trust of employees in management. Consequently, incentive-based approaches are much more fruitful, particularly if they go beyond monetary inducements and embed incentivisation in the way jobs are designed and work is organised.
‘Yes, but it could affect our bottom line …’
The ECS 2019 shows that in those businesses that appear to get things right, jobs are designed such that they challenge employees while at the same time giving them the autonomy to independently overcome these challenges, providing opportunities for learning and fulfilment. These businesses embrace skills development, offering comprehensive training and learning opportunities to their staff. Furthermore, they enable employee voice, by involving employees in management decision-making directly and by engaging in workplace social dialogue with worker representatives, creating a sense of ownership and belonging.
These organisations score above average on both workplace well-being and business performance. They are more agile, as evidenced by a relatively high level of digitalisation, and are more innovative. This suggests that employees reward the trust that their manager puts in them by going the extra distance and proactively applying their skills and knowledge in the interest of the business.
‘It wouldn’t work in our business …’
Businesses with such a people-centred approach are found pretty much everywhere. While the survey found that they are more common in the Nordic countries, in financial services and among businesses that compete on quality, they can be found in all European countries, in all sectors of activity and even among businesses that primarily compete on price.
The survey findings show a clear business case for a people-centred approach to management and also indicate that this approach can yield benefits across different business settings. So why don’t more managers take such a people-centred approach? This brings us back to the point made at the outset: the importance of managerial skills is underestimated. The success of those businesses that empower their employees does not appear to suffice to increase the appreciation of people-management skills among the businesses community as a whole. There is ample reason to believe this is because businesses have incomplete information, so they need to be made aware of the potential of people-centred approaches and ensure that managers have the skills and knowledge to implement them.
‘It's a company problem …’
Policymakers have a role in increasing this awareness, particularly those tasked with developing the skills of the workforce for the future. At least some of the policy focus on addressing skills gaps should be on managerial skills, as a considerable part of the gap is not due to the absence of skills but to their underutilisation, which in turn largely depends on the managerial approach. Another course of action would be to emphasise or even require businesses to address issues of job design and training and learning to be eligible for government contracts or government funding – the COVID recovery funds offering an immediate opportunity.
The social partners could also help in filling information gaps and facilitating exchange and learning across companies. Moreover, well-functioning social dialogue can help strengthen the trusting relationship between management and employees that is required for a people-centred approach to have full effect.
A people-centred approach to employee management is ultimately in all our interests. Not only does it make business success more sustainable, it has reverberations into wider society: better job quality means more engaged employees, who are likely to be more engaged citizens. Some businesses are reaping the rewards, the challenge is to get the rest on board.
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