Human Resource Issues in High Performing Organizations

High-performing organizations are companies that consistently outperform their competitors. Although high levels of performance are due to a number of factors, human-resource policies and procedures are a significant contributor to ongoing success in these organizations. One of the foundations of human-resource management success in high-performing organizations is the objective understanding and definition of the nature of the jobs within the company, based on empirical evidence, and the establishment of hiring, performance appraisal, and other functions on that basis. In addition, high-performing organizations support and empower their workers through continued training to help them acquire even more job-related skills, involvement in organizational decision making, and financial rewards for contributing to the success of the organization.

Keywords Empirical; Feedback; Job Description; Motivation; Pay for Performance; Performance Appraisal

Management > Human Resource Issues in High Performing Organizations

Overview

In recent years, significant attention has been given to high-performing organizations — those companies that consistently outperform their competitors — in an attempt to determine what factors contribute to their success. In organizations that produce goods, it is tempting to point to the efficiency of the production line or automation as a factor in performance. However, the outputs of many companies today are not quite so tangible. Even in traditional production facilities, there are many more factors to performance efficiency than having the newest or best equipment. Organizations are made up of people, and human resources are the most important resource in any organization. Therefore, one of the areas that need to be analyzed in determining the factors that contribute to success in high-performance organizations is human-resource management.

Although the fundamental functions of human-resource management — recruitment and placement, training and development, compensation, and employee relations — are the same in every organization, research has found that there are significant differences between human-resource functionality in low-performing organizations and that in high-performing organizations. In high-performing organizations, human-resource departments tend to operate at a higher level: generating more candidates for job openings and screening them more effectively, offering more and better training opportunities for employees, linking pay and other incentives directly with employee performance, and providing a safer working environment for employees at all levels within the organization. Not only do the processes and outcomes of human-resource activities differ in high-performing organizations, so do their goals. In general, in high-performing organizations, human-resource activities are at the heart of the organization's functioning rather than on the periphery, with the goal of maximizing the potential, utilization, and commitment of all employees at all levels in the organization.

As modern organizations were beginning to take shape after the Industrial Revolution, there was a great distinction between the various types of workers in an organization. Business owners and managers were viewed as the driving force behind the organization, with production workers, clerks, secretaries, and others often viewed as easily replaceable entities. To run an organization under this philosophy, the command-and-control model was adopted from the military. However, in the 21st century, this paradigm has changed. In the Information Age, it is recognized that virtually all employees within organizations are highly skilled and can contribute to the effectiveness and performance of the organization. In current thinking among human-resource managers, employees are not easily replaceable entities but rather human capital. This view regarding an organization's employees takes into account an employee's potential within the scope of his or her current tasks, as well as the employee's overall expertise, including his or her knowledge, skills, abilities, training, and education. Employees are no longer viewed merely as bodies needed to fill positions; they are a type of corporate wealth that can be used to further the objectives of the organization in much the same way as financial capital is used. Therefore, employees need to be nurtured and helped to realize their potential. In addition, their contributions need to be recognized and rewarded and their inputs considered in order to help the organization perform at a consistently high level.

Under this philosophy, human-resource departments need to set up policies and procedures that promote a high-performance work system. This means that just as performance and success in the rest of the organization needs to be objectively measurable and evaluated against objective standards, so too must the performance of the activities within the human-resource department itself. Dessler (2005) describes the results of research published in 2001 that compared the human-resource practices in high-performing versus low-performing organizations. A significant difference found between the two types of organizations was the emphasis placed on various functions that encourage high performance. For example, when hiring new employees, high-performing companies were more likely to promote from within (61.46%) than were their low-performing counterparts (34.90%). This difference is due in part to the fact that high-performing organizations tend to groom their employees for advancement. High-performing companies also tend to be systematic about their approach to hiring new employees. Significantly more high-performing organizations based hiring decisions in part on validated selection tests (29.67%) than did low-performing companies (4.26%). High-performing companies were more likely to attract applicants to the job, whether because of their reputation or their recruiting efforts: 36.55 applicants on average in high-performing companies versus 8.24 applicants on average in low-performing companies. On a practical level, what this means is that high-performing companies have a greater applicant pool from which to fill their open jobs and, as a result, are typically more likely to find the best available person for the job (Dessler, 2005).

The impact of human-resource policies on organizational effectiveness and performance does not stop with hiring practices, however. Even when one has hired from within and the person in the new job is familiar with the general practices and culture of the organization, he or she will still need to learn how to perform the tasks required on the new job. Therefore, one of the functions of the human-resource department is to provide training for employees. According to Dessler (2005), high-performing companies gave new employees an average of 116.87 hours of training their first year, while low-performing organizations gave new employees an average of 35.02 hours of training within their first year. Experienced employees were given an average of 72.0 hours of training in high-performing companies but only 13.4 hours of training in low-performing companies. Although training costs can have a significant impact on an organization's budget, it is very important to train employees. Initial training is necessary to teach new employees how to successfully do their new jobs. However, additional training throughout the employee's tenure is also important. Continued training enables employees to acquire the additional skills that will help them grow and make them better able to contribute to the performance of the organization.

Human-resource practices and procedures are important in other aspects of the organization's functioning. In high-performing companies, for example, 95.17% of the employees received a regular performance evaluation, as opposed to only 41.31 percent in low-performing companies. In addition, in the high-performing companies, 51.67% of the employees received performance feedback from multiple sources, compared to only 3.9% in low-performing companies (Dessler, 2005). Such feedback gives employees a better overall picture of how they are doing on the job. This means that employees in high-performing companies have more information about the quality of their performance so that they know how and when to improve.

Encouraging high performance within organizations is not just a matter of prodding the employees to use their knowledge, skills, and abilities in furtherance of the organization's goals. The high-performing organization also recognizes that employees will be motivated to greater performance if they are rewarded for their efforts with something of value. For example, in the high-performing companies, pay increases and incentive pay were tied to performance for 87.27% of the employees; in contrast, only 23.36% of such remuneration was tied to performance in low-performing companies. This means that the employees in the high-performing companies not only know how they are doing against organizational standards and how they can improve; they are also given tangible monetary incentives to motivate them to improve their performance and, by extension, the performance of the organization. This is demonstrated by the fact that 83.56% of employees in high-performing organizations were eligible for incentive pay, while only 27.83% of employees in low-performing organizations were eligible (Dessler, 2005). In addition to monetary incentives, high-performing organizations typically try to offer employees other incentives that will meet their individual needs, such as prestige, opportunities to socialize, or job security.

Such differences play themselves out in the performance of the organization. According to Dessler (2005), high-performing organizations had lower turnover (20.87%) than low-performing organizations (34.09%). Reducing turnover helps not only because of the continuity of having high-skilled workers who know the job but also because it reduces the costs associated with hiring and training replacement workers.

The US General Accounting Office (GAO) has been very involved in analyzing high-performing organizations in an attempt to determine what practices differentiate them from other companies. The GAO has found that leadership at the highest levels in high-performing organizations is committed to doing whatever is necessary for success. This includes envisioning what changes are necessary, implementing those changes, and communicating openly with employees. Another discovery was that high-performing organizations tend to work effectively with labor unions to resolve issues quickly. They also make sure that their employees receive the training that they need to better contribute to the organization's goals. In addition, high-performing organizations encourage the use and development of teams as a way to advance the goals of the organization. In high-performing organizations, employees are encouraged to get involved, particularly in planning and sharing performance information and helping design strategic plans.

Applications

In the early twentieth century, many organizations were looking for ways to improve organizational performance by taking away work from human beings and automating it. In some ways, we still do this, using computers instead of manual typewriters and PDAs instead of calendars, for example. However, because of the intellectual nature of work in many modern organizations, we also recognize that human capital is an invaluable asset that needs to be nurtured and utilized. To this end, high-performing organizations recognize that the organization's performance is dependent on the employees' performance, and they develop and implement policies and practices that will support high performance. At its most basic, this involves finding employees who have the potential to excel, setting objective performance standards that give them the criteria to know what kind of performance the organization is seeking, and linking performance to rewards in order to encourage high performance.

Defining & Assessing Success

The desire to become a high-performing organization is easy to understand. However, without an objective definition of what this means, it will be difficult, if not impossible, to reach this goal. On the organizational level, achieving high performance means that the organization must perform strategic planning and set clear goals and objectives. The organization also needs to define in objective terms what high performance looks like in order to encourage employees to become high-performing workers in furtherance of these goals.

The definition of what high performance entails is aided by the development of a solid job description based on an objective, thorough job analysis. A well-written job description delineates not only the tasks and responsibilities of a job but also the knowledge, skills, and abilities necessary to do these things. In addition, a good job description sets standards for satisfactory and unsatisfactory behavior on the job. Good job descriptions are competency based, describing the job in terms of measurable, observable, behavioral competencies that the employee must demonstrate in order to perform well. The development of an objective, empirically based job description helps the organization better determine what knowledge, skills, and abilities are needed for employees in each job. Good job descriptions and their concomitant performance standards also help employees know what kind of behavior will be rewarded (or not rewarded) by the organization.

It is not sufficient, however, to merely set standards for job performance. It is also necessary to give the employee feedback on how well he or she is meeting the set standards in order to encourage high performance. The traditional way to do this is through performance appraisal. This is the process of objectively assessing the employee's current performance or performance over the past appraisal period and determining how well it meets predetermined standards. Performance appraisals may describe the performance strengths and weaknesses both of the individual worker and between two or more workers. They may be based on objective data (e.g., average number of widgets produced per day; number of sales made per quarter), personnel data (e.g., number of days late to work), judgmental data (e.g., rating scales), or some combination of the three. Judgmental data in particular can be very subjective and victim to a host of rating errors or bias on the part of the person doing the rating. Therefore, in high-performing organizations, human-resource policies or procedures are developed and implemented to help increase the objectiveness of the appraisal feedback or give the employee feedback from multiple sources.

It is important to give feedback on an employee's performance by measuring it against a predetermined standard or set of specific goals to be achieved for the appraisal period. One way to do this is through a method called management by objectives (MBO). In MBO, the manager, often in concert with the employee, sets objectives for the employee to meet during the coming appraisal period. At the next performance appraisal, the employee is evaluated in terms of how well he or she has met these goals. Although this can be done on an informal level, MBO is frequently instituted across the organization. MBO instituted at this level starts first with the organization setting enterprise-wide goals and objectives based on its strategic plan (e.g., increase company profits from a particular product line by $500,000 over the next year). Using this information, each department then sets its own goals and objectives for how they will support and help reach the organization's goals (e.g., increase sales of the product in the eastern region by 10% over the next year). Departmental goals are then discussed with the employees in each department to help them understand what the organization is trying to achieve and to encourage them to think about how they as individuals can contribute to those goals. Individual employees and their supervisors then discuss the goals and possible contributions that can be made by the individual and set specific, short-term goals (e.g., obtain 10 more customers per quarter; call on 5 more potential customers per week; include two more cities in the region). The performance or progress toward these goals is periodically assessed at predetermined times, and the employee is given feedback on his or her progress.

Although MBO can be a step in the right direction in the attempt to link individual performance with organizational performance goals, it is not without its drawbacks. The most frequently encountered problem with MBO is the setting of unclear or unmeasurable objectives. For example, the objective to "come up with a better widget design in the next quarter" may be valid in principle (if the current design is unsatisfactory), but it is difficult to objectively define (how, exactly, does one define "better"?) and challenging to measure. In addition, it is not a reasonable goal: it is futile to put a time limit on creativity. Further, the process of managing by objectives is time consuming and requires involvement at all levels of the organization to make it work. Although one can define objectives for the individual, if these are not tied in to organizational-level objectives, they probably will not meaningfully or intentionally improve the performance of the organization. Also, it can be difficult to achieve agreement between management and employees on what is a reasonable objective. Supervisors have a tendency to set the bar too high when writing objectives, while many employees tend to set the bar too low so that they can be sure to meet their objectives, particularly if their pay raises are tied to performance. For example, although a manager may want to give a programmer the objective of writing 50 pages of code a week, the programmer may know that this is both unreasonable and impossible. To increase the effectiveness of performance-appraisal goals and feedback, it is important that the employee's goals be reasonable, objective, measurable, and based on the performance goals of the organization.

Even when reasonable, objective, measurable goals are set, receiving feedback from one source is often not sufficient to encourage the type of high performance that many organizations are looking for in their employees. A technique called 360-degree feedback can help improve the feedback the employee receives by increasing the amount of feedback and the sources from which it comes. This technique is called 360-degree feedback because the feedback comes from people who work all around the employee, not just from one person working above him or her. Employees receive feedback on their job performance from representatives of the major groups with whom they interact on the job, both inside and outside the organization. For example, employees may receive feedback not only from their supervisors, as in the traditional performance-appraisal paradigm, but also from their subordinates, coworkers, customers, and other groups with whom they interact. This technique gives the employee more feedback than he or she would receive from one person alone. It also gives the employee better feedback by involving those who work directly with him or her. In addition, this approach to feedback can help neutralize a biased opinion from one person by giving the employee and the supervisor a range of reactions to look at, allowing them to examine the preponderance of evidence rather than one person's reactions. The increased level of feedback received from techniques such as 360-degree feedback gives the employee a better idea of how he or she can improve performance.

Linking Performance to Rewards

Although it is important to specify what kind of behavior is expected in the organization and to encourage employees to meet or exceed these standards by providing feedback, in most cases employees need more from the organization than to know that they are helping it succeed. Even in a non-profit or volunteer organization, workers need to get something out of the situation, whether it is a monetary reward or a feeling of accomplishment or personal growth. To motivate employees to perform at a consistently high level, the organization must give them what they want or need. The process of determining what these things are and giving them to the employee in return for excellent performance is called motivation. One of the things that high-performing organizations do to motivate employees to contribute to the company's high performance is to link the desired performance to rewards.

Many theories have been advanced about motivation. Some theorists have tried to reduce motivation to an equation that connects the probability of increased performance with such things as the employee's perceived expectancy of obtaining a reward for doing so. Other theorists have stated that different people are motivated by different things, from having one's physical needs met (e.g., food on the table and a roof over one's head) to earning the esteem of others or some other internal incentive.

No matter the theory, most motivation theorists recognize that people working in organizations both need and expect remuneration. Sometimes this is required to meet basic physical needs or to have the security of knowing that those needs will continue to be met for the foreseeable future. In other cases, pay incentives in the form of bonuses, raises, or promotions fill a need for recognition from others. No matter what motivators an employee has — and high-performing organizations typically seek to meet those needs within the constraints of the organization — pay is always a consideration.

One of the approaches to motivating desired behavior in high-performing organizations is an approach frequently referred to as pay for performance. In this approach, the employee is rewarded financially for high performance and their contribution to the organization's goals. This is true not only for workers at the bottom of the organizational structure, such as production workers, but for all employees, all the way up to the chief executive officer.

The GAO has researched pay-for-performance systems and has found a number of factors that make them successful. First, such systems must use objective competencies to assess the quality of the employee's performance. As stated earlier, these should be based on empirical research and directly related to the goals of the organization. Second, employee performance ratings should be translated into pay increases or awards so that employees can see a direct, positive consequence of their actions. Third, when making decisions about compensation, both the employee's current salary and his or her contribution to the organization should be considered so that rewards for similar contributions are equitable. Finally, to be successful and to prevent possible abuse, pay-for-performance systems should be clear and well publicized so that employees know the basis on which decisions are made and what kinds of awards are given across the organization.

There are many ways that human-resource functions can aid the organization's goal for high performance. These include recognizing that employees are valuable assets to the organization (i.e., human capital) and increasing the objectiveness of standards, feedback, and the grounds on which rewards are given. By encouraging high performance in individual employees, the organization as a whole can become high performing, too.

Terms & Concepts

Empirical: A type of theory or evidence that is derived from or based on observation or experiment.

Feedback: Information a person receives about his or her behavior or its consequences.

Human Capital: The expertise of the organization's employees, including knowledge, skills, abilities, training, and education.

Human-Resource Management: The policies and procedures related to managing human beings employed in an organization. Human-resource management includes recruitment and placement, training and development, compensation, and employee relations.

Job Analysis: The systematic, empirical process of determining the exact nature of a job, including the tasks and duties to be done; the knowledge, skills, and abilities necessary to adequately perform said tasks and duties; and the criteria that distinguish between acceptable and unacceptable performance. The results of a job analysis are typically used to write job descriptions and set standards for use in performance appraisals.

Job Description: A document that lists the duties and tasks related to a job. Job descriptions may also specify the knowledge, skills, and abilities necessary to do the job as well as the performance standards that differentiate acceptable from unacceptable performance.

Management by Objectives (MBO): An approach to performance appraisal in which the employee and his or her manager jointly set performance objectives for the coming appraisal period and then review the progress made toward accomplishing these objectives at predefined times. The employee's performance is evaluated in terms of how well he or she met the objectives previously determined.

Motivation: The needs and thought processes that determine a person's behavior. Motivating factors do not necessarily remain constant and may change with the individual's current circumstances.

Performance Appraisal: The process of evaluating an employee's work performance and providing feedback on how well he or she is doing, typically against some predetermined standard of performance.

Strategic Plan: An plan developed by an organization to use its various resources, including materials and personnel, in order to reach predetermined long-term goals.

360-Degree Feedback: An approach to giving employees feedback on their job performance in which representatives of the major groups working with a person provide feedback on his or her performance. In 360-degree feedback, employees receive feedback not only from their supervisors, as in the traditional performance-appraisal paradigm, but also from their subordinates, coworkers, customers, and other groups with whom they work.

Turnover: The number of new employees that an organization must hire in order to replace those who have left the company in a given period of time.

Bibliography

Dessler, G. (2005). Human resource management (10th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.

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US General Accounting Office. (2001). Human capital: Practices that empowered and involved employees. (GAO-01-1070). Retrieved 27 March 2007 from EBSCO Online Database Business Source Complete http://web.ebscohost.com/ehost/pdf?vid=6&hid=122&sid=6c11f73f-cb64-441f-8ccf-a2a8b38d1861%40sessionmgr104.

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Suggested Reading

Chang, Y. K., Oh, W., & Messersmith, J. G. (2013). Translating corporate social performance into financial performance: Exploring the moderating role of high-performance work practices. International Journal of Human Resource Management, 24, 3738–3756. Retrieved November 21, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90399478&site=ehost-live

Thor, C. G. (1994). The measures of success: Creating a high performing organization. New York: John Wiley & Sons.

US General Accounting Office. (2003). Results-oriented cultures: Creating a clear linkage between individual performance and organizational success (GAO-03-488). Washington, DC: US Government Printing Office. Retrieved 27 March 2007 from EBSCO Online Database Business Source Complete http://web.ebscohost.com/ehost/pdf?vid=4&hid=102&sid=cfb3dec4-539c-4fe1-97cd-ac6c01b1a75d%40sessionmgr104.

Urwin, P., Michielsens, E., Murphy, R., & Waters, J. (2006, 14 Sep). Think outside the black box: How employee relations links to performance. People Management, 12 , 52. Retrieved 27 March 2007 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=22536136&site=bsi-live

Walker, D. M. (2004). Comptroller general's forum: High-performing organizations: Metrics, means, and mechanisms for achieving high performance in the 21st century public management environment (GAO-04-3434SP). Retrieved 27 March 2007 from EBSCO Online Database Business Source Complete http://web.ebscohost.com/ehost/pdf?vid=5&hid=2&sid=cfb3dec4-539c-4fe1-97cd-ac6c01b1a75d%40sessionmgr104.